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T 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


Digitized  by  the  Internet  Archive 

in  2008  with  funding  from 

Microsoft  Corporation 


http://www.archive.org/details/casesonlawofpartOOgilm 


CASES 


ON   THE 


LAW  OF  PARTNERSHIP 


INCLUDING  LIMITED  PARTNERSHIPS 


SELECTED  PROM  DECISIONS  OF 


ENGLISH  AND  AMERICAN  COURTS 


BY 

EUGENE   ALLEN   GILMORE 

PROFESSOR    OF    LAW,    UNIVERSITY    OF    WISCONSIN 


AMERICAN  CASEBOOK  SERIES 
JAMES  BROWN  SCOTT 

GENERAL   EDITOR 


ST.    PAUL 

WEST  PUBLISHING  COMPANY 
1908 


OOPTMQHT,    1908, 

BY 

WEST  PUBLISHING  COMPANY 

(Gil.  Past.) 


T 


THE  AMERICAN  CASEBOOK  SERIES 


The;  first  of  the  American  Casebook  Series,  Mikcll's  Cases  on  Crim- 
inal Law,  issued  in  December,  1908,  contained  in  its  preface  an  able 
argument  by  Mr.  James  Brown  Scott,  the  General  Editor  of  the  Se- 
ries, in  favor  of  the  case  method  of  law  teaching.  Until  1915  this 
preface  appeared  in  each  of  the  volumes  published  in  the  series. 
But  the  teachers  of  law  have  moved  onward,  and  the  argument 
that  was  necessary  in  1908  has  now  become  needless.  That  such 
is  the  case  becomes  strikingly  manifest  to  one  examining  three  im- 
portant documents  that  fittingly  mark  the  progress  of  legal  education 
in  America.  In  1893  the  United  States  Bureau  of  Education  pubr 
lishcd  a  report  on  Legal  Education  prepared  by  the  American  Bar  As- 
sociation's Committee  on  Legal  Education,  and  manifestly  the  work 
of  that  Committee's  accomplished  chairman,  William  G.  Hammond, 
in  which  the  three  methods  of  teaching  law  then  in  vogue — that  is,  by 
lectures,  by  text-book,  and  by  selected  cases — were  described  and  com- 
mented upon,  but  without  indication  of  preference.  The  next  report' 
of  the  Bureau  of  Education  dealing  with  legal  education,  published 
in  1914,  contains  these  unequivocal  statements: 

"To-day  the  case  method  forms  the  principal,  if  not  the  exclusive, 
method  of  teaching  in  nearly  all  of  the  stronger  law  schools  of  the 
country.  Lectures  on  special  subjects  are  of  course  still  delivered  in 
all  law  schools,  and  this  doubtless  always  will  be  the  case.  But  for 
staple  instruction  in  the  important  branches  of  common  law  the  case 
has  proved  itself  as  the  best  available  material  for  use  practically  ev- 
erywhere. *  *  *  The  case  method  is  to-day  the  principal  method 
of  instruction  in  the  great  majority  of  the  schools  of  this  country." 

But  the  most  striking  evidence  of  the  present  stage  of  development 
of  legal  instruction  in  American  Law  Schools  is  to  be  found  in  the 
special  report,  made  by  Professor  Redlich  to  the  Carnegie  Foundation 
for  the  Advancement  of  Teaching,  on  "The  Case  Method  in  American 
Law  Schools."  Professor  Redlich,  of  the  Faculty  of  Law  in  the  Uni- 
versity of  Menna,  was  brought  to  this  country  to  make  a  special  study 
of  methods  of  legal  instruction  in  the  United  States  from  the  stand- 
point of  one  free  from  those  prejudices  necessarily  engendered  in 
American  teachers  through  their  relation  to  the  struggle  for  supremacy 
so  long,  and  at  one  time  so  vehemently,  waged  among  the  rival  sys- 
tems. From  this  masterly  report,  so  replete  with  brilliant  analysis 
and  discriminating  comment,  the  following  brief  extracts  are  taken. 
Speaking  of  the  text-book  method  Professor  Redlich  says : 

"The  principle?  are  laid  down  in  the  text-book  and  in  the  profes- 
sor's lectures,  ready  made  and  neatly  rounded,  the  predigested  essence 

(iii) 


iM 


^w^i; 


IV  PKKFACE 

of  many  judicial  decisions.  The  pupil  Has  simply  to  accept  them  and 
to  inscribe  them  so  far  as  possible  in  his  memory.  In  this  way  the 
scientific  element  of  instruction  is  apparently  excluded  from  the  very 
first.  Even  though  the  representatives  of  this  instruction  certainly  do 
regard  law  as  a  science — that  is  to  say,  as  a  system  of  thought,  a  group- 
ing of  concepts  to  be  satisfactorily  explained  by  historical  research  and 
logical  deduction — they  are  not  willing  to  teach  this  science,  but  only 
its  results.  The  inevitable  danger  which  appears  to  accompany  this 
method  of  teaching  is  that  of  developing  a  mechanical,  superficial  in- 
struction in  abstract  maxims,  instead  of  a  genuine  intellectual  probing 
of  the  subject-matter  of  the  law,  fulfilling  the  requirements  of  a 
science." 

Turning  to  the  case  method  Professor  Redlich  comments  as  follows: 

'Tt  emphasizes  the  scientific  character  of  legal  thought;  it  goes  now 
a  step  further,  however,  and  demands  that  law,  just  because  it  is  a 
science,  must  also  be  taught  scientifically.  From  this  point  of  view  it 
very  properly  rejects  the  elementary  school  type  of  existing  legal  edu- 
cation as  inadequate  to  develop  the  specific  legal  mode  of  thinking,  as 
inadequate  to  make  the  basis,  the  logical  foundation,  of  the  separate 
legal  principles  really  intelligible  to  the  students.  Consequently,  as  the 
method  was  developed,  it  laid  the  main  emphasis  upon  precisely  that 
aspect  of  the  training  which  the  older  text-book  school  entirely  neg- 
lected— the  training  of  the  student  in  intellectual  independence,  in  in- 
dividual thinking,  in  digging  out  the  principles  through  penetrating 
analysis  of  the  material  found  within  separate  cases;  material  which 
contains,  all  mixed  in  with  one  another,  both  the  facts,  as  life  creates 
them,  w'hich  generate  the  law,  and  at  the  same  time  rules  of  the  law 
itself,  component  parts  of  the  general  system.  In  the  fact  that,  as  has 
been  said  before,  it  has  actually  accomplished  this  purpose,  lies  the 
great  success  of  the  case  method.  For  it  really  teaches  the  pupil  to 
think  in  the  way  that  any  practical  lawyer — whether  dealing  with  writ- 
ten or  with  unwritten  law — ought  to  and  has  to  think.  It  prepares  the 
student  in  precisely  the  way  which,  in  a  country  of  case  law,  leads  to 
full  powers  of  legal  understanding  and  legal  acumen ;  that  is  to  say, 
by  making  the  law  pupil  familiar  with  the  law  through  incessant  prac- 
tice in  the  analysis  of  law  cases,  where  ,the  concepts,  principles,  and 
rules  of  Anglo-American  law  are  recorded,  not  as  dry  abstractions,  but 
as  cardinal  realities  in  the  inexhaustibly  rich,  ceaselessly  fluctuating, 
social  and  economic  life  of  man.  Thus  in  the  modern  American  law 
school  professional  practice  is  preceded  by  a  genuine  course  of  study, 
the  methods  of  which  are  perfectly  adapted  to  the  nature  of  the  com- 
mon law." 

The  general  purpose  and  scope  of  this  series  were  clearly  stated  in 
the  original  announcement: 

"The  General  Editor  takes  pleasure  in  announcing  a  series  of  schol- 
arly casebooks,  prepared  with  special  reference  to  the  needs  and  limi- 


PUKFACB  V 

tatioiis  of  the  classroom,  on  the  fundamental  suhjccts  of  legal  educa- 
tion, which,  through  a  judicious  rearrangement  of  emphasis,  shall  pro- 
vide adequate  training  comhined  with  a  thorough  knowledge  of  the 
general  principles  of  the  suhject.  The  collection  will  develop  the  law 
historically  and  scientifically  ;  English  cases  will  give  the  origin  and 
development  of  the  law  in  England ;  American  cases  will  trace  its  ex- 
pansion and  modification  in  America ;  notes  and  annotations  will  sug- 
gest phases  omitted  in  the  printed  case.  Cumulative  references  will  be 
avoided,  for  the  footnote  may  not  hope  to  rival  the  digest.  The  law 
will  thus  be  presented  as  an  organic  growth,  and  the  necessary  con- 
nection between  the  past  and  the  present  will  be  obvious. 

■'The  importance  and  difficulty  of  the  subject  as  well  as  the  time  that 
can  properly  be  devoted  to  it  will  be  carefully  considered  so  that  each 
book  may  be  completed  within  the  time  allotted  to  the  particular  sub- 
ject. *  *  *  If  it  be  granted  that  all,  or  nearly  all,  the  studies  re- 
quired for  admission  to  the  bar  should  be  studied  in  course  by  every 
student — and  the  soundness  of  this  contention  can  hardly  be  seriously 
doubted — it  follows  necessarily  that  the  preparation  and  publication  of 
collections  of  cases  exactly  adapted  to  the  purpose  would  be  a  genuine 
and  by  no  means  unimportant  service  to  the  cause  of  legal  education. 
And  this  result  can  best  be  obtained  by  the  preparation  of  a  systematic 
series  of  casebooks  constructed  upon  a  uniform  plan  under  the  super- 
vision of  an  editor  in  chief.     *     *     * 

"The  preparation  of  the  casebooks  has  been  intrusted  to  experienced 
and  well-ki.^wn  teachers  of  the  various  subjects  included,  so  that  the 
experience  of  the  classroom  and  the  needs  of  the  students  will  furnish 
a  sound  basis  of  selection." 

Since  this  announcement  of  the  Series  was  first  made  there  have 
been  published  books  on  the  following  subjects : 

Administratiz-c  Laze.  By  Ernst  Freund,  Professor  of  Law  in  the 
University  of  Chicago. 

Agency.  By  Edwin  C.  Goddard,  Professor  of  Law  in  the  L^niversity 
of  Michigan. 

Bills  and  Notes.  Second  Edition.  By  Howard  L.  Smith,  Professor  of 
Law  in  the  L^niversity  of  Wisconsin,  and  Underbill  Moore,  Pro- 
fessor of  Law  in  Columbia  University. 

Carriers.  By  Frederick  Green,  Professor  of  Law  in  the  University  uf 
Illinois. 

Conflict  of  Laws.  Second  Edition.  By  Ernest  G.  Lorenzen.  Pro- 
fessor of  Law  in  Yale  University. 

Constitutional  Lazv.  By  James  Parker  Hall,  Dean  of  the  Faculty  of 
Law  in  the  University  of  Chicago. 

Contracts.    By  Arthur  L.  Corbin,  Professor  of  Law  in  Yale  Uni\ersiiy. 


VI  PREFACE 

Corporations.  By  Harry  S.  Richards,  Dean  of  the  Faculty  of  Law  in 
the  University  of  Wisconsin. 

Criminal  Lazi'.  By  William  E.  Mikell,  Dean  of  the  Faculty  of  Law  in 
the  L^niversity  of  Pennsylvania. 

Crijnijial  Procedure.  By  William  E.  Mikell,  Dean  of  the  Faculty  of 
Law  in  the  University  of  Pennsylvania. 

Damages.  By  Floyd  R.  jMechem,  Professor  of  Law  in  the  University 
of  Chicago,  and  Barry  Gilbert,  of  the  Chicago  Bar. 

Equity.  By  George  H.  Boke,  formerly  Professor  of  Law  in  the  Uni- 
versity of  California. 

Equity.  By  Walter  Wheeler  Cook,  Professor  of  Law  in  Yale  Uni- 
versity,   "^/olume  L     Volumes  2  and  3  in  preparation. 

Eiidencc.  By  Edward  W.  Hinton,  Professor  of  Law  in  the  Universi- 
ty of  Chicago. 

Insurance.  By  William  R.  \'ance,  Professor  of  Law  in  Yale  Uni- 
versity. 

International  Law.  By  James.  Brown  Scott,  Lecturer  on  International 
Law  and  the  Foreign  Relations  of  the  United  States  in  the  School 
of  Foreign  Service.  Georgetown  University. 

Legal  Ethics,  Cases  and  Other  Authorities  on.  By  George  P.  Costigan, 
Jr.,  Professor  of  Law  in  the  University  of  California. 

Partnership.  By  Eugene  A.  Gilmore,  Professor  of  Law  in  the  Uni- 
versity of  Wisconsin. 

Persons  (including  Marriage  and  Divorce).  By  Albert  M.  Kales,  late  of 
the  Chicago  Bar,  and  Chester  G.  Vernier,  Professor  of  Law  in 
Stanford  University. 

Pleading  (Common  Lazu).  By  Clarke  B.  Whittier,  Professor  of  Law 
in  Stanford  University,  and  Edmund  M.  Morgan,  Professor  of 
Law  in  Yale  University. 

Property  (Future  Interests).  By  Albert  M.  Kales,  late  of  the  Chicago 
Bar. 

Property  (Personal).  By  Harry  A,  Bigelow,  Professor  of  Law  in  the 
University  of  Chicago. 

Property  (Rights  in  Land).  By  Harry  A.  Bigelow,  Professor  of 
Law  in  the  University  of  Chicago. 

Property  (Titles  to  Real  Property).  By  Ralph  W.  Aigler,  Professor 
of  Law  in  the  University  of  Michigan.  • 

Property  (Wills,  Descent,  and  Administration).  By  George  P.  Costi- 
gan, Jr.,  Professor  of  Law  in  the  University  of  California. 

Quasi  Contracts.  By  Edward  S.  Thurston,  Professor  of  Law  in  Yale 
University. 

Sales.  By  Frederic  C.  Woodward,  Professor  of  Law  in  the  University 
of  Chicago. 


PREFACB  Vll 

Siirctyshif}.     By  Crawford  D.   Hening,  formerly  Professor  of  Law 
in  the  University  of  Pennsylvania. 

Torts.     By  Charles  W.  Hepburn,  Dean  of  the  Faculty  of  Law  in  the 
University  of  Indiana. 

Trade  Regulation.     By  Herman  Oliphant,  Professor  of  Law  in  Colum- 
bia University. 

Trusts.    By  Thaddeus  D.  Kenneson,  Professor  of  Law  in  the  Univer- 
sity of  New  York. 
Casebooks  on  other  subjects  are  in  preparation.  ' 

It  is  earnestly  hoped  and  believed  that  the  books  thus  far  published 
in  this  series,  with  the  sincere  purpose  of  furthering  scientific  training 
in  the  law,  have  not  been  without  their  influence  in  bringing  about  a 
fuller  undjerstanding  and  a  wider  use  of  the  case  method. 

Wiu-iAM  R.  Vance, 

General  Editor. 


TABLE   OF   CONTENTS. 


CHAPTER  I. 


What  Constitutes  a  Partnership. 
Section  Pag. 

1.  Partnership  Inter  Se — True  Partnersliip ] 

2.  Intention  to  be  Partners T 

3.  Tests   of    Intention 1" 

I.     Sharing   Profits — Former   Doctrine IT 

II.     Development  of  the  IModern  Doctrine 31 

III.     Common  Enterprise  or  Business '.  57 

4.  Relations  Distinguishable  from  I'artnorship &'< 

5.  Partnership  by  Estoppel ^~> 

G.     Defective    Corporations 104 

7.     Joint  Stock  Companies lOS 


CHAPTER  II. 
The  Creation  of  a  PAETNi:i!Sirip. 

1.  Arises  out  of  Contract 11^ 

2.  Competency   of    Parties 121 

3.  Formalities    l*^' 

4.  For  What  Purposes 13'J 


CHAPTER  III. 
The  Natube  and  CnABACXEBisrics  of  a  Partnership. 

1.  Various  Conceptions  of  the  Nature  of  a  Partuershii) 14»: 

2.  The  Partnership  Name 1^^ 

3.  Partnership    Property 1^  '- 

I.     Capital     1*^' 

II.     Property  Other  Than  Capital 1"! 

III.     Good    Will 1" 

4.  Title  to  Partnership  Property:     How  Taken  and  Held IS'.' 

5.  Conversion  of  Firm  Realty  into  Personalty VJ-'> 

6.  Nature  of  Partner's  Interest  in  Partnership  Property 210 

7.  Transfer  of  Partnership  Property 21^ 

I.     By  Act  of  the  Firm 21" 

II.     By  Act  of  Single  Partner 2;J0 

III.     Successive  Transfers  of  Each  Partner's  Interest 24  .^ 

8.  Effect  of  Death  of  Partner  on  Firm  Property 26«» 

Gil.Part.  (i3c) 


X  TABLE   OF   CONTENTS. 

CHAPTER  IV. 
The  Natube.  Extent,  and  Duration  of  Paetnership  Liability. 

SecUon  ^^^® 

1.  Nature  of  Liability  in  Contract 281 

I.     Cliaracteristics  of  Joint  Obligations 2S1 

II.-    Partnership  Liability  and  Joint  Liability 288 

III.     Quasi  Severable  Character  in   Equity 292 

2.  Nature  and  Extent  of  Liability  in  Tort 30G 

3.  Extent  of  Liability  In  Contract 300 

4.  Commencement  and  Duration  of  Liability 32o 

I.     Assumption  of  Firm  Obligations 32.' 


II.     Novation 


330 


III.     Dissolution    341 

CHAPTER  V. 
The  Powers  of  Partners. 

1.  Origin  and  Nature  of  the  Partner's  Powers 3.56 

2.  Test  of  Authority — Nature  of  Question 360 

3.  Particular   Powers   Considered 366 

4.  Powers  of  Majority ^^1 

.5.  Power  to  Subject  Partnership  to  Tort  Liability rfyo 

6.  Powers  of  Partners  After  Dissolution .403 

CHAPTER  VI. 
Rights  and  D-uties  of  Partners  Inter  Se. 

1.  Duty  to  Observe  Good  Faith 418 

2.  Rights  and  Duties  as  to  the  Conduct  of  the  Business 433 

3.  Indemnity  and   Contribution 436 

4.  A  Partner's  Right  to  have  Firm  Property  Applied  to  Firm  Debts 44G 

CHAPTER  VII. 
Remedies  of  Partners  Inter  Se. 

1.  Actions  at  Law *^^ 

2.  Remedies  in   Equity •  •  4 '  0 

3.  Accounting  and  Distribution 484 

CHAPTER  VIII. 

Rights  and  Remedies  of  Creditors. 

1.  At    Law f^ 

I.     Creditors  of  the  Partnership '^•^-^ 

II.     Creditors  of  the  Partners 2^^ 

2.  In    Equity ^?^ 

3.  Insolvency  or  Banliruptcy,  Application  of  Assets '->''>^ 


TABLE  OF  CONTENTS.  xi 


CHAPTER  IX. 
Termination  of  the  Pautnebship. 

Section  Pag<: 

1.  By  Act  of  the  Parties 588 

2.  By  OiK'ratiou  of  Law 59l.» 

3.  By  Judicial  Decree G(H 


CHAPTER  X. 

Limited  Pabtnebships. 

1,  Their  Origin  and  Characteristics 610 

2.  Their  Formation  and  Conduct 615 


TABLE  OF  CASES. 

[cases    cited    in    footnotes    are    indicated    by    italics.        WnERE    S^fATX   CAPI- 
TALS ABE  USED,  THE  CASE  IS  IlEFEURED  TO   IN   TUE  TEXT.] 


A  AS    V,    Benitam 

.\dains  V.   HrtL-kett 

Allen  V.  Danielson 

Alsop  V.  Trust  Co 

Ames  V.  Downing 

Andrew   v.   Bougiiet 

.\ndrews'  Heirs  v.   Brown 

Arnold  V.  Hncerraan  

Arnold  V.  Nichols 

Aultnian  &  Co.  v.  Fuller,  Williams 

&  Co 

Austin  V.  Holland 


P.ALL    V.    DUNSTEKVILLE 

Hank  of  Buffalo  v.  Thompson. 


Page 

4312 
274 
501 
SCr-) 
610 
33G 
267 
223 
328 

526 
343 

385 


152, 


Croicell.. 
Dix 

Nesiiam. 


Uarher  v. 
Haring  v 
Barry  v. 

Bassett  v.  Miller 

I^eecher  v.  Bush 

Bergman  v.  Jones 

Berkshire  Woolen  Co.  v.  Juillard 

Besoh  v.  Frolicii 

Bigelow  V.  Gregory 

BiNiNGER  V.  Clark 

Bisel  V.  Hobbs 

Bloxjiam  tt  Fourdrinier  v.  Pell 

&   Brooke 

I'.ond  V.  Gibson 

Bond  v.   Pittard 

Bonesteel  v.  Todd 

Bracken  v.  Kennedy 

Bradley  v.  Ely 

Breen  v.  Richardson 

Briggs,  Ex  parte 

Brooke  v.  Washington 

Brown  V.  Hartford  Fire  Ins.  Co. 

Bruce  v.  Hastings 

Bryant  &  Straw  v.  Clifford 

P.ucher  v.  Covalt 

Buck  V.   Smith 

Buckhause,  In  re 

Bullen  V.  Sharp 

Burgan  v.  Lyell 

r.urley  &  Harris  v.  Harris 

Burnett  v.  Snyder 

Gil. Part. 


311 
192 
004 

35 
271 

49 
220 
150 
597 
104 
185 
321 

IS 
360 

35 
2S5 
470 

10 

410 

4 

318 

151 

71 
240 
213 
470 


Page 

Burns  v.  Nottingham 459 

1  '.urt  V.  Lathrop 57 

r.urton  V.  Wookey 41S 

Bush  v.  LiNTnicuM 120 

Butler  Savings  Bank  v.  Osborne. .     58 


30 
35S 
454 
117 


Cameron  v.  Watson 

Carpenter  v.  Greenop 

Carter  v.  McClure 

Case  V.  Beauregard 

Cash  V.  Eamshaw 

Central  Trust  &  Safe  Deposit  Co. 
V.   liespass 

Charlton  v.  Sloan 

Chester  v.  Dickerson 

CriuRTON  V.  Douglas 

Citizens'  Bank  of  Perry  v.  Wil- 
liams    

Chipp  V.  Laceji 

Clarke  v.  Mills 

Cocke  v.  Bank 

Coleman  v.  Eyre 

Collumb  V.  Read 

Columbia  Land  &  Cattle  Co.  v. 
Daly  

Columbia  Land  &  Cattle  Co.  v. 
Murkins 

Cook  V.  Canny 

Corbett,  Ex  parte 

Coster  V.  Lorillard 

COTTRELL    V.    :MaNUFACTURING    CO. 

Cox  &  Wheatcroft  v.  Hickman.. 

Cranksuaw,   In  re 

Crockett  v.  Burleson 

Crosby  v.  Timolat 

Cross  V.  Burlington  Nat   Bank.. 


490 
407 
108 
22<) 
605 


1.30 
4:'.:> 
i:;o 
185 

289 
620 
458 
370 
137 
170 

625 

625 
402 
140 

83 
181 

31 
548 
464 
469 
326 


Darby  v.  Darby   1*^ 

Darby  v.  Gilligan 221 

Darling  v.  March 409 

Darrow  v.  Calkins 203 

Davies  v.  Harvey  * 398 

Davies  v.  Huniplirey 540 

,  Davis  V.  Howell 5."S 

Dean  v.  Dean 104 

Dean  v.  Macdowftl 431 

De  Berkom  v.  Smith 05 


(xiii) 


XIV 


TABLE    OF   CASES. 


Page 

Deckard  v.  Case 233 

Doggett  V.  Dill 300 

Doner  v.  Stauffer 247 

Donnell  v.  Harshe 63 

Dow  V.  State  Bank  of  Sleepy  Eye    87 

Downs  V.  Jackson 436 

Drucker  V.  WeUliouse 151 

Dry  v.  Boswell 64 

Duncan  v.  Lowndes 369 

DuNTON  V.  Brown 126 

Durvea  v.  Whitcomb 13 

Dyer  v.  Clark 196 

Eagle  Mfg.   Co.   v.  Jennings...  338 

Edwards  v.  Dillon 387 

Epherts  v.  Wood 267 

Ellison  V.  Sexton 346 

Elmira  Iron  &  Steel  Rolling  Mill 

Co.  V.  Harris 349 

Eustis  V.  Bolles 603 

Evans  v.  Tiryin 507 

EVERET    V.    WlLLIAilS 141 

Bveritt  v.  Cbapman 68 

Fairthorne  v.  Weston 476 

Farnsworth  v.  Whitney 466 

Fechteler  v.  Palm  Bros.  &  Co 76 

Fern  v.  Cushing 581 

First  Nat.  Bank  v.  Creveling  ....    624 

Fletcher  v.  Pullen 100 

Folsom  V.   Marlette 486 

Foster  v.  Sargent 176 

FULLWOOD    V.    FULLWOOD 185 

Galwat  V,  Matthew 395 

Gibb's  Estate,  In  re 91 

Gille  V.   Hunt 190 

Gilruth  V.  Decell 401 

Goodchilds,  In  re 569 

Goodspeed  v.  Wiard  Plow  Co 404 

GouTJiwAiTE      V.       Duckworth, 

Brown  &  Powell 70 

Grace  v.  Smith 17 

Griswold  v.  Waddington 600 

Grosvenor  v.  Austin 535 

Grosvenor  v.  Lloyd ' 348 

Groth  V.  Kersting 484 


Page 

Hartley  v.  White 245 

Ilaskius  V.  D'Este 154 

Haskins  v.    Everett 517 

Hatchett  v.  Blanton 176 

Hawkins  v.  Mahoney 558 

Hayman,  Ex  parte 549 

Hedley  v.  Bainbridge 371 

Helme  v.  Smith 84 

Hendren  v.  Wing 189 

Henn  v.  Walsh 588 

Hesketh  v.  Blanchard 2 

Plevdon  v.  Heydon 507 

Hicks  V.   Wyatt 328 

Hoaglin  v.  C.  M.  Henderson  &  Co.  121 

Iloare  v.  Dawes 1 

Eolliday  v.  Paper  Co 024 

Holmes  v.  Burton 312 

Hookham  v.   Pottage 184 

Hubbard  v.  Winsor 199 

Hubbardston  Lumber  Co.  v.  Cov- 
ert    148 

Humphries  v.  Chastain 408 

Hunter,  Ex  parte 569 

Huston  V.  Neil 200 

Irwin  V.  Williar 363 

Jackson  v.  Stopherd 452 

Jaffe  V.  Krum 626 

.503 


Jaffray  v.  Jennings 

Janney  v.   Springer 243 

Jeffereys  v.  Small 266 

Jennings  v.  Ptickard 421 

Johnson  Bros.  v.  Carter  &  Co...     54 

Johnson  v.  Wingfield 515 

Johnston  v.  Dutton 391' 

Jones  V.  Blun 150 

Jones  v.  Noy 597 

Judd  Linseed  &  Sperm  Oil  Co.  v. 
Hubbell  311 


Hackett  v.  Stanley 

Hall  V.  Cook 

Hall  V.  Lanning  

Hall  &  Long  v.  Jones 

Hallowell  v.  Blackstone  Nat.  Bank 

Halsey  v.  Norton 

Halstead,  Appeal  of 

Hamper,  Ex  parte 

Hanchett  v.  Gardner 

Haney  Mfg.  Co.  v.  Perkins » 

Harman  v.  Johnson 

Harris  v.  Peabody 

Harrison  v.  Jackson 

Hart  V.  Hiatt 


27 
305 
286 
339 
309 
583 
91 
27 
236 
396 
399 
541 
382 
567 


Kahn  v.  Smelting  Co. 
Katz  V.  Brewington . . . 
Kelly  V.  Rummerfield. 
Kendall  v.  Hamilton.. 

King  v.  Hoare 

Kirk  V.  Blurton 

Kitchen  v.  Lee 

Knowles,  In  re 

Knox  V.  Gye 

Kringle  v.  Rhomherg. 


.433, 


120 

482 
65 
293 
284 
381 
127 
565 
280 
192 


Lambert's  Case 2C0 

Lamb  v.  Rowan 497 

Lascomb  v.  Russell 477 

Lathrop  v.  Latiirop 184 

Latta  V.  Kilbourn 425 

Ledford  v.  Emerson 456 

Leffler  v.  Rice 368 

Leggett  V.  Hyde 22 

Le  Roy  v.  Johnson o^.j 

Lindsey  v.  Stranahan 435 


TAHLK    OF   CASES. 


XV 


Page 

LInoweavef  v.  Single ['>VJ 

Livingston   v.   Roo.s!:vfi.t o7;j 

I>i;,':in  v.  Oklahoma  Mill   Co tJl 

rx)omis  V.  Ba ilcer    •'^08 

Loomis  V.  Wallbloin    •''8^ 

Lord  V.  null 47li 

Lyon  V.  Jobnson •'•l^ 

Lyth  V.  Ault  &  Wood 33G 


McAreavy  v.  Maf;irl 

McDonald    Bros.    v.    Campboll    & 

Bergeson    

McDonald  v.  Eu'frlcston 

McElroy  v.  Allfrc-e « 

McElvey  v.  Lewis 

McGrath  v.  Coacn 

McGregor  v.  Cleveland 

McKee  v.  Covalt 

McLain  &  Bad.urett  v.  Carson's  Ex'r 

McMuLLEN  V.  Hoffman 

McMurtrie  v.  Guiler 

Maffet  V.  Louckel 

Masilton  v,  Stevenson 

Major  V.  Hawkes 

Manhattan  Co.  v.  LainiBeer 

Marsh  v.  Davis 

Marwick,  In  re 

Mason  v.  Eldred 

^^•lybe^^y  v.  Willon?;bby 

Meech  v.  Allen 

Meehan  v.  Valentine 

Mena^h  v.  Whitwell 

Merchants'    Nat.    Bank   v.    Wohr- 
mann   

Miller  v.  Neinierick 

Miller's  River  Nat.  Bank  v.  Jeffer- 
son    

Mitchell  V.  Reed 

MoLET  V.   Brine 

Molineaux  v.   Raynolds 

Monroe  v.  Conner 

Morgan  v.  Richardson 

:i[ orris  V.  Pcckh am 

Motley  V.  Wickoff 

Murphy  v.  Crafts 

Murray  v.  Murray 


330 

81 


483 

r,oi  I 

154 
213 
304 
141 

74 
317 
44.' 
40:; 
Gl'> 
133 
545 
281 
413 
499 

45 
251 

131 
412 

5G3 
419 
127 
215 
39r{ 


370 
137 
337 
43S 
57S 


Newman  v.  Ruby 4G5 

Northern   Ins.  Co.  v.  Potter 286 

Notley,  In  re 4 

Noyes  V.  Cushnian. 65 

Oakelet  v.  Basiieller 334 

Olson  v.  Morkison 552 

Oppenheiiner  V.  ClemviOHS 71 

Owen  V.  Meroney 401 

Palmer  v.  tiodse 40.5 

Parker  v.  Pistor 507 

I'armalee  v.  Wifirrcnhoin 32.^ 

Pearce  v.  Chamberlain 592 

Pease  v.  Cole 372 


Pag« 

Penn ybackor  v.  Lcary _.  214 

People   v.    Roniinglon   «Sj   Sous....   5<;<j 

People's  Bank  v.   Shryu(  1: 5i:'i 

Peterson  v.  Roach 314 

Pf effer  v.  Steiner 272 

Phillips  V.  Phillir>s 113 

Pilcher,   Succession  of 14S 

Piidciiey  v.  Hall 371 

I'irtle  V.  Penn 480 

Place  V.  Sweetzer 51 1 

Poolry  V.  Driver 17,  30I 

Pooley  V.  Whitmore 3G0 

Porter  v.  Curry 368 

Pratt  V.  Mc(Juinness 212 

Preston  v.  Garrard 334 

PuLSFOBD,  In  be 549 

Quackenbush  v.  Sawyer CO 

Queen  v.  Robson 85 

Randall  v.  Johnson 508 

Raymond  v.  Putnam  490 

Raymond  v.  Vauphan   595 

Reeves  v.  Denicke 1S4 

Richards  v.  Davis 477 

[  Richardson  v.  Farmer 322 

I  Robinson  Bank  v.  Miller 171 

I  Rodgers  v.  Meranda 528 

I  Rollins  V.  Stevens 370 

!  Rose  V.  Coffield 340 

Rothwell  V.  rinmphreys 306 

Rovelsky.  v.  Brown 239 

Rowland,  In  re 548 

R.    S.    Cross    V.    Burlington    N;it. 

Bank    326 

Ruffin,  Ex  parte 217 

Rutherford  v.  Hill 106 

Sabel  V.  Savannah  Rail  &  Ejnip- 

ment  Co U6 

Sadler  v.  Nixon 451 

Sanborn  v.  Royce 510 

Sandush-y  v.  Siducll 3(h; 

Saunders  v.   Bakti  ktt 518 

Shakesuaft.    STir.r.iP    &    Salis- 
bury,  Ex  parte 570 

Shand,  In  re 146 

Shanks  v.  Klein 269 

Shannon  v.  Wright 481 

Shattuck  V.  Chandler 230 

Shea  V.  Donahue 168 

'Sheehy  v.  Mandeville  &  James- 

I     son   2S3 

Shirk  V.   Shultz 125 

\  Shoemaker  Piano  Mfg.  Co.  v.  Dcr- 

I     nard  328 

I  Sillitoe,  Ex  parte 569 

}  Sinrjer  v.  HcUer 607 

Sloan  V.  Moore 2.">1 

Smith  V.  Everett    608 

Smith  V.  Sheldcn    332 


XVI 


TABLE    OF   CASES. 


•':   f.  !>lichlcn    ,. .. 

vi-r  V.  Applegate. . 

on  V.  Kirkwood. 

<  V.   Bristow. . . . 

'<  V.   /?n.sfojr.  . . . 

nis  V.  Ilouclitou.. 

tT  V.  Smith 

kt  i\  Pcrru 

I>h  V.  Bauer 

Mil ro  V.  Wagner 

Sw.uin  V.  Raiihnrn.  . .  . 
Swire  v.  Ukdman.... 
Sylvester  v.  Smith.. 


Page 

408 


5S0 
211 
oOT 

SG7 

502 
17") 

4s:; 
n." 
:VM 
323 


Taplcf/  t\  Biittcrfirld 

Tayloe  v.   Busn 

Taylor  v.  Fields 210. 

Thayer  t.  Badger    

'■■'    >  or  V.  Huiniihrey    

upsou  V.   First  Nat.   Bank  of 

r..:edo.   Ohio 

Tiiorpe  V.  Jackson 

Thtrlow  v.  Warren 

Tllce  V.  Brooks 

Topping.  Ex  parte 

Valentine  v.  Wysor 

Vernon  v.   IIallam 

V^•ts•h   V.  Nois*! 

Voorhis  V.  Chllds'  Ex'r 


23(1 
9 
507 
435 
540 

00 
202 
5(iS 
G27 
570 

275 

ISl 
370 
20S 


Wnhl  V.  Barnnm 

Wai.cott  v.  Canfield. 


Walker  v.  Whipple 

yV'di'inn   V.  Biirjie.'i.s 

Waxstrom  v.  Hopkins 

Walter  v.  Herman 

Warren  v.  Taylor 

Warring  v.  Arthur 

Watson  v.  Fletcher 

Waugh  V.  Carver 

Weaver  v.  Tapscott 

Whelan  v.  Shain 

White  V.   Smith 

Whltconib  V.  Converse 

Whiting  V.  Farrand 

Wild  V.  Davenport 

Williams  v.  Farrand 

Willis  V.  Henderson 

Winner  v.  Kuehn 

Winship  v.  Bank  of  United  States 

Winston  v.  Ewing 

Wipperman  v.  Stacy 

Wolff  ,v.  Madden 

Wolf  V.   Mills 

Wood  V.  Braddick 

Wycoff  V.  Purnell 


Page 
5'jl 
202 
33S 
575 
44G 
441 
141 
19 
319 
2SS 
300 
4SS 
404 
504 
177 
528 
507 
35<! 
513 
300 
32."> 
397 
411 
460 


Tale  V.  Fames 409 

Yorkshire    Banking    Co.    v.    Beat- 
son 157.  317,  382 

Yorks  V.  Tozer 440 

Young  v.  Axtell 98 


13S 

37-1    Znber  v.  Roberts. 


CASES  OiN  PARTNERSHIP. 


CHAPTER  I. 
WHAT  CONSTITUTES  A  PARTNERSHIP. 


SECTION'  1.— PARTNERSHIP  INTER  SE— TRUE  PART- 
NERSHIP. 


HOARE  V.  DAWES. 

(Court  of  King's  Bench,  17S0.     1  Doug.  371.) 

Defendants  and  others  employed  Contencin,  a  broker,  to  purchase 
a  lot  of  tea,  each  party,  including  the  broker,  taking  a  certain  share 
of  the  whole  amount  purchased,  the  lots  being  too  large  for  any  one 
dealer.  The  practice  was  for  those  desiring  to  join  in  the  purchase 
to  give  orders  or  warrants  to  the  broker  for,  the  delivery  of  the  quanti- 
ty purchased  on  payment  being  made.  These  warrants  were  often 
pledged  and  money  raised  on  them.  The  broker  in  this  case,  having 
pledged  the  warrants  given  him  for  a  loan  from  plaintiff,  became  bank- 
rupt. The  price  of  tea  having  fallen  in  the  meantime,  plaintiff  was  un- 
able to  realize  from  the  warrants  the  amount  of  the  loan.  He  brought 
the  present  action  against  all  the  defendants,  on  the  ground  that  all  the 
parties  interested  in  the  purchase  were  to  be  considered  as  partners 
and  jointly  and  severally  liable  for  the  whole  purchase.  Each  de- 
fendant had  fully  paid  for  his  share  of  the  whole  purchase  which  he 
had  agreed  to  take.  There  was  no  agreement  between  the  parties  as 
to  the  redisposal  of  the  tea. 

Verdict  for  defendant,  and  rule  nisi  for  a  new  trial. 

Lord  Mansfield.  I  considered  this,  at  first,  as  a  case  of  dormant 
partners.  The  law  with  respect  to  them  is  not  disputed,  viz.,  that  they 
are  liable  when  discovered,  because  they  would  otherwise  receive 
usurious  interest  without  any  risk ;  but  towards  the  end  of  the  cause 
the  nature  of  the  transaction,  and  of  these  loans,  was  more  clearly 
explained,  and  I  was  satisfied  with  the  verdict,  and  am  now  confirmed 
in  my  opinion.  The  evidence  of  Cartony  is  irrelevant,  because  he 
said  the  broker  borrowed  the  money  for  him ;  and.  besides,  he  did 
not  dispute  the  demand.  Is  this  a  partnership  between  the  buyers? 
Gil.Pakt.— 1 


2  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

I  think  it  is  not ;  but  merely  an  undertakings  with  the  broker  by  each 
for  a  particular  quantity.  There  is  no  undertaking-  by  one  to  advance 
money  for  another,  nor  any  agreement  to  share  with  one  another  in  the 
profit  or  loss.  The  broker  undertakes  to  buy  and  sell,  but  makes  no 
advance  without  the  security  of  the  tea  warrants,  which  are  consid- 
ered as  cash,  and  pass  by  delivery,  like  East  India  bonds.  These 
warrants  are  pawned  with  the  lender,  but  the  broker  has  no  power 
to  pledge  the  personal  security  of  the  principals.  He  cannot  sell  the 
warrants,  and  borrow  more  money  on  such  personal  security.  It 
makes  no  difterence  whether  specific  tea  or  the  warrants  are  delivered 
at  the  sale.  It  would  be  must  dangerous,  if  the  credit  of  a  person, 
who  engag-es  for  a  fortieth  part,  for  instance,  should  be  considered  as 
bond  for  all  the  other  39  parts.  Non  hrec  in  foedera  veni.  The  wit- 
nesses did  not  merely  speak  to  opinion,  but  to  matter  of  fact,  and  their 
own  dealings.  They  said  the  money  was  lent  to  the  broker  alone. 
Sometimes,  indeed,  lenders  have  required  to  know  the  principals.  They 
did  not  trust  the  broker  alone ;  but  all  others  who  do  not  ask  after 
the  principals  do.  The  note  is  given  as  a  collateral  security  person- 
ally by  the  holder  of  the  warrant,  not  in  the  character  of  a  partner 
with  other  persons,  nor  as  a  broker  for  them. 

WiLLES  and  AsnnuRST,  JJ.,  of  the  same  opinion. 

BuLLER,  J.  This  is  a  very  plain  case.  The  plaintiffs  had  no  rea- 
son to  consider  the  broker  as  a  partner  with  the  other  persons;  for, 
though  he  had  a  share,  he  did  not  act  or  appear  as  a  partner,  nor  were 
they  partners  as  among  themselves.  They  had  never  met  or  con- 
tracted together  as  partners.  If  this  transaction  were  sufficient  to 
constitute  a  partnership,  a  broker  would  have  it  in  his  power  to  make 
500  persons  partners,  who  had  never  seen  nor  heard  of  one  another, 
or  might,  at  his  pleasure,  convert  his  principals  into  partners,  or  not, 
without  any  authority  from  them,  by  taking  joint  or  separate  war- 
rants. 

The  rule  discharged. 


HESKETH  V.  BLANCHARD  et  al. 

(Court  of  King's  Bench,  1803.     4  East,   144.) 

This  was  an  action  for  goods  sold  and  delivered,  and  on  the  com- 
mon money  counts.  The  defendant  pleaded  the  general  issue,  and 
paid  £50  into  court  upon  the  count  for  goods  sold  and  delivered,  which 
was  laid  out  of  the  question  in  the  ultimate  consideration  of  the 
case.  With  respect  to  the  count  for  money  paid,  laid  out,  and  ex- 
pended by  the  plaintiff  for  the  use  of  the  testator,  the  case  appeared 
to  be  this:  The  plaintiff  was  a  draper  and  tailor,  with  whom  the  tes- 
tator, who  had  been  a  captain  of  a  vessel  in  the  African  trade,  had  had 
dealings  for  several  years.  In  the  spring  of  1800  the, plaintiff  apphed 
to  Robertson,  who  was  then  about  to  sail  for  the  coast  of  Africa,  for 


Sec.  1)  PARTNERSHIP   INTER   SE — TRUE    PARTNERSHIP.  3 

orders,  who  declined  giving  him  any,  sa}ing  he  knew  of  something 
else  which  would  answer  better;  but  as  he  had  no  sufficient  credit 
for  himself,  nor  ready  money,  he  requested  the  plaintiff  to  go  with 
him  to.  one  Corfe,  a  butcher,  and  ^rder  certain  quantities  of  beef  and 
tripe  to  take  with  him  on  the  voyage,  promising  th'at  if  any  profit 
should  arise  from  them  the  plaintiff  should  have  one-half  for  his 
trouble.  Corfe  accordingly  furnished  the  articles,  to  the  value  of 
£75,  and  sent  them  on  board  Robertson's  ship  by  the  desire  of  the 
plaintiff  and  Robertson,  both  of  whom  hp  made  debtors  for  the  goods; 
and,  being  examined  as  a  witness  at  the  trial,  he  also  swore  that  he 
would  not  have  trusted  Robertson  alone.  After  the  goods  were 
shipped,  Robertson  desired  the  plaintiff  to  make  an  insurance.  The 
plaintiff  afterwards  pajd  Corfe  the  whole  sum;  and  Robertson  be- 
ing since  dead,  without  having  come  to  any  settlement  with  the 
plaintiff,  he  brought  this  action  to  recover  the  money  so  paid.  At 
the  trial  before  Rooke,  J.,  at  the  last  Lancaster  Assizes,  it  was  ob- 
jected by  the  defendant's  counsel  that  as  the  parties  were  to  divide 
the  profits,  if  any,  they  must  necessarily  be  equally  liable  to  any  loss, 
and  therefore;  the  agreement  constituting  a  partnership,  the  action 
was  not  maintainable  by  one  partner  against  the  other.  To  this  it 
was  answered,  on  the  part  of  the  plaintiff,  that  it  was  not  a  connec- 
tion of  profit  and  loss,  but  a  simple  payment  of  money  for  the  use  of 
another,  upon  an  undertaking  by  that  other  to  pay  him  half  the  profit 
of  a  certain  adventure,  supposing  it  to  be  successful,  and  that,  though 
the  plaintiff"  had  made  himself  responsible  to  Corfe  for  the  value  of 
the  articles  furnished  upon  his  credit  jointly  with  that  of  Robertson, 
yet  as  between  themselves,  or  in  any  other  respect,  there  was  no  part- 
nership. It  was  thereupon  agreed  to  take  the  opinion  of  this  court 
upon  the  point;  and  the  jury  were  accordingly  directed  to  find  a 
verdict  for  the  plaintiff  for  £75  subjec-t  to  the  opinion  of  this  court 
whether  the  plaintiff  were  entitled  to  recover  the  whole  or  a  moiety, 
and  if  the  court  should  be  of  opinion  that  he  was  not  entitled  to  re- 
cover anything  a  nonsuit  was  to  be  entered. 

Park  and  Wood,  who  w^ere  to  have  shown  cause  against  a  rule  for 
entering  a  nonsuit,  after  stating  the  facts  of  the  case,  and  making  the 
distinction  above  noticed,  were  stopped  by  the  court. 

Topping  and  F.  Clarke,  contra,  said  that  there  might  be  a  partner- 
ship in  a  particular  transaction  or  adventure,  as  well  as  in  a  general 
trade,  and  this  was  of  the  former  kind.  That  in  Grace  v.  Smith,  2 
Bl.  998,  the  transaction  between  Smith  and  one  Robinson,  who  had 
individually  contracted  the  debt  for  which  the  action  was  brought,  was 
holdcn  not  to  be  a  partnership,  because  the  share  which  Smith  was 
to  receive  was  not  payable  out  of  the  profits  of  the  trade,  but  was  a 
personal  demand  on  Robinson ;  whereas  here  the  agreement  was  in 
terms  for  the  plaintiff'  to  have  one-half  of  the  profit  of  the  adventure. 
And  this  principle  was  not  controverted  by  Lord  C.  T.  Eyre  in  \N'augh 
V.  Carver,  2  H.   Bl.  235,  and  vide  Morse  v.  Wilson,  4  Term  Rep. 


4  WHAT  CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

353,  though  the  distinction  was  taken  with  respect  to  agreements 
which  would  constitute  a  partnership  with  respect  to  creditors,  though 
not  as  between  the  parties  themselves.  But  there  the  parties  had  ex- 
pressly stipulated  between  themselves  not  to  be  answerable  for  each 
other's  losses,  which  showed  that  their  intention  was  not  to  become 
partners.  Here  there  was  no  such  stipulation,  and  therefore  no  such 
intention  can  be  inferred,  and  then  by  the  general  operations  of  law 
upon  their  agreement  they  were  constituted  partners. 

Lord  Ellenborough,  C.  J.  The  distinction  taken  in  Waugh  v. 
Carver  et  al.,  applies  to  this  case.  Quoad  third  persons  it  was  a  part- 
nership, for  the  plaintiff  was  to  share  half  the  profits ;  but  as  between 
themselves  it  was  only  an  agreement  for  so  much  as  a  compensation 
for  the  plaintiff's  trouble,  and  for  lending  Robertson  his  credit.  Vide 
Wilkinson  v.  Frasier,  4  Esp.  182 ;  Dry  v.  Boswell,  1  Campb.  329 ; 
]\Iuzzy  v.  Whitney,  10  Johns.   (N.  Y.)   226. 

Pi;r  Curiam.    Rule  discharged  generally. 


Ex  parte  BRIGGS. 

In  re  NOTLEY. 

(Court  of  Review  and  on  Appeal  before  the  Lord  Chancellor,  1833.    3  Deac.  & 

Ch.  3G7.) 

This  was  an  appeal  by  Miss  Briggs,  a  petitioning  creditor  in  a 
bankruptcy  proceeding  against  one  Notley,  from  a  decision  refusing 
to  admit  the  proof  of  her  debt,  on  the  ground  that  it  arose  out  of  a 
partnership  between  her  and  the  bankrupt. 

There  was  also  a  petition  by  the  bankrupt  to  annul  the  bankruptcy 
proceedings  on  the  same  ground. 

Erskine,  C.  J.  *  *  *  The  undisputed  facts  are  these:  Miss 
Briggs  advanced  i230  to  the  bankrupt,  on  a  bond  and  warrant  of 
attorney  for  securing  the  repayment  on  the  2d  November,  1837,  with 
interest  at  io  per  cent.  This  money  was  advanced  to  the  bankrupt 
for  the  purpose  of  enabling  him  to  establish  a  manufactory  for  choco- 
late. It  is  said  that  this  is  not  a  good  petitioning  creditor's  debt,  as 
there  was,  besides  the  written  documents,  an  agreement  that  Miss 
Briggs  was  to  share  in  the  profits  of  the  manufactory,  and  that  the 
loan,  therefore,  must  be  considered  as  a  debt  arising  put  of  the  part- 
nership. Now,  I  have  always  understood  the  distinction  to  be  this: 
If  the  transaction  between  two  partners  is  intended  to  form  an  item 
in  the  partnership  accounts,  then  you  cannot  say  that  there  is  a  legal 
debt  owing  from  one  to  the  other  until  a  balance  is  struck,  after 
taking  the  partnership  accounts.  But  after  an  account  has  been  taken, 
and  a  balance  struck,  then,  although  the  partnership  continues,  the 
amount  of  the  balance  will  be  provable  under  a  commission,  or  be  a 
good  petitioning  creditor's  debt.     The  cases  in  which  the  objection 


Sec.   1)  PARTNERSHIP   INTER   8E — TRUE    PARTNERSHIP.  6 

of  a  partnership  has  been  allowed  to  prevail  are  those  in  which  money 
is  actually  brought  into  the'  partnership  account,  and  where  it  would 
depend,  upon  taking  the  account,  whether  the  sum  was  due  or  not 
from  one  partner  to  the  other.  But  in  this  case  I  think  there  is  not 
sufficient  evidence  of  partnership.  Conceding,  however,  that  there 
was  a  partnership,  the  debt  here  is  perfectly  distinct  from  any  part- 
nership accounts.  Although  Miss  Briggs  was  promised  an  eighth 
share  of  the  profits,  this  engagement  appears  to  have  been  made  after 
the  loan  of  the  money,  and  was  not  stipulated  for  by  her  previous  to 
the  advance  of  the  money.  The  money  was  to  be  repaid  at  all  events, 
and  there  is  nothing  to  show  that  it  was  intended  to  form  an  item  in 
any  partnership  accounts.  It  is  clear,  therefore,  that  there  was  no 
contemplation  of  a  partnership  between  these  parties,  but  that  the  real 
object  of  Miss  Briggs  was  to  obtain,  if  she  was  able,  more  interest 
than  £5  per  cent. 

Sir  J.  Cross.  This  is  a  petition  of  the  bankrupt  to  supersede 
the  fiat,  on  the  ground  that  the  petitioning  creditor  was  his  partner 
in  trade.  But,  as  his  honor  tlie  Chief  Judge  has  already  stated,  there 
was  no  contemplation  of  any  partnership  in  fact.  It  is  true  that,  if 
B.  agrees  to  give  A.  a  share  in  the  profits  of  his  business,  the  couit 
may  consider  them  quasi  partners  for  all  purposes  of  responsibility 
to  third  persons.  But  B.,  after  borrowing  money  of  A.,  cannot  turn 
round  upon  him  and  say,  "You  are  my  partner,  by  operation  of  law, 
and  therefore  I  will  not  pay  you  your  debt."  This  would  not  be  per- 
mitted by  any  court,  either  of  law  or  equity.  But,  even  if  there  was  a 
partnership  between  these  parties,  I  think  that  this  debt  was  independ- 
ent of  any  partnership  transaction,  and  is  quite  sufficient  to  enable 
a  petitioning  creditor  to  sustain  a  fiat.  It  appears  to  me,  however, 
that  there  was  no  partnership  in  fact. 

Petition  dismissed. 


SODIKER  V.  APPLEGATE. 

(Supreme  Coiirt  of  West  Virginia,  1SS4.    24  W.  Va.  41],  49  Am.  Riep.  252.) 

Snyder,  J.  Suit  in  equity,  brought  by  WilHam  Sodiker  against 
Lewis  Applegate,  in  June,  1879,  in  the  circuit  court  of  Brooks  county, 
to  settle  the  accounts  of  an  alleged  partnership  between  the  plaintifiF 
and  defendant  for  running  a  grist  and  flour  mill,  buying  and  selling 
grain  and  products  of  said  mill.  The  bill  avers  that  by  the  terms  of 
the  partnership  the  defendant  was  to  furnish  the  gristmill  then  owned 
by  him  and  put  it  in  repair  at  his  own  expense,  the  plaintiflf  was  to 
run  and  operate  the  mill,  the  funds  for  carrying  on  the  business 
and  keeping  the  mill  in  repair  were  to  be  furnished  by  the  parties  in 
equal  portions,  and  the  profits  to  be  shared  equally  between  them. 

The  defendant  in  his  answer  positively  denies  that  any  partnership 
of  any  kind  existed  between   him   and   the  plaintiff.     He  avers   that 


6  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Cll.  1 

while  the  plaintiff  worked  at  his  mill  he  did  so  as  a  hired  hand.  Be- 
ing without  means  and  penniless,  he  was  employed  to  run  the  mill 
so  long  as  he  might  do  so  satisfactory  to  the  defendant  and  the  cus- 
tomers of  the  mill.  The  cause  was  referred  to  a  commissioner  for 
an  account,  depositions  taken,  and  the  commissioner  reported  that  in 
his  opinion  no  partnership  existed;  but,  if  the  court  should  decide 
that  the  proofs  established  a  partnership,  he  reported  due  to  the  plain- 
tiff $126.87. 

The  plaintiff  excepted  to  that  part  of  the  report  which  found 
that  no  partnership  existed,  and  the  court  by  its  decree  of  June 
14,  1883,  sustained  the  said  exception  and  decreed  that  the  plaintiff 
recover  from  the  defendant  the  said  sum  of  $126.87  and  costs.  From 
this  decree  the  defendant  appealed. 

It  is  apparent  from  the  evidence  in  this  cause  that  no  partnership 
existed.  The  only  agreement  between  the  plaintiff  and  defendant  is 
stated  by  the  plaintiff  when  he  says :  "My  agreement  was :  Mr. 
Applegate  was  to  furnish  me  a  house  to  live  in,  and  I  v/as  to  have 
the  half.  It  was  to  be  half  and  half  between  us.  Inside  repairs  of 
the  mill  were  to  be  done  by  me,  and  half  of  the  expenses  to  be  paid 
by  each.  Outside  repairs  to  be  paid  by  Lewis  Applegate.  There 
was  no  agreement  between  us  as  to  losses." 

The  evident  meaning  of  this  language,  as  shown  by  the  other  tes- 
timony and  facts,  is  that  the  plaintiff  was  employed  by  the  defendant 
to  take  charge  of  his  mill  as  miller,  and  for  his  services  in  that  behalf 
the  plaintiff  was  to  receive  one-half  the  tolls  or  earnings  of  the  mill. 
The  half  of  the  earnings  or  profits  to  which  the  plaintiff  thus  became 
entitled  did  not  make  him  a  partner  This  merely  constituted  the  man- 
ner of  payment  and  the  measure  of  his  compensation  for  his  services 
as  miller. 

To  constitute  a  partnership  laetween  the  parties  who  share  in 
the  profits,  the  interest  in  the  profits  must  be  mutual ;  that  is,  each 
person  must  have  a  specific  interest  in  the  profits  as  a  principal  trad- 
er. He  is  not  a  partner  if  he  merely  receives  out  of  the  profits  a  com- 
pensation for  his  services  as  an  agent,  employe  or  servant.  Collyer 
on  Partn.  §  31.  Thus,  where  A.  purchased  goods  for  an  adventure  on 
the  credit  of  B.,  and  it  was  agreed  "that,  if  any  profits  should  arise 
from  them,  B.  should  have  one-half  for  his  trouble,  it  was  held  that 
this  was  not  a  partnership  between  the  parties."  Hesketh  v.  Blanch- 
ard,  4  East,  144.  In  all  cases  there  must  be  a  participation  as  princi- 
pal. If  the  persons  merely  occupy  the  relation  of  principal  and  agent, 
employer  and  employe,  or  factor,'  no  partnership  can  be  predicated 
upon  the  fact  that  such  agent,  employe,  or  factor  receives  a  part  or 
share  of  the  profits*  for  his  services  or  other  benefits  conferred.  This 
proposition  is  illustrated  by  numerous  cases,  among  which  are  the 
following:  Berthold  v.  Goldsmith,  24  How  (U  S.)  542,  16  L.  Ed. 
762;  Burckle  v.  Eckhart,  1  Denio  (N.  Y.)  341;  Bowyer  v.  Anderson, 
2  Leigh  (Va.)  550;   Chapline  v.  Conant,  3  W.  Va.  507,  100  Am.  Dec. 


Sec.  2)  INTENTION    TO    BE    PARTNERS,  7 

766;  Dils'  Adm'r  v.  Bridge,  23  W.  Va.  20;  Ilanna  v.  Flint,  11  Cal.  73; 
Morgan  v.  Stearns,  41  Vt.  398. 

In  ever\'  partnership  there  is  a  community  of  interest,  hut  every 
community  of  interest  does  not  create  a  partnership.  There  must  be 
a  joint  ownership  of  the  partnership  funds,  or  a  joint  right  of  control 
over  them,  and  also  an  agreement  to  sliare  profits  and  losses  arising 
, therefrom.  Thus  an  agreement  between  A.  and  B.  that  A.  shall 
work  B.'s  farm  upon  shares  and  divide  the  produce  does  not  con- 
stitute them  partners  inter  sese,  or  as  to  third  persons.  Putnam  v. 
Wise,  1  Hill  (N.  Y.)  231.  37  Am.  Dec.  300.  Nor  are  the  owners 
of  real  estate  who  contract  with  mechanics  to  build  a  mill  or  other 
building  upon  their  land  partners  inter  sese;  but  either  party,  paying 
more  than  his  share  of  the  expense  of  the  construction,  may  recover 
such  excess  of  the  other  owner  in  assumpsit.  Porter  v.  McClure,  15 
Wend.   (N.  Y.)   187. 

It  is  unnecessary  to  illustrate  further  what  particular  facts  and 
agreements  do  or  do  not  constitute  a  partnership.  The  books  are  full 
of  nice  distinctions  and  definitions,  showing  that  it  is  often  difficult  to 
decide  to  which  class  the  particular  facts  and  circumstances  assign 
'  cases.  In  the  case  before  us,  however,  there  is  no  such  difficulty. 
Under  none  of  the  authorities  or  definitions  could  this  be  classed  as 
a  partnership. 

I  am  therefore  of  opinion  that  the  decree  complained  of  must  be 
reversed,  with  costs  to  the  appellant,  and  the  plaintiff's  bill  dismissed, 
with  costs. 

Reversed. 


SECTION  2.— INTENTION  TO  BE  PARTNERS. 


ZUBER  v.  ROBERTS. 

(Supromp  Court  of  Alab.iin.i.  1900.    147  Ala.  512.  40  South.  ."^lO.) 

Bill  by  R.  B.  Zuber  against  Paul  Roberts.  From  a  decree  in  favor 
of  defendant,  plaintiflf  appeals.    Affirmed. 

DowDELL,  J.  The  bill  in  this  case  is  filed  for  the  purpose  of  a 
settlement  of  an  alleged  partnership  between  the  complainant  and 
respondent.  The  respondent,  by  his  answer,  denies  the  allegations  of 
the  bill  as  to  the  existence  of  any  partnership  between  the  parties. 
There  was  no  contract  in  writing,  and  there  w-as  no  express  agree- 
ment between  the  parties  for  the  creation  of  a  partnership;  and  the 
determination  of  this  question  must  be  had  from  the  terms  of  the  agree- 
ment entered  into  between  the  parties,  the  character  and  conduct  of 
the  business,  and  the  intention  of  the  parties,  to  be  gathered  frcni 
the  circumstances  attending  the  entire  transaction. 


8  WHAT   CO^'STITUTES   A   PARTNERSHIP.  (Ch.  1 

In  1900  Paul  Roberts  obtained  a  lease  for  the  Alabama  Consolidat- 
ed Coal  &  Iron  Company  on  a  limestone  quarry  and  entered  into  a 
contract  to  furnish  said  company  with  200  tons  of  limestone  a  day  for 
a  term  of  three  years.  At  this  time  the  appellee  was  superintendent 
of  the  Alabama  Consolidated  Coal  &  Iron  Company's  furnace  at 
Ironaton,  Ala.,  and  the  appellant  was  an  employe  of  said  company 
under  the  appellee  as  superintendent.  An  agreement  was  subsequent- .' 
ly  entered  into  between  the  parties,  whereby  the  appellee  was  to  furnish 
the  capital  for  the  equipment  of  the  quarry  and  for  stocking  a  com- 
missary, etc.,  and  the  appellant  was  to  manage  the  quarry  and  com- 
missary, and  for  his  services  was  to  receive  one-half  of  the  profits 
derived  from  the  quarrying  of  stone  and  one-half  of  the  profits 
from  the  commissary,  and,  as  the  appellant  states  in  his  testimony, 
.one-half  of  the  rents  collected  on  houses  on  the  quarry  premises. 
Operations  were  conducted  under  this  arrangement  for  about  two 
years,  when  the  appellee  made  a  contract  with  the  Alabama  Con- 
solidated Coal  &  Iron  Company  whereby  he  surrendered  his  lease  and 
canceled  the  contract  for  the  supply  of  limestone  during  the  unexpired 
time.  He  was  paid  a  sum  of  money  by  the  Alabama  Consolidated 
Coal  &  Iron  Company  for  the  surrender  of  his  lease  and  cancellation 
of  the  contract,  and  the  appellant  thereupon  filed  his  bill  for  a  settle- 
ment of  the  alleged  partnership,  claiming  that  he  was  entitled  to  par- 
ticipate equally  with  appellee  in  the  sum  received  by  appellee  for  the 
cancellation  of  the  contract  and  the  surrender  of  the  lease,  all  of  which 
the  appellee  denies,  and  appellee  claims  that  the  business  was  his 
alone,  and  that  a  division  of  the  profits  was  only  an  adopted  method 
of  fixing  the  compensation  of  appellant  for  his  services  as  manager 
of  the  business. 

The  evidence  shows  that  the  business  was  conducted  in  the  name  of 
Paul  Roberts,  or  in  the  name  of  the  "Consolidated  Quarry,"  which 
latter  name  was  used  by  appellee  for  the  convenience  of  the  Alabama 
Consolidated  Coal  &  Iron  Company  in  the  keeping  of 'their  accounts, 
and  not  as  a  partnership  name.  The  appellant  claims  and  testifies  that 
the  name  of  "Roberts  &  Zubet"  was  used  in  conducting  the  quarry  busi- 
ness, and  the  evidence  shows  that  the  appellant  had  some  bills  of  lad- 
ing for  lime  rock  made  out  in  the  name  of  Roberts  &  Zuber.  The 
appellee,  on  the  other  hand,  testified  that  he  did  not  authorize  or  con- 
sent to  the  use  of  such  name,  and,  upon  being  informed  that  such 
name  was  being  used,  he  notified  the  agent  of  the  railroad  company 
and  the  clerk  in  the  commissary,  who  made  out  the  bills  of  lading, 
that  the  bills  should  not  be  so  made.  The  evidence  further  shows 
that  the  goods  for  the  commissary  were  purchased  in  the  name  of 
Paul  Roberts,  and,  as  shown  by  sundry  exhibits  attached  to  the  dep- 
osition of  Paul  Roberts,'  the  complainant,  Zuber,  would  order  goods 
for  the  commissary,  signing  the  name  "Paul  Roberts  per  R.  B.  Zuber," 
on  the  paper  of  the  "Consolidated  Company,"  which  had  the  names 
"Paul  Roberts,  Proprietor,"  and  "R.  B.  Zuber,  Mgr.,"  printed  thereon. 


Sec.  2)  INTENTION    TO    BE    TAIiTNERS.  9 

The  account  for  lime  rock  shipped  to  tlie  Alabama  Consolidated  Coal 
&  Iron  Company  was  kept  in  the  name  of  Paul  Roberts,  and  all  set- 
tlements were  made  with  Paul  Roberts  by  checks  drawn  to  his  ac- 
count. Tiie  capital  for  conducting  the  business  was  all  furnished  by 
the  appellee.  The  lease  on  the  quarry  and  the  contract  for  the  fur- 
nishing; of  stone,  which  made  the  business  possible,  were  the  property 
of  the  appellee,  and  were  never  by  him  transferred  or  assigned  in  any 
way  to  the  appellant,  in  whole  or  in  part.  On  the  other  hand,  the 
appellant  contributed  to  the  arrangement  only  his-services  as  manager, 
and  for  such  services  received,  instead  of  a  stipulated  salary,  one-half 
of  the  net  profits.  The  appellant  himself  testifies  that  the  agreement 
was  that  the  appellee  should  put  up  the  money  in  lieu  of  appellant's 
services,  and  certain  profits  were  to  be  divided  between  them. 

While  the  evidence  shows  a  community  of  interest  in  the  profits, 
it  does  not  satisfactorily  show  that  under  the  arrangement  and  con- 
duct of  the  business  there  was  to  be  any  community  in  the  losses.  The 
appellant  contends  that  the  fact,  which  is  undisputed,  that  he  bore 
his  part  of  the  loss  in  the  payment  of  damages  for  an  injury  suffered 
by  one  of  the  employes  working  in  the  quarry  mines  goes  to  prove 
that  he  was  not  only  to  share  in  profits,  but  in  the  losses  of  the 
business  as  well,  and  therefore  he  was  a  partner.  As  to  this  matter, 
the  evidence  shows  that  at  the  time  the  appellant  objected  to  paying 
any  part  of  said  loss,  and  the  evidence  further  explains  why  he  con- 
sented to  pay  one-half,  and  this  was  not  upon  the  ground  of  any  part- 
nership liability.  The  facts  in  the  present  case  are  very  much  like 
those  in  the  case  of  Tayloe  v.  Bush,  75  Ala.  432,  where  there  was  a 
contract  for  the  conduct  of  a  farm;  the  agreement  providing  that 
one  party  should  ^furnish  the  farm  and  certain  stock,  tools,  etc.,  the 
other  to  conduct  it,  keep  an  account  of  all  expenses,  and  to  make  equal 
division  of  the  net  proceeds.  It  was  said  in  that  case:  "In  determining 
whether  a  partnership  was  created,  the  intention  of  the  parties  is  the 
single  question  for  consideration.  There  is  a  well-recognized  distinc- 
tion between  cases  where  third  persons  have  dealt  with  parties,  as- 
sociated in  business  as  partners,  and  controversies  between  the  par- 
ties themselves,  or  controversies  in  which  the  rights  of  such  persons 
arc  not  involved.  In  the  one  class  of  cases,  a  partnership  may  arise 
by  mere  operation  of  law,  without  an  inquiry  into  or  in  direct  opposi- 
tion to  the  expressed  intention  of  the  parties.  In  the  other  class  of 
cases,  the  question  is  as  to  the  intention  of  the  parties.  *  *  *  The 
test  of  a  partnership  generally  is  whether  there  is  a  community  erf 
interests,  a  participation  in  losses  and  profits.  Howze  v.  Patterson. 
53  Ala.  205,  25  Am.  Rep.  GOT;  Autrey  v.  Frieze,  59  Ala.  5S7.  The  rule 
is  not  without  its  exceptions ;  and  when  a  party  is  without  interest  in 
the  capital  or  business  and  is  to  be  compensated  for  his  services  from 
the  profits,  or  rewarded  by  the  profits  or  what  is  to  depend  upon  the 
result  of  an  adventure  or  enterprise,  the  rule  is  without  application. 
This  contract  is  within  the  exception.     The  participation  of  Thomas 


10  WHAT    CONSTITUTES    A    PARTNERSHIP.  (Cll.  1 

in  the  profits  was  simply  intended  as  compensation  to  him  for  his  skill 
and  services  as  the  manager  of  the  stock  and  plantation  and  in  the 
cultivation  and  gathering  of  the  crops."  Again  it  is  said  in  Stafford 
V.  Sibley,  106  Ala.  192,  17  South.  321 :  "An  agreement  by  which  one 
is  to  share  in  the  profits  alone  does  not  create  a  partnership.  The 
agreement  should  bind  the  parties  to  share  the  burden  of  losses.  One 
who  is  to  receive  for  his  share  a  percentage  of  net  profits,  and  if 
there  are  no  profits  is  to  be  paid  nothing,  in  one  sense  is  affected  by 
losses;  but  if  by  the  agreement  he  is  to  contribute  nothing  to  make 
good  the  losses,  if  he  is  under  no  legal  liability  therefor,  he  does 
not  bear  the  burden  of  loss  in  its  legal  signification  as  an  element  of 
partnership." 

Applying  this  law  to  the  facts  in  this  case,  as  we  gather  them 
from  the  evidence,  we  are  of  the  opinion  that  no  partnership  existed 
between  the  parties.  To  our  minds,  the  weight  of  the  evidence  shows 
that  it  was  never  the  intention  of  the  parties  to  create  a  partnership, 
and  that  the  agreement  to  divide  the  profits  was  only  a  mode,  adopted 
by  the  parties,  in  fixing  the  appellant's  compensation  for  the  services 
which  he  was  to  render.  It  follows,  therefore,  that  the  decree  appeal- 
ed from  must  be  affirmed. 

Affirmed. 


BRADLEY  et  al.  v.  ELY. 

(.Appellate  Court  of  Indiana,  1900.     24  Ind.  App.  2,  5G  N.  E.  44,  79  .\m.  St 

Rep.  251.) 

COMSTOCK,  C.  J.  The  appellee,  plaintiff  below,  sued  James  L.  Har- 
gis  and  James  L.  Bradley  as  partners  as  J.  L.  Hargis  &  Co.  The  com- 
plaint was  in  two  paragraphs.  The  first  was  on  a  promissory  note 
executed  by  J.  L.  Hargis  &  Co.  to  the  appellee.  The  second  was  for 
money  had  and  received  to  the  use  and  benefit  of  the  defendants,  and 
to  pay  off  an  indebtedness  incurred  in  the  operation  and  management 
of  a  large  farm  operated,  as  alleged,  by  the  defendants  as  partners. 
Appellant  filed  his  sworn  answer  to  the  complaint  in  general  denial. 
The  finding  and  judgment  of  the  court  was  for  the  appellant  on  the 
first  paragraph  of  the  complaint,  and  against  Bradley  and  Hargis  on 
the  second  paragraph.  Bradley  alone  appeals.  The  error  assigned  is 
the  action  of  the  court  in  overruling  appellant's  motion  for  a  new 
trial.  Among  the  reasons  specified  in  the  motion  for  a  new  trial  are 
"that  the  finding  is  not  sustained  by  sufficient  evidence' and  is  con- 
trary to  law."  The  record  shows  that  the  consideration  of  the  note 
which  was  executed  by  Hargis  in  person  was  for  the  same  money 
loaned  to  Hargis  in  person  and  declared  for  in  the  second  paragraph 
of  the  complaint.  On  January  3,  1880,  appellant,  the  owner  of  a 
farm,  entered  into  a  written  agreement  with  James  H.  Hargis  for  its 
cultivation;    that  under  the  contract  he    (James  H.  Hargis)    resided 


Sec.  2)  INTENTION    TO    BE  PARTNERS.  11 

Upon  and  cultivated  the  farm  until  1890,  when  his  son  J.  L.  Hargis, 
who  for  some  time  had  acted  as  his  father's  foreman,  moved  on  the 
farm,  his  father  moving  off,  and  during  the  son's  occupancy  and  cul- 
tivation of  the  farm  the  alleged  indebtedness  accrued.  The  record 
shows  that  there  was  no  contract  for  the  occupancy  or  cultivation  ot 
the  farm,  written  or  oral,  between  appellant  and  James  H.  Hargis 
or  J.  L.  Hargis,  other  than  the  written  agreement  with  James  H. 
Hargis.  There  is  evidence  that  J.  L.  Hargis  succeeded  to  the  posi- 
tion and  rights  of  his  father,  J.  H.  Hargis.  The  second  paragraph  al- 
leges a  partnership  between  J.  H.  Hargis  and  the  appellant.  Counsel 
for  appellee  state  in  their  brief  that  the  court  found  that  they  were 
partners,  and  that  the  money  was  used  in  the  discharge  of  indebted- 
ness created  for  the  benefit  of  the  partnership.  Appellee  contends 
that  tl'e  contract  made  the  parties  thereto  a  farm  partnership.  Ap- 
pellant contends  that,  it  is  a  contract  "to  rent  and  farm  let,"  as  declared 
therein  and  does  not  create  a  partnership  of  any  kind.  Counsel  for 
appellee,  in  support  of  their  views,  argue  that  Bradley  furnished  the 
farm  and  two-thirds  of  the  personal  property;  that  one-third  of  the 
personal  property  was  appraised,  and  charged  to  Hargis,  who,  by  the 
terms  of  the  contract,  became  the  owner  of  one-third  the  personal 
property,  for  the  purchase  of  which  he  became  indebted  to  Bradley, 
and  agreed  to  pay  interest  thereon;  that  he  furnished  his  own  and 
hired  labor;  that  he  had  the  power  of  general  manager;  that  there 
was  to  be  a  showing  of  the  losses  and  profits,  "two-thirds  of  the  net 
profits  to  go  to  the  party  of  the  first  part,  and  one-third  thereof  to  go 
to  the  party  of  the  second  part,  and  the  losses  and  expenses  to  be  ap- 
plied, two-thirds  to  the  party  of  the  first  part,  and  one-third  to  the 
party  of  the  second  part."  It  is  claimed  for  counsel  for  appellee  that 
these  terms  and  stipulations  of  the  agreement  made  the  contract  one 
of  partnership;  citing  17  Am.  &  Eng.  Enc.  Law,  p.  854;  Brown  v, 
Higginbotham,  5  Leigh  (Va.)  583,  27  Am.  Dec.  CIS;  Champion  v. 
Bostwick,  18  Wend.  (N.  Y.)  183,  31  Am.  Dec.  07G ;  Pettee  v.  Ap- 
pleton,  114  Mass.  114;  Fougner  v.  Bank,  141  111.  124,  30  N.  E.  442) 
State  Nat.  Bank  v.  Butler,  149  111.  575,  36  N.  E.  1000.  As  appears 
from  brief  of  appellee,  the  cause  was  tried  and  decided  upon  the 
theory  that  appellee  and  appellant  were  partners. 

In  the  construction  of  a  contract,  we  look  to  the  intention  of  the 
parties.  As  said  in  George,  Partn.  p.  31:  "But  it  is  the  legal,  rather 
than  the  declared,  intention  that  controls.  If  the  parties  intend  and 
do  those  things  which  the  law  declares  constitute  a  partnership,  then 
the  parties  are  partners,  and  an  express  stipulation  that  they  do  not 
intend  to  form  a  partnership  is  of  no  avail.  It  simply  shows  that  they 
have  mistaken  the  legal  effect  of  the  agreement  which  they,  intend- 
ed to  make."  The  fact  of  partnership,  in  the  case  before  us,  depends 
entirelv  upon  the  written  agreement.  *  *  *  From  an  examina- 
tion of  its  terms,  we  think  it  quite  clear  that  the  parties  did  not  in- 
tend to  form  a  partnership.     The  words  which  are  usually  employe  I 


12  WHAT   CONSTITUTES   A    PARTNERSHIP.  (Ch.  1 

in  articles  embracing  the  formation  of  a  partnership  are  wholly  want- 
ing. The  intention  to  form  a  partnership  is  nowhere  in  terms  ex- 
pressed. Upon  the  contrary,  the  agreement  recites  that  "the  party 
of  the  first  part  has  this  day  rented  and  farm  let  unto  the  party  of 
the  second  part  his  [Bradley's]  said  farm,  *  *  *  fQj-  ^1;,^  term  of 
one  year,  and  after  the  1st  day  of  March,  18S0,  with  the  privilege  of 
continuing  the  same  from  year  to  year  on  the  terms  hereinafter  enum- 
erated,' *  *  *  and  at  the  expiration  of  each  year  during  the  term 
of  such  tenancy,"  etc.,  "they  shall  meet  on  proper  notice,  *  *  * 
adjust  their  business  and  claims  pertaining  to  said  renting."  Did 
the  parties,  without  intending  so  to  do,  enter  into  a  partnership?  Col- 
lyer  on  Partnership  (chapter  1)  thus  defines  a  "partnership":  "If 
there  is  a  joint  undertaking  and  community  of  profit  and  loss,  each 
party  sharing  in  these  mutually,  and  having  a  specified  interest  in 
the  profits,  not  as  compensation  for  services  rendered,  but  as  an  as- 
sociate in  the  undertaking,  the  relation  of  partner  is  formed."  George 
on  Partnership,  at  page  50,  says:  "Cox  v.  Hickman,  8  H.  L.  Cas.  368, 
established  the  proposition  that  partners  are  the  agents  of  each  other; 
but,  for  reasons  just  explained,  mutual  agency  is  not  the  test  of  part- 
nership. The  ultimate  and  conclusive  test  of  a  partnership  is  the 
ownership  of  the  profits  of  the  business.  If  there  is  a  community  of 
profits,  a  partnership  follows.  Community  of  profits  means  a  pro- 
prietorship in  them,  as  distinguished  from  a  personal  claim  upon  the 
othjer  associate;  in  other  words,  a  property  right  in  them  from  the 
start  in  one  associate  as  much  as  in  the  other."  The  contract  provides 
for  the  purchase  by  the  party  of  the  second  part  of  a  one-third  inter- 
est in  the  personal  property  on  the  farm.  The  remaining  two-thirds 
interest  was  reserved  in  the  party  of  the  first  part.  This  created  a 
tenancy  in  common.  It  provides  for  the  sale  of  the  farm  property 
on  hand  when  the  contract  was  entered  into  by  "the  mutual  consent 
and  agreement  of  the  parties."  The  parties  were  not  made  the 
mutual  agents  of  each  other,  each  as  principal.  In  Roper  v.  Schaefer, 
35  Mo.  App.  30,  in  which  numerous  authorities  are  cited,  the  rule 
stated  in  an  instruction  as  follows  was  approved :  "The  court  declares 
the  law  to  be  that  a  simple  partnership  in  profits  and  losses  of  a  busi- 
ness does  not  constitute  a  partnership,  but  there  must  be  such  com- 
munity of  interests  as  enables  each  party  to  make  contracts,  manage 
the  whole  business,  dispose  of  the  whole  property ;  and  the  rule  is  the 
same  as  to  third  persons,  unless  the  party  sought  to  be  charged  has 
so  acted  as  to  lead  the  plaintiff  to  believe  a  partnership  existed  and  to 
act  upon  such  belief."  The  contract  in  question  provides  that  the  par- 
ty of  the  second  part  will  cultivate  all  the  farming  land  thereon,  in 
such  crops  and  in  such  proportion  as  the  parties  may  agree  upon  from 
year  to  year;  that  he  will  plow  and  gather  in  good  season  or  order, 
circumstances  permitting,  and  put  in  a  crib  or  garner;  and  the  parties 
are  to  sell  the  product  of  said  farm  at  such  prices  as  said  parties  may 
agree  upon  from  time  to  time;    "the  said  party  of  the  second  part 


Sec.   2)  INTENTION    TO    BE   PARTNERS.  13 

to  have  charge  of  said  farm,  and  to  take  full  power  to  make  all  nec- 
essary purchases  for  said  farm,  and  to  buy  and  sell  such  stock,  and 
for  such  price,  as  may  be  mutally  agreed  upon."  "The  party  of  the 
second  part  to  keep  a  complete  and  correct  account  of  all  purchases 
and  sales  of  any  kind  and  character  pertaining  to  the  management  of 
said  farm  under  this  contract,  which  shall  be  open  to  the  inspection  of 
both  parties."  These  provisions  are  consistent  with  the  theory  of 
tennncv.  and  witli  the  foremanship  of  the  party  of  the  second  part, 
and  inconsistent  with  the  theory  of  partnership,  because  the  right  of 
a  partner  to  inspect  the  books  is  an  incident  of  partnership,  not  de- 
l)cndent  upon  contract.  The  party  of  the  first  part  is  to  have  two- 
tliirds  of  the  price  of  all  articles  sold  from  said  farm,  and  the  party 
of  the  second  part,  one-third  thereof.  The  agreement  stipulates  that 
the  party  of  the  second  part  shall  not  be  required  to  replace  buildings 
destroyed  by  fire.  This  provision  would  seem  wholly  out  of  place  in 
a  partnership  agreement,  but  the  parties  may  reasonably  have  had  in 
mind  the  rule  that  ordinarily  leased  premises  are  to  be  surrendered 
to  the  landlord  in  as  good  repair  as  when  taken,  process  of  ordinary 
decay  excepted. 

We  are  unable  to  agree  with  the  learned  trial  court  in  the  conclu- 
sion reached.  We  are  of  the  opinion  that  the  intention  of  the  parties, 
gathered  from  the  instrument,  was  to  not  enter  into  a  partnership, 
and  that  without  reference  to  their  intention,  as  gathered  from  the  ex- 
tracts we  have  made  from  the  contract  descriptive  of  the  relation  in- 
tended to  be  created,  the  instrument  cannot  be  construed  as  creating  a 
partnership.  The  specific  interest  in  the  profits  given  to  the  tenant 
were  in  compensation  for  services  rendered.  It  contains  no  provision 
inconsistent  with  this  interpretation,  while  the  theory  of  partnership 
is  against  the  apparent  intention  of  the  parties.     *     *     * 

Tudgmcnt  reversed,  with  instructions  to  sustain  appellant's  motion 
for  a  new  trial. 


DURYEA  et  al.  v.  WHITCOMB. 
(Supreme  Court  of  Vermout,  18^18.    31  Vt.  395.) 

Book  account.  The  auditor  reported  that  on  the  :20th  of  August, 
1854,  the  defendant,  the  plaintiffs,  and  Isaac  B.  Lewis  made  an  agree- 
ment in  the  city  of  New  York,  where  both  the  plaintiiTs  and  Lewis 
resided  and  were  engaged  in  the  purchase  and  sale  of  potatoes,  that 
the  defendant,  who  resided  in  Wells  River,  in  this  state,  should  pur- 
chase potatoes  during  that  season  in  Vermont  and  New  Hampshire, 
taking  the  advice  of  the  plaintiffs  and  Lewis,  from  time  to  time,  in 
regard  to  the  price,  amount,  and  market  of  such  purchases;  that  the 
defendant  was  to  devote  his  whole  time  to  this  business,  and  was  to 
liave  G  cents  per  bushel  to  cover  the  expense  of  buying  and  carrying 


li  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

the  potatoes,  which  sum  of  6  cents  per  bushel  was  to  be  added  to  the 
cost  of  the  potatoes ;  that  if  it  should  become  necessary,  in  the  course 
of  such  purchases,  for  the  defendant  to  visit  other  parts  of  the  coun- 
try, the  expense  thereof  should  be  borne,  one-half  by  the  defendant, 
one-quarter  by  Lewis,  and  one-quarter  by  the  plaintiffs ;  that  the  de- 
fendant was  to  send  the  potatoes  purchased  by  him  to  such  market 
as  he  should  think  best,  advising,  however,  on  this  subject,  with  Lewis 
and  the  plaintiffs;  that  all  the  potatoes  which  the  defendant  should 
purchase  and  send  to  New  York  were  to  be  taken  by  Lewis  or  the 
plaintiffs,  and  sold  at  the  highest  market  price  by  the  one  who  should 
receive  them,  such  party  charging  nothing  for  selling,  and  each  to  be 
accountable  for  their  own  sales;  that  if  the  defendant  chose  to  send 
any  of  the  potatoes  purchased  by  him  to  any  other  market  than  New 
York  he  should  be  accountable  for  the  amount  of  the  sales  thereof; 
that  all  the  expenses  of  transportation  of  the  potatoes  to  market  were 
to  be  paid  by  the  defendant,  and^added  to  the  general-  cost  of  the  po- 
tatoes, and  at  the  close  of  the  season  the  profit  or  loss  on  all  the  potatoes 
purchased  by  the  defendant  were  to  be  apportioned  among  the  parties 
as  follows :  to  the  defendant  one-half,  to  the  plaintiffs  one-quarter, 
and  to  Lewis  one-quarter;  and  that,  if  the  defendant  at  any  time 
needed  more  funds  than  he  had  for  such  purchases,  he  might  draw  on 
Lewis,  or  on  the  plaintiff's,  in  such  a  manner  and  to  such  an  extent 
that  the  defendant  should  furnish  one-half  of  the  money  for  such  pur- 
chases, the  plaintiffs  one-quarter,  and  Lewis  one-quarter.  The  au- 
ditor further  reported  that  in  pursuance  of  this  agreement  potatoes 
were  purchased  by  Whitcomb  and  sent  to  market  and  sold  by  the  other 
parties,  and  that  upon  an  adjustment  of  the  claims  of  the  plaintiffs 
against  the  defendant,  arising  out  of  such  purchases  and  sales  (which 
were  the  only  matters  embraced  in  the  plaintiffs'  account),  including 
the  defendant's  share  of  a  loss  in  said  business,  computed  according 
to  the  terms  of  the  agreement,  he  found  that  the  defendant  was  in- 
debted to  the  plaintiffs  in  the  sum  of  $848.45.  The  auditor  further 
reported  that  at  the  time  the  above-mentioned  arrangement  was  made 
nothing  was  said  between  the  parties  about  a  partnership,  and  the  au- 
ditor found  from  the  foregoing  facts  that  neither  of  the  parties  at  that 
time  supposed  they  were  forming  a  partnership  or  intended  to  form 
one.  The  defendant  insisted  before  the  auditor,  as  well  as  before  the 
county  court,  that  this  arrangement  constituted  a  partnership  between 
him,  the  plaintiffs,  and  Lewis,  and  claimed  that  the  affairs  of  such  part- 
nership could  not  be  adjusted  in  this  action.  But  the  county  court 
rendered  judgment  upon  the  report  for  the  plaintiffs  for  the  amount 
reported  by  the  auditor,  to  which  the  defendant  excepted. 

Alois,  J.  As  this  is  a  case  where  the  rights  of  the  partners  inter 
se  merely  are  concerned,  where  no  question  as  to  third  persons  is  in- 
volved, the  criterion  to  determine  whether  the  contract  is  one  of  part- 
nership or  not  must  be:  What  did  the  parties  intend  by  the  contract 
which  they  made  as  between  themselves? 


Sec.   2)  INTENTION    TO    BE   PARTNERS.  1-^ 

If  we  regard  the  agreement  itself,  as  set  forth  in  the  auditor's  re- 
port, it  is  clearly  a  partnership.     *     *     * 

The  parties  all  furnish  a  share  of  the  capital — Whitcomb  (jne-half, 
Lewis  one-quarter,  the  Duryeas  one-quarter.  They  jointly  own  the 
property  when  purchased.  It  is  purchased  in  order  to  be  sold  again 
for  their  joint  and  mutual  bencfri,  thereby  negating  the  idea  of  sep- 
arate control  and  disposition  of  their  interests  in  the  property  pur- 
chased and  of  separate  interests  in  the  proceeds.  Each  is  to  share 
in  the  final  profit  or  loss.  At  the  close  of  the  season  the  profits  or 
losses  are  to  be  divided,  to  Whitcomb  one-lialf,  to  Lewis  a  quarter, 
to  the  plaintiffs  a  quarter.  Each  is  to  aid  in  selling,  and  to  contribute 
his  aid,  skill,  and  knowledge  to  get  the  highest  price.     *     *     * 

The  fact  that  each  was  to  be  accountable  for  his  own  sales  amounts 
only  to  this:  That  each  should  sell  for  cash.  If  either  did  not,  he 
was  to  be  accountable  for  his  sale  as  cash.  The  proceeds  of  the  sales 
by  each  would  belong  to  them  jointly,  not  severally.  This  provision 
is  as  consistent  with  an  agreement  for  a  partnership  as  with  any  oth- 
er. Noycs  V.  Cushman,  25  Vt.  390.  So  that  Whitcomb  was  to  have 
the  control  of  the  potatoes,  and  to  run  them  to  the  best  market,  taking 
the  advice  of  Lewis  and  the  Duryeas' on  the  subject,  is,  when  we  con- 
sider where  the  parties  resided,  where  the  potatoes  were  to  be  bought, 
and  to  what  markets  they  might  be  sent,  and  that  Whitcomb  was  to 
buy  them,  as  consistent  with  a  contract  of  partnership  as  with  any 
other. 

I.  This  agreement  does  not  belong  to  the  class  of  cases  where  the 
parties  are  jointly  interested  in  certain  proportions  in  the  property 
purchased,  but  not  in  the  final  profits  or  losses,  where  each  of  the 
part  owners  has  the  power  of  separate  disposition  of  his  interest.  Such 
is  the  case  of  Coope  v.  Eyre,  1  H.  Bl.  37,  a  leading  illustration  of  the 
class. 

II.  It  is  not  of  the  class  where  a  party  receives  a  portion  of  the 
profits  as  a  compensation  for  his  labor  as  an  agent  or  servant.  Each 
furnished  a  portion  of  the  capital.  Each  was  a  part  owner  of  the  prop- 
erty when  purchased,  and  of  the  proceeds  when  sold.  Neither  could 
be  said  to  be  the  servant  or  agent  of  the  other.  An  agent  who  re- 
ceives a  share  of  the  profits  as  a  compensation  for  his  services  is  not 
expected  to  share  in  losses.  If  there  are  no  profits,  he  loses  his  labor  or 
wages ;  but  he  loses  no  more,  though  there  are  further  losses  to  be 
borne  by  the  partners. 

Of  this  class  is  Kellogg  v.  Griswold,  12  Vt.  291,  and  Mason  v.  Pot- 
ter, 26  Vt.  722. 

III.  Nor  is  it  a  case  where  a -share  of  the  gross  or  net  earnings  is 
to  be  paid  as  a  compensation  for  the  use  of  capital,  or  as  rent,  and 
whore  the  party  receiving  such  compensation  has  no  interest  in  the 
business,  the  property,  and  the  proceeds,  but  only  a  right  of  action 
against  the  other  parties.  Here  the  parties  jointly  contributed  capital, 
labor,  and  skill— were  joint  owners  of  the  property  from  the  time  of 


16  WHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

its  purchase  till  the  final  division  of  profits  or  loss.  No  severance  of 
their  interests  could  be  had.  No  ascertainment  of  their  respective 
shares  or  interests  could  be  made  till  a  final  accounting.  They  must 
have  relied  on  the  property  and  its  proceeds  to  secure  to  each  his  final 
share,  no  matter  by  whom  the  property  might  be  sold,  or  its  proceeds 
held. 

Hence  the  cases  of  Tobias  v.  Blin,  21  Vt.  544,  Bowman  et  al.  v. 
Bailey,  10  Vt.  170,  and  Ambler  v.  Bradley,  6  Vt."  119,  do  not  apply. 
Of  the  same  class  are  Denny  v.  Cabot,  6  Mete.  (Mass.)  92,  Holmes  v. 
R.  R.  Corp.,  5  Gray  (Mass.)  58,  Loomis  v.  Marshall,  12  Conn.  69,  30 
Am.  Dec.  596,  and  various  other  cases  cited  by  counsel. 

It  is  said,  however,  that  the  auditor  finds  that  the  parties  did  not  in- 
tend to  form  a  partnership,  and  that  such  intention  must  govern. 

It  is  with  contracts  of  partnership,  as  with  all  other  contracts,  that 
as  between  the  parties  to  them  their  intention  must  govern.  Hence 
an  express  stipulation  in  a  contract  that  the  parties  thereto  shall  not 
thereby  become  partners  is  binding  and  of  great  significance  in  giving 
construction  to  the  instrument,  especially  if  the  terms  are  doubtful, 
or  susceptible  of  more  than  one  meaning. 

1.  It  is  to  be  noted  that  in  this  case  there  was  no  such  express  stip- 
ulation. The  auditor's  report  says :  "At  the  time  of  the  arrangement 
in  New  York,  August  20,  1854,  nothing  was  said  about  a  partnership, 
and  neitl^er  of  the  parties  at  that  time  supposed  they  were  forming  a 
partnership,  or  intended  to  form  a  partnership."  As  nothing  was  said 
about  a  partnership,  the  parties  could  not  have  stipulated  that  their 
contract  sliould  not  create  one. 

2.  The  report  states  what  was  the  arrangement  of  August  20,  1854. 
That  was  a  contract  for  a  partnership.  If  their  contract  was  for  a 
partnership  by  necessary  legal  construction  (which  we  have  found 
that  it  was),  and  they  intended  to  make  the  contract  (and  this  appears 
from  the  report) ,  the  legal  effect  of  their  contract  could  not  be  varied 
by  their  not  supposing  it  to  be  what  it  was.  The  further  statement  in 
the  report  .that  they  did  not  intend  to  form  a  partnership  seems  incon- 
sistent with  the  other  facts.  One  is  at  a  loss  to  perceive  how  the  au- 
ditor could  discover  such  an  intention,  when  nothing  was  said  about 
a  partnership,  and  when  the  contract  which  they  made  v/as  a  partner- 
ship. Probably  the  fair  construction  of  the  report  is  that  the  parties 
were  not  aware  of  the  legal  extent  and  obligation  of  the  contract  into 
which  they  entered. 

As  the  contract  imports  a  partnership,  we  must  hold,  in  the  absence 
of  any  express  stipulation  and  of  any  other  circumstances  to  show 
the  contrary,  that  they  intended  to  qreate  the  relation  which  the  con- 
tract expresses.    *    *    * 

The  result  is  that  the  judgment  of  the  qounty  court  is  reversed,  and 
judgment  rendered  for  the  defendant  to  recover  his  costs.^ 

1  "It  was  said,  and  said  with  considerable  force,  that  they  never  Intended 
to  be  partners.     What  they  did  not  intend  to  do  was  to  incur  the  liabilities 


Sec.  3)  TESTS  OF  INTENTION.  "^'^ 

SECTION  3.— TESTS  OF  INTENTION. 
I.  Sharing  Profits — Former  Doctkixij;. 


GRACE  V.  SMITH. 

(Court  of  Common  ricsis.  1775.    2  W.  Rl.  008.) 

De  Grey,  C.  J.,  reported :  That  this  was  an  action  brought  against 
Smitli  alone  as  a  secret  partner  with  one  Robinson  (vide  Abbot  and 
Smith),  to  whom  the  goods  were  delivered,  and  who  became  bank- 
rupt in  1770.  That  on  the  30th  of  March,  1767,  Smith  and  Robinson 
entered  into  partnership  for  seven  years,  but  in  the  November  after- 
wards, some  disputes  arising,  they  agreed  to  dissolve  the  partnership. 
The  articles  were  not  canceled,  but  the  dissolution  was  open  and  no- 
torious, and  was  notified  to  the  public  on  the  17th  of  November, 
1767.  The  terms  of  the  dissolution  were  that  all  the  stock  in  trade 
and  debts  due  to  the  partnership  should  be  carried  to  the  account  of 
Robinson  only;  that  Smith  was  to  have  back  £5,200,  which  he  brought 
into  the  trade,  and  £1,000  for  the  profits  then  accrued  since  the  com- 
mencement of  the  partnership;  that  Smith  was  to  lend  Robinson  £4,- 
000,  part  of  this  £5,200,  or  let  it  remain  in  his  hands  for  seven  years, 
at  5  per  cent,  interest  and  an  annuity  of  £300  per  annum  for  the  same 
seven  years — for  all  of  which  Robinson  gave  bond  to  Smith.  In  June, 
17GS,  Robinson  advanced  to  Smith  £600  for  two  years'  payment' of  the 
annuity  and  other  sums  by  way  of  interest  and  gratuities,  and  other 
large  sums  at  different  times,  to  enable  him  to  pay  the  partnership 
debts ;  Smith  having  agreed  to  receive  all  that  was  due  to  the  part- 
nership, and  to  pay  its  debts,  but  at  the  hazard  of  Robinson.  That  on 
the  1st  of  August,  1768,  the  demands  of  Smith  were  all  liquidated  and 
consolidated  into  one,  viz.,  £5,200  due  to  him  on  the  dissolution  of  the 

of  partners.  If  Intendinc:  to  be  a  partner  Is  intending  to  take  the  profits, 
tlacn  they  dirt  intend  to  be  partners.  If  intending  to  talce  the  profits  and 
have  the  business  carried  on  for  their  benefit  was  intending  to  be  partners, 
they  did  intend  to  ho  partners.  If  intending  to  see  that  the  money  was  ap- 
plied for  that  purposp.  and  for  no  other,  and  to  exercise  an  cthcient  control 
over  it.  so  that  they  might  have  bronght  an  action  to  restrain  it  from  being 
otherwise  applied,  etc..  was  intending  to  be  partners,  then  thcv  did  intend 
to  be  partners."  Per  Jessel.  M.  R.,  In  Tooley  v.  Driver,  5  Ch.  Div.  458. 
4S?,  (lS7n). 

"It  is  nevertheless  possible  for  parties  to  Intend  no  partnership,  and  yet  to 
form  one.  If  they  agree  upon  an  arrangement  which  is  a  partnership  in 
fact,  it  is  of  no  importance  tliat  tliey  call  it  somelliing  else,  or  that  they  even 
expre«slv  declare  that  they  are  not  to  be  partners.  The  law  must  declare 
what  is  the  legal  Import  of  their  agreements,  and  names  go  for  nothing  when 
the  substance  of  the  arrangement  shows  them  to  be  inapplicable.  But  every 
doubtful  case  must  be  solved  in  favor  of  their  intent:  otherwise,  we  should 
'carry  the  doctrine  of  constructive  partnership  so  far  as  to  render  It  a  trap 
to  the  unwary.'  "  Per  Cooley,  .1.,  in  Beecher  v.  Bush,  45  Mich.  ]SS.  7  N.  W. 
.  7S."'>,  40  Am.  Rep.  4G.5. 

GlL.P.\RT.— 2 


18  WHAT   CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

partnership,  £1,500  for  the  remaining  five  years  of  the  annuity,  and 
£300  for  Smith's  share  of  a  ship,  in  all,  £7,000,  for  which  Robinson 
gave  a  bond  to  Smith.  That  on  the  3::3d  of  August,  1769,  an  assign- 
ment was  made  of  all  Robinson's  effects  to  secure  the  balance  then  due 
to  Smith,  which  was  stated  to  be  £10,000.  Soon  after  the  commission 
was  awarded, 

Davy,  for  the  plaintiff,  insisted  that  the  agreement  between  Rob- 
inson and  Smith  was  either  a  secret  continuance  of  the  old  partner- 
ship or  a  secret  commencement  of  a  new  one,  being  for  the  retiring 
partner  to  leave  his  money  in  the  visible  partner's  hands,  in  order  to 
carry  on  his  trade,  and  to  receive  for  it  13^2  per  cent,  profit,  which 
could  not  fairly  he  done,  unless  it  be  understood  to  arise  from  the  prof- 
its of  the  trade,  and  that  he  ought  therefore  to  be  considered  as  a  se- 
cret partner;  and  he  relied  much  on  a  case  of  Bloxham  and  Fourdri- 
nier  v.  Pell  and  Brooke,  tried  at  the  same  sittings  (7th  of  March  1775), 
before  Lord  Mansfield  in  the  King's  Bench,  as  in  point.  "This  was 
also  a  partnership  for  seven  years  between  Brooke  and  Pell,  but  at 
the  end  of  one  year  agreed  to  be  dissolved,  but  no  express  dissolution 
was  had.  The  agreement  recited  that,  Brooke  being  desirous  to  have 
the  profits  of  the  trade  to  himself  and  Pell  being  desirous  to  reHnquish 
his  right  to  the  trade  and  profits,  it  was  agreed  that  Brooke  should 
give  Pell  a  bond  for  £3,485,  which  Pell  had  brought  into  the  trade, 
with  interest  at  5  per  cent.,  which  was  accordingly  done.  And  it  was 
further  agreed  that  Brooke  should  pay  to  Pell  £200  per  annum  for  six 
years,  if  Brooke  so  long  lived,  as  in  lieu  of  the  profits  of  the  trade; 
and  Brooke  covenants  that  Pell  should  have  free  liberty  to  inspect 
his  books.  Brooke  became  a  bankrupt  before  anything  was  paid  to 
Pell.  And,  this  action  being  brought  for  a  debt  incurred  by  Brooke 
in  the  course  of  trade.  Lord  Mansfield  held  that  Pell  was  a  secret 
partner.  This  was  a  device  to  make  more  than  legal  interest  of  mon- 
ey, and,  if  it  was  not  a  partnership,  it  was  a  crime.  And  it  shall  not 
he  in  the  defendant  Pell's  mouth  to  say:  'It  is  usury,  and  not  a  part- 
nership.' " 

Grose  and  Adair,  for  the  defendant,  argued  that  the  present 
case  is  very  distinguishable  from  that  of  Bloxham  v.  Pell.  Pell  was 
to  be  paid  out  of  the  profits  of  the  trade,  as  appears  from  the  cove- 
nant to  inspect  the  books,  which  else  would  be  useless.  His  annuity 
was  expressly  given  as  and  in  lieu  of  those  profits.  It  was  contingent 
in  another  view,  as  it  depended  on  the  Ufe  of  Brooke,  by  whom 
those  profits  were  to  be  made.  In  our  case  the  annuity  is  certain,  not 
:asual.  It  does  not  depend  /on  carrying  on  the  trade,  nor  to  cease 
when  that  is  left  off,  but  is  due  out  of  the  estate  of  Robinson.  It  is 
not  a  necessary  dilemma,  but  it  must  be  either  usury  or  partnership. 
It  may  be,  and  nrobably  was,  a  premium  for  the  good  will  of  the  trade. 
Two  thousana  guineas  is  no  uncommon  price  for  turning  over  the 
profits  of  a  trade  so  beneficial  that  it  appears  to  have  been  rated  at 
£1,000  to  each  partner  in  the  space  of  less  than  eight  months.     And 


Sec.  3)  TESTS   OF   INTENTION.  19 

whether  that  sum  is  agreed  to  be  paid  at  once,  or  by  seven  installments, 
it  is  the  same  thing.  Besides,  whether  there  be  or  be  not  a  secret 
constructive  partnership  is  a  question  proper  for  a  jury,  wiio  have  de- 
cided it  on  consideration  of  all  the  circumstances. 

Dji  Grey,  C.  J.  The  only  question  is,  what  constitutes  a  secret  part- 
ner? Every  man  who  has  a  share  of  the  profits  of  a  trade  ought  al- 
so to  bear  his  share  of  the  loss.  And  if  any  one  takes  part  of  the  prof- 
it, he  takes  a  part  of  that  fund  on  which  the  creditor  of  the  trader 
relies  for  his  payment.  If  any  one  advances  or  lends  money  to  a 
trader,  it  is  only  lent  on  his  general  personal  security.  It  is  no  spe- 
cific lien  upon  the  profits  of  the  trade,  and  yet  the  lender  is  generally 
interested  in  those  profits.  He  relies  on  them  for  repayment.  And 
there  is  no  difference  whether  that  money  be  lent  de  novo  or  left  be- 
hind in  trade  by  one  of  the  partners,  who  retires.  And  whether  the 
terms  of  that  loan  be  kind  or  harsh  makes  alsp  no  manner  of  differ- 
ence. I  think  the  true  criterion  is  to  inquire  whether  Smith  agreed  to 
share  the  profits  of  the  trade  with  Robinson,  or  whether  he  only  re- 
lied on  those  profits  as  a  fund  of  payment;  a  distinction  not  more 
nice  than  usually  occurs  in  questions  of  trade  or  usury.  The  jury 
have  said  this  is  not  payable  out  of  the  profits;  and  I  think  there  is 
no  foundation  for  granting  a  new  trial. 

C7OULD,  Blackstone,  and  Nares,  JJ.,  concurred. 

Rule  discharged. 


WAUGH  V.  CARVER  et  al. 
(Court  of  Common  Pleas,  1793.    2  II.  Bl.  2,35.) 

Assumpsit  by  Waugh  against  Erasmus  Carver,  William  Carver, 
and  Archibald  Giesler,  as  partners,  for  goods  sold  and  delivered  by  the 
plaintiff  to  Giesler  at  his  agency  at  Cowes.  The  Carvers  denied  a 
partnership  with  Giesler.  Verdict  for  plaintiff,  subject  to  the  opinion 
of  the  court  on  a  case  stated. 

The  Carvers  were  engaged  in  the  business  of  shipping  agents  at  Gos- 
port,  and  Giesler  was  engaged  in  a  similar  business  at  Plymouth. 
These  parties  entered  into  a  written  agreement  in  substance  as  fol- 
lows :  The  said  Giesler  will  remove  from  Plymouth  and  establish  him- 
self at  Cowes  for  the  purpose  of  carrying  on  a  house  there  in  the 
agency  line  on  his  own  account ;  but,  in  consequence  of  the  assistance 
and  recommendations  which  the  Carvers  have  agreed  to  render  in 
support  of  the  agency  at  Cowes,  Giesler  agrees  to  pay  to  the  Carvers 
one-half  of  the  commission  or  agency  to  be  received  on  all  the  ships 
or  vessels  as  may  arrive  or  put  into  the  port  at  Cowes,  or  remain  in 
the  road  to  the  westward  thereof,  of  which  the  said  Giesler  may  pro- 
cure the  address,  and  likewise  one-half  of  the  discount  on  the  bills  of 
several  tradesmen  employed  in  the  repairs  of  such  ships  or  vessels.  Gies- 
ler will  also  consult  and  advise  with  the  Carvers  respecting  ships  or  ves- 


20  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

sels,  and  pursue  such  measures  as  may  be  for  the  best  interest  of  all 
concerned,  and  will  facilitate  the  procuring  by  the  Carvers  of  ware- 
house facilities  at  Cowes.  And  the  said  Carvers,  for  the  considera- 
tions hereinbefore  mentioned,  agree  to,  pay  to  Giesler  three-fifths  of 
the  commissions  to  be  received  by  them  on  account  of  certain  vessels 
proceeding  from  Cowes  to  Portsmouth  and  vessels  stopping  at  Ports- 
mouth, and  IV2  per  cent,  on  the  amount  of  bills  of  tradesmen  em- 
ployed in  the  repairs  of  such  vessels,  and  certain  percentage  of  charg- 
es received  for  warehouse  facilities  furnished  by  the  Carvers  to  ves- 
sels unloading  at  Cowes;  and  also  the  said  Carvers  and  Giesler  wih 
meet  vearly  for  the  purpose  of  examining  and  settling  their  accounts 
concerning  the  commission  business,  and  that  such  party  from  whom 
the  balance  shall  then  appear  to  be  due  shall  pay  the  same  to  the  other 
party  on  such  settlement. 

And  it  is  hereby  likewise  covenanted,  declared,  and  agreed,  by  and 
between  the  said  Erasmus  Carver  and  William  Carver  and  the  said 
Archibald  Giesler,  that  each  party  shall  separately  run  the  risk  of  and 
sustain  all  such  loss  and  losses  as  may  happen  on  the  advance  of  mon- 
eys in  respect  of  any  ships  or  vessels  under  the  immediate  care  of  ei- 
ther of  the  said  parties,  respectively;  it  being  the  true  intent  and 
meaning  of  these  presents,  and  of  the  parties  hereunto,  that  neither  of 
them,  the  said  Erasmus  Carver  and  William  Carver  and  Archibald 
Giesler  shall,  at  any  time  or  times  during  the  continuance  of  this  agree- 
ment, be  in  any  wise  injured,  prejudiced,  or  affected  by  any  loss  or 
losses  that  may  happen  to  the,  other  of  them,  or  that  either  of  them 
shall  in  any  degree  be  answerable  or  accountable  for  the  acts,  deeds, 
or  receipts  of  the  other  of  them,  but  that  each  of  them,  the  said  Eras- 
mus Carver  and  William  Carver  and  Archibald  Giesler,  shall,  in  his 
own  person  and  with  his  own  goods  and  effects,  respectively  be  an- 
swerable and  accountable  for  his  losses,  acts,  deeds,  and  receipts. 

And  it  is  hereby  further  covenanted,  declared,  and  agreed  by  and 
between  the  said  Erasmus  Carver  and  William  Carver  and  Archibald 
Giesler  that  these  presents  do  not,  nor  shall  be  construed  to,  mean  to 
extend  to  such  ships  or  vessels  that  may  come  to  the  address  of  ei- 
ther of  the  said  parties,  respectively,  for  the  purpose  of  loading  or 
delivering  any  goods,  wares,  or  merchandise;  it  being  the  true  intent 
and  meaning  of  these  presents,  and  the  parties  hereunto,  that  the  fore- 
going articles  shall  not,  nor  shall  be  construed  to,  bear  reference  to 
their  particular  or  separate  mercantile  concerns  or  connections. 

Lord  Chief  Justice  Eyre.  This  case  has  been  extremely  well  ar- 
gued, and  the  discussion  of  it  has  enabled  me  to  make  up  my  mind, 
and  removed  the  only  difficulty  I  felt,  which  was  whether,  by  constru- 
ing this  to  be  a  partnership,  we  should  not  determine  that  if  there 
was  an  annuity  granted  out  of  a  banking  house  to  the  widow,  for  in- 
stance, of  a  deceased  partner,  it  would  make'  her  liable  to  the  debts  of 
the  house  and  involve  her  in  a  bankruptcy.  But  I  think  this  case  will 
not  lead  to  that  consequence. 


Sec.  3)  TESTS   OF   INTENTION.  21 

The  definJtion  of  a  partnership  cited  from  Puffendorf  is  good  as 
between  the  parties  themselves,  but  not  with  respect  to  the  world  at 
large.  If  the  question  were  between  A.  and  B.  whether  they  were 
partners  or  not,  it  would  be  very  well  to  inquire  whether  they  had 
contributed,  and  in  what  proportions,  stock,  or  labor,  and  on  what 
agreements  they  were  to  divide  the  profits  of  that  contribution.  But 
in  all  these  cases  a  very  different  question  arises,  in  which  the  defini- 
tion is  of  little  service.  The  question  is,  generally,  not  between  the 
parties  as  to  what  shares  they  shall  divide,  but  respecting  creditors 
claiming  a  satisfaction  out  of  the  funds  of  a  particular  house,  who 
shall  be  deemed  liable  in  regard  to  these  funds.  Now,  a  case  may  be 
stated  in  which  it  is  the  clear  sense  of  the  parties  to  the  contract  that 
they  shall  not  be  partners ;  that  A.  is  to  contribute  neither  labor  nor 
money,  and,  to  go  still  further,  not  to  receive  any  profits.  But,  if  he 
will  lend  his  name  as  a  partner,  he  becomes,  as  against  all  the  rest  of 
the  world,  a  partner,  not  upon  the  ground  of  the  real  transaction  be- 
tween them,  but  upon  principles  of  general  policy,  to  prevent  the  frauds 
to  which  creditors  would  be  liable  if  they  were  to  suppose  that  they 
lent  their  money  upon  the  apparent  credit  of  three  or  four  persons, 
when  in  fact  they  lent  it  only  to  two  of  them,  to  whom,  without  the 
others,  they  would  have  lent  nothing.  The  argument  gone  into,  how- 
ever proper  for  the  discussion  of  the  question,  is  irrelevant  to  a  great 
part  of  the  case.  Whether  these  persons  were  to  interfere  more  or 
less  with  their  advice  and  directions,  and  many  small  parts  of  the 
agreement,  I  lay  entirely  out  of  the  case,  because  it  is  plain  upon  the 
construction  of  the  agreement,  if  it  be  construed  only  between  the 
Carvers  and  Gieslcr,  that  they  were  not,  nor  ever  meant  to  be  part- 
ners. They  meant  each  house  to  carry  on  trade  without  risk  of  each 
other,  and  to  be  at  their  own  loss.  Though  there  was  a  certain 
degree  of  control  at  one  house,  it  was  without  an  idea  that  either 
was  to  be  involved  in  the  consequences  of  the  failure  of  the 
other,  and  without  understanding  themselves  responsible  for  any 
circumstances  that  might  happen  to  the  loss  of  eitlier.  That  was  the 
argcement  between  themselves.  But  the  question  is  whether  they  have 
not,  by  parts  of  their  agreement,  constituted  themselves  partners  in 
respect  to  other  persons.  The  case,  therefore,  is  reduced  to  the  single 
point  whether  the  Carvers  did  not  entitle  themselves,  and  did  not 
mean,  to  take  a  moiety  of  the  profits  of  Giesler's  house,  generally  and 
indefinitely  as  they  should  arise,  at  certain  times  agreed  upon  for  the 
settlement  of  their  accounts.  That  they  have  so  done  is  clear  upon  the 
face  of  the  agreement;  and  upon  the  authority  of  Grace  v.  Smith  he 
who  takes  a  moiety  of  all  the  profits  indefinitely  shall,  by  operation  of 
law,  be  made  liable  to  losses,  if  losses  arise,  upon  the  principle  that,  by 
taking  a  part  of  the  profits,  he  takes  from  the  creditors  a  part  of  that 
fund  which  is  the  proper  security  to  them  for  the  payment  of  their 
debts.  That  was  the  foundation  of  the  decision  in  Grace  v. 
Smith,  and  I  think  it  stands  upon  the  fair  ground  of  reason.     I  cannot 


22  WHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

agree  that  this  was  a  mere  agency  in  the  sense  contended  for  on  the 
part  of  the  defendants,  for  there  was  a  risk  of  profit  and  loss.  A  ship 
agent  employs  tradesmen  to  furnish  necessaries  for  the  ship.  He 
contracts  with  them  and  is  liable  to  them.  He  also  makes  out  their 
bills  in  such  a  way  as  to  determine  the  charge  of  commission  to  the 
shipowners.  With  respect  to  the  commission,  indeed,  he  may  be  con- 
sidered as  a  mere  agent;  but  as  to  the  agency  itself  he  is  as  much  a 
trader  as  any  other  man,  and  there  is  as  much  risk  of  profit  and  loss, 
to  the  person  with  whom  he  contracts,  in  the  transactions  with  him, 
as  with  any  other  trader.  It  is  true  he  will  gain  nothing  but  his  dis- 
count ;  but  that  is  a  profit  in  the  trade,  and  there  may  be  losses  to  him, 
as  well  as  to  the  owners.  If,  therefore,  the  principle  be  true  that  he 
who  takes  the  general  profits  of  a  partnership  must  of  necessity  be  made 
liable  to  the  losses,  in  order  that  he  may  stand  in  a  just  situation 
with  regard  to  the  creditors  of  the  house,  thep  this  is  a  case  clear  of 
all  difficulty.  For  though  with  respect  to  each  other  these  persons 
were  not  to  be  considered  as  partners,  yet  they  have  made  themselves 
such,  with  regard  to  their  transactions  with  the  rest  of  the  world.  I 
am  therefore  of  opinion  that  there  ought  to  be  judgment  for  the  plain- 
tiff. 

GouT.D  and   Heath,   JJ.,    concurred.     Rooke,   J.,   gave   no   opin- 
ion. 


LEGGETT  et  al.  v.  HYDE  et  al. 

(Court  of  Appeals  of  New  York,  1874.     58  N.  Y.  272,  17  Am,  Rep.  244.) 

Appeal  by  defendant  George  M.  Hyde  from  judgment  of  the  Gen- 
eral Term  of  the  Supreme  Court  in  the  Second  Judicial  Department, 
affirming  a  judgment  in  favor  of  plaintiffs  entered  upon  a  verdict, 
and  affirming  order  denying  motion  for  a  new  trial.  This  action  was 
brought  against  defendants,  who  were  alleged  to  be  members  of  the 
firm  of  A.  D.  Putnam  &  Co.,  to  recover  for  goods  sold  and  delivered 
to  that  firm.  Defendant  Hyde  denied  that  he  was  a  partner.  At  the 
close  of  the  evidence  the  counsel  for  defendant  Hyde  asked  the  court 
to  direct  a  verdict  in  his  favor,  which  was  denied.  The  court,  upon  re- 
quest of  plaintiffs'  counsel,  directed  a  verdict  in  favor  of  plaintiffs,  to 
which  defendant's  counsel  excepted.  A  verdict  was  rendered  accord- 
ingly. 

FoLGER,  J.  At  the  trial  each  party  asked  the  court  to  direct  a  ver- 
dict in  his  favor.  Each  thereby  conceded  that  there  could  be  no  dis- 
pute upon  any  question  of  fact.  Each  thereby  conceded  that  there 
was  left  for  decision  only  a  question  of  law,  and  that  it  arose  upon  a 
settled  and  uncontradicted  state  of  facts. 

Taking  the  view  of  the  testimony  the  most  favorable  for  the  appel- 
lant, the  facts  are  these :  In  1869  one  Putnam  and  one  Henneberger 
were  partners  in  business,  under  the  firm  name  of  A.  D.  Putnam  & 


Sec.  3)  TESTS   OF   INTENTION.  23 

Co.  In  that  year  the  appellant  invested  or  deposited  with  that  firm 
$1,500.  This  sum  was  credited  on  its  books  to  Frcdk.  Hyde,  the  son  of 
the  appellant.  For  this  sum  the  appellant  was  to  share  in  the  profits 
of  the  business  of  the  firm.  His  share  was  to  be  one-third,  and  de- 
mandable  by  him  at  the  end  of  the  year.  At  the  end  of  the  year  his 
share  of  the  profits  was  $500.  This  sum  was  also  placed  to  the  credit 
of  Fredk.  Ilyde.  Then,  in  1870,  the  appellant  loaned  to  the  firm  for 
one  year  the  original  sum  of  $1,500  and  the  $500  of  profits,  thus  mak- 
ing $2,000.  In  the  consideration  of  this  loan  the  firm  agreed  to  hire 
Fredk.  Hyde  as  clerk,  at  $10  per  week,  for  the  year;  to  pay  the  ap- 
pellant one-third  of  the  profits,  which  were  to  be  settled  h.alf-yearly ; 
and,  at  the  end  of  the  year,  to  take  him  in  as  a  partner,  if  the  firm  and 
he  should  feel  satisfied,  on  his  making  further  investments  and  putting 
in  more  capital.  Though  it  is  nowhere  in  the  testimony  so  stated  in 
terms,  yet  it  is  fairly  to  be  inferred  that  the  $"3,000  was  loaned  to  be 
used  in  the  business,  and  that  if  at  the  end  of  the  year  the  appellant 
did  not  become  an  ostensible  partner  he  was  to  be  repaid,  out  of  the 
concern,  the  $2,000,  but  without  interest,  strictly  as  such.  The  appel- 
lant never  interfered  in  the  affairs  of  the  concern,  nor  exercised  any 
control  in  the  business.  At  the  end  of  the  first  six  months  there  were 
no  profits  of  the*  business.  The  appellant  never  received  anything  for 
his  $2,000,  nor  anything  by  way  of  interest  money. 

The  prominent  and  important  facts  are  that  he  loaned  the  firm  a 
sum  of  money  to  be  employed  as  capital  in  its  business,  and  that  there- 
for he  was  entitled  to  have  and  demand  from  it  one-third  of  the  prof- 
its of  its  business  every  half  year.  In  my  judgment  there  results  from 
this  that  Putnam  and  Henneberger,  making  use  of  that  money  as 
capital  in  that  business,  used  it  there  for  the  benefit  of  the  appellant, 
because  any  return  to  him,  for  the  loan  to  them,  must  come  from  the 
use  of  it.  If  not  used  so  that  profits  were  made,  he  got  no  return. 
Further:  That  he  had  an  interest  in  the  profits,  which,  while  they 
were  anticipatory,  was  indefinite  as  to  amount,  but,  when  they  were 
realized,  was  measured  and  specific  as  to  share.  Further:  That  his 
interest  in  them  was  in  them  as  profits :  that  is,  that  he  had  a  right 
on  the  lapse  of  every  six  months,  though  having  no  property  in  the 
whole  capital,  to  have  an  account  taken  of  the  business,  and  a  division 
made  of  the  profits  then  appearing.  Ex  parte  Hamper,  17  Vesey, 
403.  So  it  is  said  in  Everett  v.  Coe,  5  Denio,  182  :  "If  he  is  to  be  paid 
out  of  profits  made,  then  he  has  a  direct  interest  in  them.  And 
see  Ogden  v.  Astor,  4  Sandf.  321,  322.  That  he  had  this  right  to  an 
account  and  a  division  at  other  time  than  at  the  end  of  each  six  months, 
if  at  anv  other  time  the  exigencies  of  the  concern,  as  the  dissolution 
of  the  firm  by  death  of  one  partner,  or  other  reason,  required  an  ac- 
count to  be  taken.  He  had  that  irrterest  in  the  profits,  as  profits,  be- 
cause he  could  claim  a  share  of  them  specifically,  as  they  should  ap- 
pear on  each  six  months,  or  other  accounting  of  the  business  of  the 
term  then  ended,  and  could  then  have  and  demand  payment  of  his 


24  WHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

share.  By  the  terms  of  his  contract  with  the  firm,  if  it  be  upheld 
as  made,  he  was  interested  in  and  affected  by  the  results  only  of  the 
year,  as  ascertained  at  the  end  of  each  six  months.  It  would  not  affect 
him  in  the  right  to  account,  though  the  business  of  a  previous 
year  had  been  disastrous.  If  either  six  -months'  business  should 
yield  a  profit,  he  could  insist  on  payment  to  him  of  one-third  thereof, 
and  could  demand  that  an  account  be  had  of  the  business  of  any  six 
months  to  ascertain  if  there  had  been  profit.  It  was  one-third  of  the 
profits  that  he  was  to  have,  and  not  a  sum  in  general  equal  to  that 
one-third.  So  that  he  was  to  take  it  as  profits,  and  not  as  an  amount 
due ;  not  as  a  measure  of  compensation,  but  as  a  result  of  the  cap- 
ital and  industry. 

The  learned  counsel  for  the  appellant  states  the  question  of  law 
to  be  this:  Does  a  loan  of  money,  with  an  agreement  for  compensa- 
tion from  the  profits  of  the  business,  per  se  constitute  the  lender  a 
partner  quoad  the  creditors  of  the  firm?  Is  this  statement  of  it  cor- 
rect? Does  the  phrase  "compensation  from  the  profits"  fully  meet 
case?  Does  it  fully  present  the  fact  that  by  the  agreement  the  ap- 
pellant obtains  an  interest  in  the  profits  as  such,  and  a  right  to  in- 
sist upon  an  accounting,  and  a  division  thereof  half-yearly?  With 
this  supplement,  the  question  for  decision  is  as  stjited  by  him.  I 
am  not  to  say  what  I  think  ought  to  be  the  answer  to  it,  was  this  a 
case  of  first  impfession.  I  am  to  declare  what  I  ascertain  to  be  the 
answer  already  given  by  the  law  in  this  state,  as  it  has  been  settled 
and  declared  by  the  authorities.  The  argument  of  the  learned  coun- 
sel is  very  ingenious,  and  very  forcible  when  considered  in  refer- 
ence to  what  should  be  the  proper  rule,  and  what  the  true  reasons 
upon  which  a  rule  should  be  founded.  Yet,  if  it  is  found  that  by  a 
long  course  of  decisions,  or  by  long  acquiescence  in  and  adherence 
to,  a  rule  some  time  ago  authoritatively  promulgated,  there  has  been 
established  a  principle  of  commercial  law  upon  which  the  community 
has  acted,  it  is  the  duty  of  the  courts  to  adhere  thereto,  leaving  it 
to  the  lawmaking  power  to  find  a  remedy,  if  remedy  be  needed,  in  a 
positive  alterative  enactment.  In  England  this  had  been  done,  and  by 
an  act  of  Parliament  an  important  change  has  been  made,  St,  28 
&  29  Vict.  c.  86. 

In  the  first  place,  it  matters  not  that  the  defendants  meant  not  to 
be  partners  at  all,  and  were  not  partners  inter  sese.  They  may  be 
partners  as  to  third  persons  notwithstanding.  Manhattan  Brass  Co. 
V.  Sears,  45  N;  Y.  797,  6  Am.  Rep.  177.  And  this  effect  may  result, 
though  they  should  have  taken  pains  to  stipulate  among  themselves 
that  they  will  not,  in  any  event,  hold  the  relation  of  partners.  Among 
the  reasons  given  is  this,  whether  it  be  strong  or  weak :  That  what- 
ever person  shares  in  the  profits  of  any  concern  shall  be  liable  to 
creditors  for  losses  also,  since  he  takes  a  part  of  the  fund,  which  in 
great  measure  is  the  creditors'  security  for  the  payment  of  the  debts 
to  them.     Waugh  v.  Carver,  2  H.  Bl.  235,  citing  Grace  v.  Smith,  2 


Sec.  3)  TESTS   OF   INTENTION.  25 

W.  Bl.  998.  The  doctrine  took  its  rise  in  the  decisions  in  these  cases. 
And  commenting  upon  them,  the  text-writers,  who  have  presented 
most  forcible  criticisms  upon  it,  say:  "The  principle  laid  down  by 
De  Grey,  C.  J.,  in  Grace  v.  Smith,  has  served  as  the  foundation  of 
a  long-  line  of  decisions  which  cannot  now  be  overruled  by  any  au- 
thority short  of  that  of  the  Legislature.  *  *  *  And  in  all  cases 
in  which  there  is  no  incorporation,  nor  limited  Hability,  it  must  still 
be  regarded  as  binding  on  the  courts."  Lindley  on  Part.  *36.  "The 
doqtrine  is  completely  established  upon  the  very  ground  asserted  in 
Grace  v.  Smith."  Story  on  Part.  §  3G,  note  3.  And  so  Mr.  Par- 
sons, in  his  book  on  Partnership,  quoting  Lord  Eldon,  Ex  parte 
Hamper:  ''But  if  he  has  a  specific  interest  in  the  profits  themselves, 
as  profits,  he  is  a  partner" — adds:  "Undoubtedly  he  is.  Every  prin- 
ciple of  the  law  of  partnership  leads  to  this  conclusion."  He  con- 
tends, however,  that  the  specific  interest  in  profits  which  is  to  make 
a  person  a  partner  must  be  a  proprietary  interest  in  them,  existing 
before  the  division  of  them  into  shares.  See,  also,  3  Kent's  Commen- 
taries, *2o,  note  "b,"  where  it  is  said :  "The  test  of  partnership  is 
a  community  of  profit;  a  specific  interest  in  the  profits,  as  profits, 
in  contradistinction  to  a  stipulated  portion  of  the  profits  as  a  com- 
pensation for  services."  The  courts  of  this  state  have  always  ad- 
hered to  this  doctrine  and  applied  on  recognized  it  in  the  cases  com- 
ing before  them.     *     *     * 

It  is  not  too  much  to  say,  that  the  limited  partnership  act,  1  Rev. 
St.  (1st  Ed.)  p.  7G4,  pt.  2,  c.  4,  tit.  1,  is  a  legislative  and  practical 
recognition  of  this  rule  of  commercial  law.  Indeed,  if  it  shall  be 
held  that  such  a  contract  as  that  of  the  appellant  does  not  make  him 
a  partner  as  to  third  persons,  there  is  little  or  no  need  of  that  act. 
The  situation  of  the  special  partner  is  more  onerous  than  that  of 
the  appellant  under  such  a  ruling.  The  first  may  lose  his  capital 
invested,  as  well  as  profits,  by  the  same  being  absorbed  in  the  pay- 
ment to  creditors.  The  latter  may  lose  his  anticipated  compensation 
for  his  money  loaned ;  but  his  position  is  quite  as  favorable  to  him 
as  that  occupied  by  creditors  for  the  recovery  of  his  money  advanced. 
Neither  may  interfere,  to  transact  business,  or  to  sign  for  the  firm, 
or  to  bind  the  same.  Both  may  advise  as  to  the  management.  Both 
may  examine  into  the  state  and  progress  of  the  partnership  concerns — 
the  special  partner,  from  time  to  time";  the  appellant,  at  the  end  of 
every  six  months.  In  one  respect  the  special  partner  is  better  placed. 
He  may  stipulate  for  legal  interest  on  his  capital  invested,  as  well 
as  for  a  portion  of  the  profits.  The  appellant,  if  he  bargained  for 
profits  in  addition  to  interest,  might  be  in  conflict  with  the  usury  act. 
It  is  evident  that  most  of  the  conveniences  and  advantages  of  the 
limited  partnership  act,  and  some  which  it  does  not  give,  might  be 
obtained  by  a  loan  of  money,  with  a  stipulation  for  compensation  for 
its  use  by  a  share  of  the  profits,  if  thereby  a  partnership  is  not  created 
as  to  third  persons.     This  is  not  decisive  as  to  what  the  law  is;    but 


26  WHAT   CONSTITUTES  A  PARTNERSHIP.        '  (Ch.  1 

it  is  Strongly  indicative  of  the  view  of  the  law  held  by  the  revisers  and 
by  the  Legislature. 

There  have  been  from  time  to  time  certain  exceptions  established 
to  this  rule  in  a  broad  statement  of  it;  but  the  decisions  by  which 
these  exceptions  have  been  set  up  still  recognize  the  rule  that,  where 
one  is  interested  in  profits  as  such,  he  is  a  partner  as  to  third  persons. 
These  exceptions  deal  with  the  case  of  an  agent,  servant,  factor, 
broker,  or  employe,  who,  with  no  interest  in  the  capital  or  business, 
is  to  be  remunerated  for  his  services  by  a  compensation  from  the 
profits,  or  by  a  compensation  measured  by  the  profits;  or  with  that 
of  seamen,  on  whaling  or  other  like  voyages,  whose  reimbursement 
for  their  time  and  labor  is  to  finally  depend  upon  the  result  of  the 
whole  voyage.  There  are  other  exceptions,  like  tenants  of  land,  or  a 
ferry,  or  an  inn,  who  are  to  share  with  the  ov^^ners  in  results,  as  a 
means  of  compensation  for  their  labor  and  services.  The  decisions 
which  establish  these  exceptions  do  not  profess  to  abrogate  the  rule — • 
only  to  limit  it. 

It  is  claimed  by  the  learned  counsel  for  the  appellant  that  the  rule 
as  announced  in  Grace  v.  Smith  and  Waugh  v.  Carver  has  been  ex- 
ploded, and  another  rule  propounded  which  shields  the  appellant.  He 
is  correct  so  far  as  the  courts  in  England  are  concerned.  Cox  v. 
Hickman,  8  H.  of  L.  C.  268,  9  C.  B.  N.  S.  (99  E.  C.  L.)  47,  and  Bul- 
len  V.  Sharp,  L.  R.  1  Com.  PI.  86,  affirm  that  while  a  participation 
in  the  profits  is  cogent  evidence  that  the  trade  in  which  the  profits 
were  made  was  carried  on  in  part  for  or  in  behalf  of  the  person  claim- 
ing the  right  to  participate,  yet  that  the  true  ground  of  liability  is 
that  it  has  been  carried  on  by  persons  acting  in  his  behalf.  Those 
cases  were  very  peculiar  in  their  circumstances.  After  the  judg- 
ments rendered  in  them,  the  Parliament  deemed  it  needful  to  enact 
that  the  advance  of  money  by  way  of  loan  to  a  person  in  trade  for 
a  share  of  the  profits  should  not,  of  itself,  make  the  lender  responsible 
as  a  partner.  St.  28  &  29  Vict.  c.  86,  as  cited  in  Parsons  on  Partn. 
*92,  note  "t."  If  the  decisions  in  the  cases  cited  went  as  far  as  is 
claimed,  it  would  seem  that  the  act  was  supererogatory.  It  is  sug- 
gested, however,  by  Kelly,  C.  B.,  in  Holme  v.  Hammond,  L.  R.  7 
Exch.  218,  that  the  effect  of  the  statute  is  that  the  sharing  in  the 
profits  by  a  lender  shall  be  no  evidence  at  all  of  a  partnership.  At 
all  events,  those  decisions  have  been  accepted  in  England  as  settling 
the  rule  as  above  stated.  See  case  last  cited  and  cases  therein  refer- 
red to. 

Without  discussing  those  decisions  and  determining  just  how  far 
they  reach,  it  is  sufficient  to  say  that  they  are  not  controlling  here, 
that  the  rule  remains  in  this  state  as  it  has  long  been,  and  that  we 
should  be  governed  by  it  until  here,  as  in  England,  the  Legislature 
shall  see  fit  to  abrogate  it. 

The  references  upon  the  appellant's  points  do  not  show  that  the 
courts  of  this  state  have  yet  exploded  the  rule  I  have  stated.     I  have 


Sec.  3)  TESTS   OF   INTENTION.  27 

consulted  all  the  authorities  cited  (save  a  few  of  which  I  had  not 
the  books,  or  as  to  which  there  was  a  miscitation),  and  I  do  not  find 
that  the  rule  is  questioned,  further  than  to  apply  to  the  facts  of  the 
particular  case  some  one  or  more  of  the  exceptions  to  the  rule  which 
I  have  stated  to  exist. 

I  am  of  tiie  >oi)inion  that  the  judgment  appealed  from  should  be 
affirmed,  with  costs.' 

Church,  C.  J.,  dissents. 


HACKETT  et  al.  v.  STANLEY. 
(Court  of  /Appeals  of  New  York,  1S80.    115  N.  Y.  U25,  22  X.  E.  745.) 

Action  by  iMartin  Hackett  and  others  asjainst  James  Stanley,  im- 
pleaded, and  Moulton  W.  Gorham,  as  alleged  copartners,  for  materials 
and  labor  furnished  for  the  firm  business.  James  Stanley  appeals 
from  a  judgment  for  plaintiff. 

RuGF.R,  C.  J.  The  determination  of  this  case  involves  the  construc- 
tion of  an  agreement  between  James  Stanley  and  Moulton  W.  Gor- 
ham, and  the  question  whether  such  agreement  constituted  the  de- 
/fendant  Stanley  a  partner  as  to  third  persons  with  Gorham.  If  it 
did,  then  the  judgment  must  be  sustained.  The  liability  of  the  alleged 
partners  is  predicated  upon  a  debt  for  services  rendered  and  materials 
furnished'  by  the  plaintiffs,  upon  the  request  of  Gorham,  in  fitting 
up  a  place  in  New  York  to  carry  on  the  business  of  heating,  ventilat- 
ing, etc.  The  part  of  the  agreement  which  it  is  claimed  creates  the 
partnership  reads  as  follows:  "That  for  and  in  consideration  of  the 
loan  of  seven  hundred  and  fifty  ($750)  dollars  from  the  said  party 
of  the  second  part  to  the  said  party  of  the  first  part,  for  use  in  the 
business  of  heating,  ventilating,  etc.,  for  which  said  party  of  the 
first  part  has  given  unto  said  party  of  the  second  part  his  note  at  two 
years,  with  interest,  bearing  date  of  January  14,  1885,  payment  of 
which  is  secured  by  an  assignment  of  said  value  in  a  certain  $3,000 
policy  in  the  Massachusetts  Mutual  Life  Ins.  Co.,  and  also  by  a 
certain  chattel  mortgage,  bearing  date  January  23,  1885,  and  in  fur- 
ther consideration  of  services  of  said  party  of  second  part  in  secur- 
ing sales  in  said  business,  and  for  any  further  moneys  he  may.  at 
his  own  option,  advance  for  me  in  said  business,  the  said  party  of 
the  first  part  agrees  to  divide  equally  the  yearly  net  profits  of  said 
business.  It  is  understood  and  agreed  that  said  loan  of  $750  is  ex- 
pressly for  use  in  said  business,  and  for  no  other  use  whatever."     It 

1  "The  cnsos  have  grone  further  to  this  nicety,  upon  a  distinotioii  so  thin, 
that  I  cannot  state  it  as  established  upon  due  consideration:  Tliat  if  a 
trader  agrees  to  pay  another  person,  for  Ids  labor  iu  the  concern,  a  sum  of 
money,  even  iu  proportion  to  the  profits,  e<iual  to  a  certain  share,  that  will 
not  make  him  a  partner;  but.  If  he  has  a  spocifitHl  interest  in  the  profits 
themst-lves.  as  pmtits.  he  Is  a  partner."  Per  Eldon,  L.  O.,  In  Es.  parte 
Uainper,  17  Ves.  403  (1810). 


28  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Cll.  1 

was  further  provided  that  advances  made  by  either  party  in  the  busi- 
ness were  at  all  times  subject  to  be  withdrawn,  at  the  option  of  the 
party  making  them,  and  were  to  bear  interest  while  used  in  the  busi- 
ness. Gorham  was  to  be  allowed  $1,000  per  annum  for  his  services 
in  managing  the  business,  and  quarterly  statements  of  its  condition 
were  to  be  made  by  him  to  Stanley. 

It  is  fairly  to  be  implied  from  the  contract  that  Gorham  was  to 
be  the  active  man  in  the  business,  and  it  was  to  be  carried  on  in  his 
name;  but  whether  he  was  to  furnish  any  capital,  and  if  so  how 
much,  is  not  disclosed.  For  aught  that  appears  the  money  furnished 
by  Stanley  was  all  that  was  supposed  to  be  necessary  to  start  and 
carry  on  the  business  until  returns  were  realized  from  its  prosecution. 

This  agreement  does  not,  in  express  terms,  purport  to  form  a  part- 
nership; neither  is  the  intention  to  do  so  disclaimed;  and  the  question  is 
therefore  whether,  in  a  business  carried  on  under  the  conditions  provid- 
ed for  in  the  contract,  the, parties  thereto  became  partners,  as  to  third 
persons.  It  clearly  provides  for  something  more  than  a  loan  of  money,  as 
it  is  fairly  to  be  implied  from  it  that  Stanley  would  render  active  serv- 
ices as  a  principal  in  the  prosecution  of  the  business,  and  furnish  fur- 
ther financial  aid  therefor,  if  it  became  necessary,  and  he  deemed  it  ad- 
visable to  do  so.  The  loan  was  not  one  made  to  Gorham  generally,  but 
was  for  the  benefit  of  the  particular  business,  in  whose  prosecution 
Stanley  had  an  equal  interest,  and  any  diversion  of  the  funds  from  such 
use  was  strictly  prohibited.  Each  party  was  authorized  to  charge  the 
business  with  interest  on  the  funds  advanced  by  him  for  its  prosecution, 
and  they  would  each  be  entitled  to  pro  rata  reimbursement  of  such 
funds  from  the  assets  of  the  business,  in  case  of  a  deficiency  in  as- 
sets to  pay  the  advances  in  full.  In  that  respect,  it  was  evidently  con- 
templated that  each  party  should  bear  any  loss  incurred,  in  propor- 
tion to  the  advances  made  by  them  respectively.  For  all  this,  Stanley 
was  to  receive  one-half  the  net  profits  of  the  business.  His  right  to 
profits  would  not  cease  upon  the  repayment  of  the  original  loan,  or 
depend  upon  the  value  of  the  services  rendered  or  moneys  advanced 
or  either  of  them  alone,  but  was  to  continue  as  lone  as  the  business 
was  parried  on.  The  letter  of  the  contract  is  that  in  consideration 
of  the,  loan  of  $750,  payable  in  two  years,  and  the  further  considera- 
tion of  services  in  securing  sales  in  said  business,  and  further -moneys 
furnished,  the  net  profits  are  to  be  divided.  The  services  promised, 
and  the  moneys  advanced  and  to  be  advanced,  each  and  all  constituted 
the  consideration  for  the  division  of  the  profits.  We  think  such  an 
agreement,  within  all' authorities,  constitutes  a  partnership  as  to  third 
parties.  By  it,  Stanley  had  an  interest  in  the  general  business  of  the 
concern;  a  right  to  require  a  quarterly  account  of  its  transactions; 
authority  to  make  contracts  in  its  behalf;  and  an  irrevocable  right 
to  demand  one-half  of  the  profits  of  the  business.  That  the  original 
loan  of  $750  was  secured  to  be  repaid  by  Gorham  to  Stanley  does 
not  preclude  the  conclusion  that  they  were  partners;    for  it  is  entirely 


Sec.  3)  TESTS   OF   INTENTION.  29 

competent  for  one  partner  to  guaranty  another  against  loss,  in  whole 
or  in  part,  in  a  painnership  business,  if  the  parties  so  agree.  The  ap- 
plication of  the  rule  that  "participation  in  profits"  renders  their  re- 
cipient a  partner  in  the  business  from  which  profits  are  derived,  as 
to  third  persons,  has  been  somewhat  restricted  by  modern  decisions ; 
but  we  think  that  the  division  of  profits  must  still  be  considered  the 
most  important  element  in  all  contracts  by  which  the  true  relation  of 
parties  to  a  business  is  to  be  determined.  We  think  this  rule  is  founded 
in  strict  justice  and  sound  policy.  There  can  be  no  injustice  in  im- 
posing upon  those  who  contract  to  receive  the  fruits  of  an  adventure 
a  liability  for  credits  contracted  in  its  aid,  and  which  are  essential 
to  its  successful  conduct  and  prosecution.  This  liability  does  not, 
and  ought  not  to,  depend  upon  the  intention  of  the  parties,  in  making 
their  contract,  to  shield  themselves  from  liability,  but  upon  the  ground 
that  it  is  against  public  policy  to  permit  persons  to  prosecute  an  en- 
terprise which,  however  successful  it  may  for  a  time  appear  to  be, 
is  sure  in  the  end  to  result  in  the  advantage  of  its  secret  promoters 
alone,  and  the  ruin  and  disaster  of  its  creditors  and  others  connect- 
ed with  it.  Atherton  v.  Tilton.  44  N.  H.  452 ;  Chase  v.  Barrett,  4 
Paige,  150.  Expected  profits  being  the  motive  which  induces  the 
prosecution  of  all  commercial  and  business  enterprises,  their  accumu- 
lation and  retention  in  business  are  essential  to  their  success ;  and 
if  persons  are  permitted,  by  secret  agreement,  to  appropriate  ihem 
to  their  own  use,  and  throw  the  liabilities  incurred  in  producing  them 
upon  those  who  receive  only  a  portion  of  the  benefits,  not  only  is  a 
door  opened  to  the  perpetration  of  frauds,  but  such  fraud.'  are  rendered 
inevitable.     *     *     * 

The  rule  laid  down  in  Kent's  Commentaries  (volume  3,  p.  25,  note 
"b"),  that  "the  test  of  partnership  is  a  community  of  profit;  a  spe- 
cific interest  in  the  profits,  as  profits,  in  contradistinction  to  a  stipulat- 
ed portion  of  the  profits  as  a  compensation  for  services,"  was  ap- 
proved by  this  court  in  Leggett  v.  Hyde,  58  N.  Y.  272,  17  Am.  Rep. 
244,  in  which  case  Judge  Folger  says:  "The  courts  of  this  state  have 
always  adliered  to  this  doctrine,  and  applied  or  recognized  it  in  the 
cases  coming  before  them."  After  citing  numerous  cases  in  support 
of  the  statement,  he  proceeds :  "There  have  been  from  time  to  time  cer- 
tain exceptions  established  to  this  rule,  in  a  board  statement  of  it;  but 
the  decisions  by  which  these  exceptions  have  been  set  up  still  recognize 
the  rule  that  where  one  is  interested  in  profits,  as  such,  he  is  a  part- 
ner as  to  third  persons.  These  exceptions  deal  with  the  case  of  an 
agent,  servant,  factor,  broker,  or  employe  who,  with  no  interest  in 
the  capital  or  business,  is  to  be  remunerated  for  his  services  by  a 
compensation  from  the  profits,  or  by  a  compensation  measured  by 
t;he  profits."  The  learned  judge,  after  referring  to  the  English 
cases  claimed  to  have  qualified,  if  not  overruled,  the  cases  of  Grace 
V.  Smith,  2  W.  Bl.  998.  and  Waugh  v.  Carver.  2  H.  Bl.  235,  which 
were   the    foundation   of  the   doctrine   that   a   participation  in   profits 


30  WHAT  CONSTITUTES  A   PARTNERSHIP,  (Ch.  1 

re;nders  those  receiving  them  partners,  says  that  "without  discussing 
those  decisions,  and  determining  just  how  far  they  reach,  it  is  sufficient 
to  say  that  they  are  not  controlHng  here,  that  the  rule  remains  in 
this  state  as  it  has  long  been,  and  that  we  should  be  governed  by  it 
until  here,  as  in  England,  the  Legislature  shall  see  fit  to  abrogate  it." 
*  *  *  The  doctrine  that  persons  may  be  partners  as  to  third  per- 
sons, although  not  so  as  between  themselves,  and  although  the  con- 
tract of  partnership  contains  express  provisions  repudiating  such  a 
relation,  has  been  too  firmly  established  in  this  state  by  repeated  deci- 
sions to  be  now  disregarded  by  its  courts.  See  cases  cited  in  Leggett 
V.  Hyde.  It  is  claimed  that  this  doctrine  has  been  practically  over- 
ruled in  this  state  by  the  decisions  in  this  court  of  Richardson  v. 
Hughitt,  76  N.  Y.  55,  32  Am.  Rep.  267,  Burnett  v.  Snyder,  76  N.  Y. 
344,  Eager  v.  Crawford,  Id.  97,  Curry  v.  Fowler,  87  N.  Y.  33,  41 
Am.  Rep.  343,  and  Cassidy  v.  Hall,  97  N.  Y.  159.  We  do  not  think 
these  cases  had  the  effect  claimed.  They  were  all  cases  distinguished 
by  peculiar  circumstances,  taking  them  out  of  the  operation  of  the 
general  rule.  It  cannot  be  disputed  but  that  a  loan  may  be  made  to 
a  partnership  firm  on  conditions  by  which  the  lenders  may  secure,  a 
limited  or  qualified  interest  in  certain  profits  of  the  firm,  without  mak- 
ing them  partners  in  its  general  business ;   but  that  is  not  this  case. 

[After  reviewing  the  foregoing  cases,  the  opinion  continues:]  It 
cannot  reasonably  be  claimed  that  either  of  these  cases  is  an  au- 
thority for  the  reversal  of  this  judgment.  Whatever  might  have  been 
their  bearing  if  they  related  to  the  loan  of  money  alone,  we  v.'ill  not 
say;  but,  when  connected  with  the  circumstance  that  the  defendant 
was  expected  to  render  future  services  as  a  principal,  and  furnish 
further  financial  aid,  with  a  certain  supervision  over  the  conduct  of 
the  business,  we  think  this  case  is  clearly  distinguishable  from  those 
cited. 

In  the  view  taken  of  this  case,  it  is  quite  immaterial  whether  the 
plaintiff  extended  the  credit  to  Gorham  alone  or  not,  as  the  defend- 
ant was  held  liable  upon  the  ground  that,  as  to  third  persons,  he  was 
a  partner;  and  it  did  not  affect  that  liability,  whether  the  plaintiff 
knew  the  fact  oc  not. 

The  exception  to  the  ruling  of  the  court  sustaining  the  objection 
to  the  question  put  to  plaintiff  on  cross-examination,  as  to  whom  the 
credit  was  ■  furnished,  was  not  well  taken,  as  the  fact  sought  to  be 
proved  was  immaterial.    The  judgment  should  therefore  be  affirmed. 


Sec.  3)  TESTS   OF   INTENTION.  31 


II.    Development  of  the  Modern  Doctrine. 
COX  AND  WHEATCROFT  v.  HICKMAN. 

(House  of  Lords.  ISGO.     8  II.  L.  Cas.  2GS.) 

B.  and  J.  T.  Smith,  as  partners  under  the  name  of  B.  Smith  & 
Son,  were  engaged  in  business  as  iron  masters  and  corn  merchants. 
Becoming  financially  embarrassed,  a  meeting  of  creditors  was  held 
and  a  deed  of  assignment  executed  by  the  Smiths,  as  parties  of  the 
first  part,  certain  of  the  creditors,  as  trustees,  of  the  second  part, 
and  the  general  scheduled  creditors,  among  whom  were  the  trustees, 
of  the  third  part.  The  deed  assigned  the  property  of  the  partnership 
to  trustees,  and  empowered  them  to  carry  on  the  business  under  thu 
name  of  the  Stanton  Iron  Company;  to  execute  all  contracts  and  in- 
struments necessary  to  carry  it  on ;  to  divide  the  net  income  derived 
among  the  creditors  ratably  (such  income  to  be  deemed  the  property 
of  the  assignors),  with  the  power  to  the  majority  of  the  creditors, 
assembled  at  a  meeting;  to  make  rules  for  conducting  the  business, 
or  to  put  an  end  to  it  altogether;  and,  after  the -debts  had  been  dis- 
charged, the  property  was  to  be  reconveyed  to  the  Smiths.  Cox  and 
Wheatcroft  were  named  among  the  trustees.  Cox  never  acted. 
Wheatcroft,  after  acting  fbr  six  months,  resigned.  Afterwards  the 
other  trustees,  who  continued  the  business,  became  indebted  to  Hick- 
man for  goods  supplied  to  the  company,  and  gave  him  bills  of  ex- 
change, accepted  by  themselves:  "Per  proc.  The  Stanton  Iron  Com- 
pany."   This  was  an  action  on  the  bills  of  exchange  thus  given. 

The  cause  was  tried  in  1856,  before  the  late  Lord  Chief  Justice 
Jervis,  when  a  verdict  was  found  for  the  defendants ;  but  on  motion 
on  leave  reserved  the  verdict  was  entered  for  the  plaintiff,  18  C.  B. 
617.  The  case  was  taken  to  the  Exchequer  Chamber,  when  three 
judges  (Justices  Coleridge,  Erie,  and  Crompton)  were  for  afiirming 
the  judgment  of  the  Common  Pleas,  and  three  other  judges  (Barons 
Martin,  Bramwell,  and  Watson)  were  for  reversing  it,  3  C.  B.  (N. 
.S.)  523.  The  judgment,  therefore,  stood,  and  was  afterwards  brought 
up  to  this  House. 

The  judges  were  summoned,  and  Lord  Chief  Baron  Pollock,  Mr. 
Justice  Wightman,  Mr.  Justice  Williams,  Mr.  Justice  Crompton,  Mr, 
Baron  Channcll,  and  Mr.  Justice  Blackburn,  attended.^ 

Lord  Cranworth.  In  this  case  the  judges  in  the  Court  of  Exche- 
quer Chamber  were  equally  divided,  and  unfortunately  the  same  dif- 
ference of  opinion  has  existed  among  the  learned  judges  who  attend- 
ed this  House  during  the  argument  at  your  Lordships'  bar.  Except, 
therefore,  from  an  examination  of  the  grounds  on  which  their  opin- 
ions are  founded,  we  can  derive  no  benefit  in  this  case  from  their  as- 

1  The  opinions  of  the  judges  suuimoued  are  ouiitted. 


32  "WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

sistance.  We  cannot  say  that  in  the  opinions  dehvered  in  this  House 
there  is  more  authority  in  favor  of  one  view  of  the  case  than  of  the 
other.  We  must  not,  however,  infer  that  your  Lordships  have  not 
derived  material  aid  from  the  opinions  expressed  by  the  judges.  These 
opinions  have  stated  the  arguments  on  the  one  side  and  the  other 
with  great  clearness  and  force,  and  what  we  have  to  do  now  is  to 
decide  between  them. 

In  the  first  place  let  me  say  that  I  concur  with  those  of  the  learned 
judges  who  are  of  opinion  that  no  solid  distinction  exists  between  the 
liability  of  either  defendant  in  an  action  on  the  bills  and  in  an  action  for 
goods  sold  and  delivered.  If  he  would  have  been. liable  in  an  action 
for  goods  sold  and  delivered,  it  must  be  because  those  who  were  in 
fact  carrying  on  the  business  of  the  Stanton  Iron  Company  were  car- 
rying it  on  as  his  partners  or  agents ;  and,  as  the  bills  were  accepted, 
according  to  the  usual  course  of  business,  for  ore  supplied  by  the 
plaintiff,  I  cannot  doubt  that,  if  the  trade  was  carried  on  by  those 
who  managed  it  as  partners  or  agents  of  the  defendant,  he  must  be 
just  as  liable  on  the  bills  as  he  would  have  been  in  an  action  for  the 
price  of  the  goods  supplied.  His  partners  or  agents  would  have  the 
same  authority  to  accept  bills  in  the  ordinary  course  of  trade  as  to 
purchase  goods  on  credit. 

The  liability  of  one  partner  for  the  acts  of  his  copartner  is  in  truth 
the  liability  of  a  principal  for  the  acts  of  his  agent.  Where  two  or 
more  persons  are  engaged  as  partners  in  an  ordinary  trade,  each  of 
them  has  an  implied  authority  from  the  others  to  bind  all  by  contracts 
entered  into  according  to  the  usual  course  of  business  in  that  trade. 
Every  partner  in  trade  is,  for  the  ordinary  purposes  of  the  trade, 
the  agent  of  his  copartners,  and  all  are  therefore  liable  for  the  or- 
dinary trade  contracts  of  the  others.  Partners  may  stipulate  among 
themselves  that  some  one  of  them  only  shall  enter  into  particular  con- 
tracts, or  into  any  contracts,  or  that  as  to  certain  of  their  contracts 
none  'shall  be  liable  except  those  by  whom  they  are  actually  made ; 
but  with  such  private  arrangements  third  persons,  dealing  with  the 
firm  without  notice,  have  no  concern.  The  public  have  a  right  to 
assume  that  every  partner  has  authority  from  nis  copartner  to  bind 
the  whole  firm  in  contracts  made  according  to  the  ordinary  usages 

of  trade. 

This  principle  applies,  not  only  to  persons  acting  openly  and  avow- 
edly as  partners,  but  to  others  who,  though  not  so  acting,  are  by  se- 
cret or  private  agreement  partners  with  those  who  appear  ostensibly 
to  the  world  as  the  persons  carrying  on  the  business. 

In  the  case  now  before  the  House,  the  Court  of  Common  Pleas  de- 
cided in  favor  of  the  respondent  that  the  appellant,  by  his  execution 
'  of  the  deed  of  arrangement,  became,  together  with  the  other  creditors 
who  executed  it,  a  partner  with  those  who  conducted  the  business  of 
the  Stanton  Iron  Company.  The  judges  in  the  Court  of  Exchequer 
Chamber  were  equally  divided,  so  that  the  judgment  of  the  Court  of 


Sec.  3)  TESTS   OP   INTENTION.  33 

Common  Pleas  was  affirmed.  The  sole  question  for  adjudication  by 
your  Lordships  is  whether  this  judgment  thus  affirmed  was  right. 

I  do  not  propose  to  consider  in  detail  all  the  provisions  of  the  deed. 
I  think  it  sufficient  to  state  them  generally.  In  the  first  place  there 
is  an  assignment  by  Messrs.  Smith  to  certain  trustees  of  the  mines 
and  all  the  engines  and  machinery  used  for  working  them,  together 
witii  all  the  stock  in  trade,  and  in  fact  all  their  property,  upon  trust 
to  carry  on  the  business  and,  after  paying  its  expenses,  to  divide  the 
net  income  ratably  amongst  the  creditors  of  Messrs.  Smith,  as  often 
as  there  shall  be  funds  in  hand  sufficient  to  pay  one  shilling  in  the 
pound,  and,  after  all  the  creditors  are  satisfied,  then  in  trust  for 
Messrs.  Smith. 

Up  to  this  point  the  creditors,  though  they  executed  the  deed,  are 
merely  passive;  and  the  first  question  is,  what  would  have  been  the 
consequence  to  them  of  their  executing  the  deed  if  the  trusts  had 
ended  there?  Would  they  have  become  partners  in  the  concern 
carried  on  by  the  trustees  merely  because  they  passively  assented  to 
its  being  carried  on  upon  the  terms  that  the  net  income — i.  e.,  the 
net  profits — should  be  applied  in  discharge  of  their  demands?  I  think 
not.  It  was  argued  that,  as  they  would  be  interested  in  the  profits, 
therefore  they  would  be  partners.  But  this  is  a  fallacy.  It  is  often 
said  that  the  test,  or  one  of  the  tests,  whether  a  person  not  ostensibly 
a  partner  is  nevertheless  in  contemplation  of  law  a  partner  is  whether 
he  is  entitled  to  participate  in  the  profits.  This,  no  doubt,  is  in  gen- 
eral a  sufficiently  accurate  test;  for  a  right  to  participate  in  profits 
affords  cogent,  often  conclusive,  evidence  that  the  trade  in  which  the 
profits  have  been  made  was  carried  on  in  part  for  or  on  behalf  of  the 
person  setting  up  such  a  claim.  But  the  real  ground  of  the  liability 
is  that  the  trade  has  been  carried  on  by  persons  acting  on  his  behalf. 
When  that  is  the  case,  he  is  liable  to  the  trade  obligations,  and  entitled 
to  its  profits,  or  to  a  share  of  them.  It  is  not  strictly  correct  to  say 
that  his  right  to  share  in  the  profits  makes  him  liable  to  the  debts 
of  the  trade.  The  correct  mode  of  stating  the  proposition  is  to  say 
that  the  same  thing  which  entitles  him  to  the  one  makes  him  liable 
to  the  other,  namely,  the  fact  that  the  trade  has  been  carried  on  on 
his  behalf;  i.  e.,  that  he  stood  in  the  relation  of  principal  towards  the 
persons  acting  ostensiyy  as  the  traders  by  whom  the  liabilities  have 
been  incurred,  and  under  whose  management  the  profits  have  been 
made. 

Taking  this  to  be  the  ground  of  liability  as  a  partner,  it  seems  to 
me  to  follow  that  the  mere  concurrence  of  creditors  in  an  arrange- 
ment under  which  they  permit  their  debtor,  or  trustees  for  their  debtor, 
to  continue  his  trade,  applying  the  profits  in  discharge  of  their  de- 
mands, does  not  make  them  partners  with  their  debtors  or  the  trustees. 
The  debtor  is  still  the  person  solely  interested  in  the  profits,  save  only 
that  he  has  mortgaged  them  to  his  creditors.  He  receives  the  benefit 
of  the  profits  as  they  accrue,  though  he  has  precluded  himself  from 
Gil.Part.— 3 


34  TVHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

applying  them  to  any  other  purpose  than  the  discharge  of  his  debts. 
The  trade  is  not  carried  on  by  or  on  account  of  the  creditors,  though 
their  consent  is  necessary  in  such  a  case,  for  without  it  all  the  prop- 
ert}'  might  be  seized  by  them  in  execution.  But  the  trade  still  remains 
the  trade  of  the  debtor  or  his  trustees.  The  debtor  or  the  trustees 
are  the  persons  by  or  on  behalf  of  whom  it  is  carried  on. 

I  have  hitherto  considered  the  case  as  it  would  have  stood  if  the 
creditors  had  been  merely  passively  assenting  parties  to  the  carrying 
on  of  the  trade,  on  the  terms  that  the  profits  should  be  applied  in  liq- 
uidation of  their  demands.  But  I  am  aware  that  in  this  deed  special 
powers  are  given  to  the  creditors,  which,  it  was  said,  showed  that 
they  had  become  partners,  even  if  that  had  not  been  the  consequence 
of  their  concurrence  in  the  previous  trust.  The  powers  may  be  de- 
scribed briefly  as,  first,  a  power  of  determining  by  a  majority  in  value 
of  their  body  that  the  trade  should  be  discontinued,  or,  if  not  discon- 
tinued, then,  secondly,  a  power  of  making  rules  and  orders  as  to  its 
conduct  and  management. 

Those  powers  do  not  appear  to  me  to  alter  the  case.  The  creditors 
might,  by  process  of  law,  have  obtained  possession  of  the  whole  prop- 
erty. By  the  earlier  provisions  of  the  deed  they  consented  to  abandon 
that  right,  and  to  allow  the  trade  to  be  carried  on  by  the  trustees. 
The  effect  of  these  powers  is  only  to  qualify  their  consent.  They 
stipulate  for  a  right  to  withdraw  it  altogether,  or,  if  not,  then  to  im- 
pose terms  as  to  the  mode  in  which  the  trusts  to  which  they  had  agreed 
should  be  executed.  I  do  not  think  that  this  alters  the  legal  condition 
of  the  creditors.  The  trade  did  not  become  a  trade  carried  on  for  them 
as  principals,  because  they  might  have  insisted  on  taking  possession 
of  the  stock,  and  so  compelling  the  abandonment  of  the  trade,  or  be- 
cause they  might  have  prescribed  terms  on  which  alone  it  should  be 
continued.  Any  trustee  might  have  refused  to  act  if  he  considered 
the  terms  prescribed  by  the  auditors  to  be  objectionable.  Suppose  the 
deed  had  stipulated,  not  that  the  creditors  might  order  the  discontin- 
uance of  the  trade,  or  impose  terms  as  to  its  management,  but  that 
some  third  person  might  do  so,  if,  on  inspecting  the  accounts,  he  should 
deem  it  advisable.  It  could  not  be  contended  that  this  would  make 
the  creditors  partners,  if  they  were  not  so  already ;  and  I  can  see 
no  difference  between  stipulating  .for  such  a  power  to  be  reserved  to 
a  third  person  and  reserving  it  to  themselves. 

I  have,  on  these  grounds,  come  to  the  conclusion  that  the  creditors 
did  not,  by  executing  this  deed,  make  themselves  partners  in  the  Stan- 
ton Iron  Company,  and  I  must  add  that  a  contrary  decision  would 
be  much  to  be  deprecated.  Deeds  of  arrangement,  like  that  now  be- 
fore us,  are,  I  believe,  of  frequent  occurrence;  and  it  is  impossible  to 
imagine  that  creditors  who  execute  them  have  any  notion  that  by  so 
doing  they  are  making  themselves  liable  as  partners.  This  would  be 
no  reason  for  holding  them  not  to  be  liable,  if,  on  strict  principles  of 
mercantile  law,  they  are  so;    but  the  very  fact  that  such  deeds  are 


Sec.  3)  TESTS   OF   INTENTION.  35 

SO  common,  and  that  no  such  liability  is  supposed  to  attach  to  them 
affords  some  argument  in  favour  of  the  appellant.  The  deed  now 
before  us  was  executed  by  above  a  hundred  joint  creditors ;  and  a 
mere  glance  at  their  names  is  sufficient  to  show  that  there  was  no 
intention  on  their  part  of  doing  anything  which  should  involve  them 
in  the  obligations  of  a  partnership.  I  do  not  rely  on  this;  but.  at 
least,  it  shows  the  general  opinion  of  the  mercantile  world  on  the  sub- 
ject. I  may  remark  that  one  of  the  creditors,  I  see,  is  the  Midland 
Railway  Company,  which  is  a  creditor  for  a  sum  only  of  i30,  and  to 
suppose  that  the  directors  could  imagine  that  they  were  making  them- 
selves partners  is  absurd. 

The  authorities  cited  in  argument  did  not  throw  much  light  upon 
the  subject.  I  can  find  no  case  in  which  a  person  has  been  made  liable 
as  a  dormant  or  sleeping  partner,  where  the  trade  might  not  fairly 
be  said  to  have  been  carried  on  for  him,  together  with  those  ostensibly 
conducting  it,  and  when,  therefore,  he  would  stand  in  the  position  of 
principal  towards  the  ostensible  members  of  the  firm  as  his  agents. 
This  was  certainly  the  case  in  Waugh  v.  Carver,  2  H.  Bl.  235.  There 
Messrs.  Carver,  who  were  ship  agents  at  Portsmouth,  agreed  with 
Giesler,  a  ship  agent  at  Plymouth,  that  if  he  would  establish  himself 
as  a  ship  agent  at  Cowes  they  would  share  between  them  the  profits 
of  their  respective  agencies  in  certain  stipulated  proportions.  When, 
therefore,  Giesler,  in  pursuance  of  the  agreement,  did  establish  him- 
self at  Cowes,  and  there  carry  on  the  business  of  a  ship  agent,  he  in 
fact  carried  it  on  for  the  benefit  of  Messrs.  Carver  as  well  as  of  him- 
self; and  the  court  held  that,  in  these  circumstances,  the  stipulation 
which  they  had  entered  into  that  neither  party  to  the  agreement  should 
be  answerable  for  the  acts  of  the  other  was  a  stipulation  which  they 
could  not  make  so  as  thereby  to  affect  third  persons.  Each  firm  was 
carrying  on  business  on  account,  not  only  of  itself,  but  also  of  the 
other  firm.    This,  therefore,  made  each  firm  the  agent  of  the  other. 

The  case  of  Bond  v.  Pittard,  3  M.  &  W.  357,  could  admit  of  no 
doubt.  The  question  was  whether  G.  H.  Watts  and  P.  H.  Watts 
could  sue  jointly  for  business  transacted  by  them  as  attorneys.  They 
had  agreed  to  become  partners  on  a  stipulation  that  P.  H.  Watts 
should  always  receive  iSOO  yearly  out  of  the  first  profits  as  his  share. 
and  should  not  be  liable  for  any  losses.  It  was  argued  that  this  lat- 
ter stipulation  prevented  them  from  being  partners;  but  the  court 
held  the  contrary.  Each  of  them  worked  for  the  common  benefit  of 
both,  and  each  of  them,  therefore,  acted  as  agent  of  the  other.  The 
produce  of  the  labor  of  each  was  to  be  brought  into  a  common  fund, 
to  be  afterwards  shared  according  to  certain  arrangements  between 
themselves.    The  case  was  really  free  from  doubt. 

A  similar  principle  explains  and  justifies  the  decision  of  the  Court 
of  Common  Pleas  in  Barry  v.  Nesham,  3  C.  B.  641.  The  question 
was  whether  the  defendant  was  liable  for  goods  furnished  to  one  Low- 
thin  in  the  wav  of  his  business  as  the  printer  and  publisher  of  a  news- 


36  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

paper.  Nesham  had  sold  the  stock  and  good  will  of  the  paper  to  Low- 
thin,  in  consideration  of  il,500,  and  on  a  farther  stipulation  that  for 
seven  years  the  profits  were  to  be  applied  as  follows ;  that  is  to  say : 
Lowthin  was  to  have  the  first  £150  of  the  annual  profits,  then  Nesham 
was  to  have  them  to  the  extent  of  £500,  if  they  made  so  much,  and 
Lowthin  was  to  have  all  beyond.  It  is  clear  that  Lowthin  was  con- 
ducting the  business  for  the  common  benefit  of  both,  subject  to  their 
private  arrangements  as  to  the  shares  they  should  separately  be  en- 
titled to.    Lowthin  was,  therefore,  clearly  the  agent  of  Nesham. 

Owen  v.  Body  is. at  most  a  case  in  which  a  dictum  may  be  found. 
The  Court  of  Queen's  Bench  was  quite  right  in  holding'  that  the 
creditors  were  justified  in  refusing  to  execute  the  deed  tendered  to 
them ;  and  that  is  all  which  was  decided. 

None  of  the  otlier  cases  cited  carried  the  doctrine  farther  than 
those  Lhave  referred  to,  and  I  therefore  think  that  in  this  case  the 
judgment  appealed  against  ought  to  be  reversed.* 


BULLEN  et  al.  v.  SHARP. 

(Exchequer  Chamber,  18G5.    Law  Rep.  1  C.  P.  86.) 

Blackburn,  J.  This  was  an  action  on  a  policy  of  insurance  against 
the  defendant  as  underwriter.  The  policy  was  actually  underwritten 
in  the  name  of  the  defendant's  son.  The  question  in  the  cause  is 
whether  the  defendant  was  a  partner  in  the  underwriting  business 
carried  on  in  his  son's  name,  so  as  to  make  him  liable  to  third  persons 
on  contracts  made  in  the  course  of  that  business.  On  the  trial,  a 
verdict  was  taken  by  consent  for  the  plaintiff,  subject  to  a  special  case, 
as  part  of  which  it  was  agreed  that  the  court  might  draw  any  rea- 
sonable inferences  of  fact.  The  court  below  have  determined  the 
question  in  favor  of  the  plaintiffs.       *     *     * 

1  have  come  to  the  conclusion  that  the  judgment  below  ought  to  be 
reversed*  as  i  think  the  defendant  is  not  shown  to  have  been  a  part- 
ner in  the  business  carried  on  in  his  son's  name. 

The  case  of  Cox  v.  Hickman,  8  H.  L.  C.  268,  being  a  decision  of 
the  House  of  Lords,  the  ultimate  court  of  appeal,  overrules  all  earlier 
authorities  inconsistent  with  that  decision,  and,  so  far  as  the  judgment 
goes,  fixed  the  law  in  this  country.  We  are  not  bound  by  all  that 
is  said  in  the  course  of  a  judgment  of  the  House  of  Lords ;  but  that 
which  appears  to  be  the  rule  established  by  the  decision  of  that  tri- 
bunal is  binding,  not  only  on  all  inferior  tribunals  in  this  country,  but 
even  on  that  House  itself  when  sitting  judicially. 

■     The  first  point,  therefore,  to  be  determined  in  the  present  case,  is 
what  really  was  the  effect  of  the  decision  of  the  House  of  Lords  in 

2  The  concurring  opinions  of  Campliell,  L.  C,  and  Wensleydale,  L.,  are 
omitted.    Brougham  and  Chelmsford,  LL.,  concurred. 


Sec.  3)  TBSTS   OF   INTENTION.  87 

Cox  V.  Hickman,  8  H.  L.  C.  2G8.  Prior  to  that  decision,  the  dictum 
of  De  Grey,  C.  J.,  in  Grace  v.  Smith,  2  W.  Bl.  998,  "that  every  man 
who  has  a  share  of  the  profits  of  a  trade  ought  also  to  bear  a  share 
of  the  loss,"  had  been  adopted  as  the  ground  of  judgment  in  Waugh 
V.  Carver,  2  H.  Bl.  23o,  where  it  was  laid  down  "that  he  who  takes  a 
moiety  of  all  profits  indefinitely  shall,  by  operation  of  law,  be  made 
liable  to  losses,  if  losses  arise,  upon  the  principle  that,  by  taking  a 
part  of  the  profits,  he  takes  from  the  creditors  a  part  of  that  fund 
which  is  the  proper  security  to  them  for  the  payment  of  their  debts." 
This  decision  had  never  been  overruled.  The  reasoning  on  which  it 
proceeds  seems  to  have  been  generally  acquiesced  in  at  the  time;  and 
when,  more  recently,  it  was  disputed,  it  was  a  common  opinion  (in 
which  I  for  one  participated)  that'  the  doctrine  had  become  so  in- 
veterately  part  of  the  law  of  England  that  it  would  require  legislation 
to  reverse  it.  *  *  *  The  rule  laid  down  in  Waugh  v.  Carver, 
if  logically  followed  out,  led  to  the  conclusion  that  all  the  creditors 
who  assented  to  this  deed,  and  by  so  doing  agreed  to  take  the  profits, 
were  individually  liable  as  partners;  but,  when  it  was  sought  to  ap- 
ply the  rule  to  such  an  extreme  case,  it  was  questioned  whether  the 
rule  itself  was  really  established.  There  was  a  very  great  difference 
amongst  the  judges  who  decided  the  case  in  its  various  stages  below, 
and  also  amongst  those  consulted  in  the  House  of  Lords.  In  the  re- 
sult, the  House  of  Lords — consisting  of  Lord  Campbell,  C,  and  Lords 
Brougham,  Cranworth,  Wensleydale,  and  Chelmsford — unanimously 
decided  that  the  creditors  were  not  partners.  The  judgments  of  Lord 
Cranworth  and  of  Lord  Wensleydale  bear,  internal  evidence  of  hav- 
ing been  written.  Lord  Campbell,  C,  and  Lords  Brougham  and 
Chelmsford,  said  a^  few  words  expressing  their  concurrence.  It  is 
therefore  in  the  written  judgments,  and  more  especially  in  the  elab- 
orate judgment  of  Lord  Cranworth,  that  we  must  look  for  the  ratio 
decidendi.  [The  judge  here  read  from  the  opinions  of  Cranworth 
and  Wensleydale,  LL.,  in  Cox  v.  Hickman.] 

I  think  that  the  ratio  decidendi  is  that  the  proposition  laid  down 
in  Waugh  v.  Carver,  2  H.  Bl.  235,  viz.,  that  a  participation  in  the 
.profits  of  a  business  does  of  itself,  by  operation  of  law,  constitute  a 
partnership,  is  not  a  correct  statement  of  the  law  of  England,  but 
that  the  true  question  is,  as  stated  by  Lord  Cranworth,  whether  the 
trade  is  carried  on  on  behalf  of  the  person  sought  to  be  charged  as  a 
partner;  th^  participation  in  the  profits  being  a  most  important  ele- 
ment in  determining  that  question,  but  not  being  in  itself  decisive, 
and  the  test  being,  in  the  language  of  Lord  Wensleydale,  whether  it 
is  such  a  participation  of  profits  as  to  constitute  the  relation  of  prin- 
cipal and  agent  between  the  person  taking  the  profits  and  those  actual- 
ly carrying  on  the  business. 

I  do  not  think  it  is  proper  for  us  to  inquire  whether  this  rule  of 
law  is  more  or  less  expedient  than  the  rule  laid  down  in  Waugh  v. 
Carver.     That  is  a  question   for  the  Legislature,  who  may  alter  the 


38  WHAT  CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

law  as  to  tJiem  seems  right.  We  have  only  to  administer  it,  and  to 
proceed  to  apply  what  we  consider  to  be  the  judgment  of  the  House 
of  Lords  to  the  facts  in  the  present  case. 

The  case  contains  a  power  to  draw  inference  of  fact,  and  therefore 
it  is  open  to  the  plaintiffs  to  contend  that  we  should  draw  the  infer- 
ence that  the  transactions  stated  in  the  case  were  not  really  what  they 
appear  to  be.  I  shall  afterwards  deal  with  the  question  how  far  I 
think  such  inferences  ought  to  be  drawn.  At  present  I  shall  consider 
the  case  on  the  supposition  that  the  various  transactions  between  the 
parties  really  were  what  they  purport  to  be. 

It  appears,  then,  that  in  March,  1857,  the  son  of  the  defendant 
entered  into  a  written  agreement  with  one  Fenn,  an  underwriter, 
which  is  set  out  in  the  fourth  paragraph  of  the  case.  By  this  agree- 
ment the  son  was  to  be  an  underwriter;  but  the  management  of  the 
business  was  to  the  confided  to  Fenn,  who,  in  consideration  of  a 
salary  of  £300  a  year,  w^s  to  act  for  the  son.  On  the  same  day  on 
which  this  agreement  was  made,  the  defendant  authorized  Fenn  to 
state  to  the  committee  of  Lloyd's  that  he,  the  defendant,  had  placed 
at  Fenn's  disposal  £5,000  and  intended  to  give  his  son  further  aid, 
if  needed.  In  November,  1858,  it  was  resolved  to  extend  the  business 
carried  on  by  Fenn  in  the  name  of  the  son,  and  by  an  agreement  be- 
tween them  Fenn's  salary  was  raised  to  £350.  On  the  1st  of  January, 
1859,  the  son  signed  a  letter,  addressed  to  the  defendant,  which  is 
set  out  in  paragraph  11  of  the  case.  By  it,  in  consideration  of  the 
defendant's  guaranteeing  the  son  to  the  extent  of  £5,000  in  his  busi- 
ness of  an  underwriter  until  by  such  business  he  should  acquire  the 
clear  sum  of  £5,000,  the  son  promised  to  pay  the  defendant  during 
their  joint  lives  an  annuity  of  £500  a  year,  to  be  increased  in  case  one- 
fourth  of  the  son's  average  annual  net  profits  during  the  first  three 
years  should  exceed  £500,  to  a  sum  equal  to  one-fourth  of  such  net 
average  annual  profits.  This  arrangement,  as  worded,  would  not  in- 
crease the  annuity  unless  the  son's  average  net  profits  during  the 
first  three  j^ears  should  exceed  £2,000  a  year;  so  that  it  would  seem 
the  parties  contemplated  carrying  on  a  business  much  more  extensive 
than  was  justified  by  a  capital  of  £5,000,  and  it  is  not  very  surprising 
to  find  that,  before  the  three  years'  end,  the  son  was  a  bankrupt.  It  was 
expressly  stipulated  in  the  letter  that  the  defendant  should  not  be  a 
partner  with  his  son  in  his  business.  This  last  stipulation  is  bind- 
ing between  them,  but  does  not  affect  third  parties ;  and  ^consequently 
the  first  question  we  have  to  determine  is  whether  this  agreement  did 
constitute  a  partnership  as  to  third  parties,  and  I  think  that,  assum- 
ing it  to  represent  the  real  transaction,  it  did  not  constitute  a  partner- 
ship. It  is  not  an  arrangement  by  which  the  defendant  agrees  to 
carry  on-  the  trade  in  the  name  of  his  son,  nor  even  one  in  which  he 
stipulates  for  a  portion  of  the  profits  of  that  trade;  but  it  is  a  pur- 
chase of  an  annuity,  secured  only  by  the  personal  promise  of  the 
iOn,  the  consideration  being  that  the  defendant  binds  him.self  to  make 


Sec.  3)  TESTS   OF  INTENTION.  39 

advances  to  the  scm  to  the  extent  of  £5,000  when  required  in  tlie 
business. 

In  Aug^ust,  1859,  the  son  married;  and  prior  to  his  marriage  hft 
executed  a  deed  of  settlement,  which  is  made  a  part  of  this  case.  This 
deed  was  between  the  son,  of  the  first  part,  the  intended  wife,  of  the 
second  part,  and  two  trustees  (of  whom  the  defendant  was  one),  of 
the  third  part.  It  recites  the  agreements  between  the  son  and  Fcnn 
for  carrying  on  the  son's  business  under  the  management  of  Fcnn. 
and  also  the  agreements  between  the  son  and  the  defendant  by  which 
the  son  bound  himself  to  pay  the  defendant  an  annuity,  and  an  agree- 
ment, in  contemplation  of  the  marriage,  by  which  the  son  engaged  to 
convey  some  railway  shares  and  other  property,  and  also  all  the  pro- 
ceeds of  his  underwriting  business,  to  trustees,  on  certain  trusts;  and 
then  the  son  does  by  the  deed  assign  over  to  the  trustees  (one  of 
whom  is  the  defendant)  all  moneys,  the  proceeds  of  the  underwriting 
business,  then  in  the  hands  of  Fenn  or  any  other  person  who  might 
be  substituted  as  manager  of  the  son's  business,  or  thereafter  to  be, 
and  gave  them  a  power  of  attorney  to  recover  such  moneys  from  the 
manager;  and  then  the  indenture  declares  the  trusts  on  which  the 
moneys  are  to  be  held.  These  are,  in  the  first  place,  to  pay  the  an- 
nuity to  the  defendant ;  next,  to  pay  the  son  an  allowance  of  £500  a 
year,  to  be  increased,  if  the  business  prospered,  to  £750;  then,  to  ac- 
cumulate the  surplus  until  it  amounted  to  £8,500,  and  so  remained  for 
two  years  without  reduction,  w-hen  the  engagement  to  pay  over  the 
future  proceeds  of  the  business  to  the  trustees  was  to  cease.  There 
is  a  proviso  that,  at  any  time  during  the  continuance  of  the  engage- 
ment, the  trustees  were,  upon  the  request  of  the  son,  or  his  manager 
for  the  time  being,  to  raise  out  of  the  property  assigned  by  the  son 
and  the  accumulated  fund  any  sum  required  to  meet  emergencies  oc- 
curring in  the  underwriting  business.  The  ultimate  trusts  of  the  ac- 
cumulated fund,  when  it  should  have  remained  two  years  without 
reduction  at  the  sum  of  £8,500,  were  to  repay  any  advances  made  by 
the  defendant  under  his  guarantee,  and,  subject  thereto,  for  the  benefit 
of  the  wife  and  children.  Such  a  settlement  as  this  would  be  very 
inconvenient  in  most  trades ;  but,  when  the  peculiar  nature  of  an 
underwriting  business  as  carried  on  at  Lloyd's  is  borne  in  mind,  it 
seems  a  prudent  enough  arrangement.  The  course  of  business  was 
stated  in  Xenos  v.  Wickham,  14  C.  B.  N.  S.  108  E.  C.  L.  R.  4G0, 
33  L.  J.  C.  P.  13 ;  and  w^e  were  informed  during  the  course  of  the 
argument  that  it  was  stated  accurately.  The  premiums  are  received 
by  the  broker,  and  out  of  these  losses  and  returns  of  premiums  are 
paid  bv  him ;  the  balance  being  paid  over  to  the  underwriter  at  stated 
intervals.  So  long,  therefore,  as  the  losses  do  not  exceed  the  ordinary 
.and  expected  average,  the  underwriter  only  receives  money;  but  if 
the  losses  exceed  the  average,  so  that  the  whole  premiums  in  the  hands 
of  the  broker  are  absorbed  by  these  losses,  the  underwriter  has  to  find 
the  funds  to  meet  the  excess,  and  it  is  to  be  anticipated  that  at  irrcg- 


40  WHAT. CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

ular  intervals  such  extraordinary  -losses  will  occur.  The  underwriter, 
Ihertffore,  ought  not  to  spend  the  annual  proceeds  of  his  trade  as  if 
chev  were  clear  gain,  but  should  keep  a  considerable  reserve  fund. 
No.v,  if  by  a  settlement  an  underwriter  binds  himself  to  his  trustees 
'.o  limit  his  personal  expenditure,  and  to  put  the  residue  of  the  pro- 
ceeds of  the  trade  in  their  hands  as  a  reserve  fund  to  meet  emergen- 
cies of  his  trade,  and,  subject  to  meeting  those  emergencies,  to  form 
a  fund  for  the  benefit  of  his  family,  he  does  not  bind  himself  to  do 
that  which  a  prudent  man  ought  to  do  of  his  own  accord.  It  is  true 
that,  by  entering  into  this  agreement,  the  trustees  do  take  the  profits 
of  the  trade;  and,  whilst  Waugh  v.  Carver,  2  H.  Bl.  235,  was  con- 
sidered as  unqualified  law,  it  would  have  been  difficult  to  say  that  they 
did  not  thereby  by  operation  of  law  make  themselves  partners  in  the 
trade,  and  personally  responsible,  though  it  may  be  observed  that 
they  do  not  by  this  arrangement  withdraw  the  profits  from  the  reach 
of  the  creditors,  but  rather  secure  that  the  trader  shall  not  spend 
them,  and  that  they  shall  remain  as  a  fund  to  meet  emergencies.  But, 
when  we  find  that  the  object  of  their  taking  the  profits  of  the  trade 
is  to  keep  them  as  a  reserve  fund  to  meet  the  emergencies  of  the 
business,  I  think  it  becomes  clear  that,  though  they  take  the  profits, 
they  do  not  cause  the  business  to  be  carried  on  for  them,  and  that 
the  participation. is  not  such  as  to  constitute  the  relation  of  principal 
and  surety  between  the  trustees  of  the  settlement  and  the  underwriter; 
and  that,  according  to  Cox  v.  Hickman,  8  H.  L.  C.  268,  is  the  true 
question.  I  think,  therefore,  that  such  a  settlement  does  not  of  it- 
self make  the  trustees  partners  in  the  business. 

In  the  present  case,  the  first  trust  was  to  pay  the  defendant  his  an- 
nuity ;  and  it  was  argued  that,  though  his  co-trustee,  Donnison,  might 
not  be  a  partner  of  a  principal  in  the  underwriting  business  of  the 
son,  yet  that  the  defendant,  being  not  only  a  trustee,  but  also  bene- 
ficially interested  in  the  profits  when  received  by  him  and  his  co- 
trustee, was  a  partner.  But,  if  the  previous  arrangement  between 
the  defendant  and  his  son  w^as  really  what  it  purported  to  be,  and  the 
defendant  really  was  an  annuity  creditor  of  his  son,  this  arrangement 
goes  no  further  than  did  that  in  Cox  v.  Hickman,  8  H.  L.  C,  268. 
There  is  only  one  creditor,  instead  of  many ;  but  in  every  other  respect 
the  w^ords  of  Lord  Cranworth,  already  cited,  are  strictly  applicable: 
"The  debtor  [in  this  case,  the  son]  is  still  the  person  solely  interest- 
ed in  the  profits,  save  only  that  he  has  transferred  them  [or,  in  this 
case,  a  part  of  them]  to  his  creditor,  the  defendant."  The  son  re- 
ceives the  benefit  of  the  profits  as  they  accrue,  though  he  has  pre- 
cluded himself  from  applying  this  portion  of  them  to  any  otli^er  pur- 
pose than  the  payment  of  this  annuity,  for  which  he  was  already 
liable.  The  trade  is  not  carried  on  by  or  on  account  of  the  annuitant 
creditor.  I  think,  therefore,  that,'  assuming  that  the  transactions  were 
really  what  they  purport  to  be,  the  defendant  was  not  liable  as  a 
partner  in  the  business  carried  on  in  his  son's  name. 


Sec.  3)  TESTS  OF   INTENTION.  41 

I  come  now  to  consider  whether,  in  the  exercise  of  the  power  to 
draw  reasonable  inferences  of  fact,  we  ought  to  draw  the  inference 
that  in  reahty  the  transactions  were  not  such  as  they  purport  to  be, 
but  that  they  were  a  cloak  for  a  scheme  by  which  the  defendant  really 
carried  on  the  business  for  himself.  *  *  *  jj^  the  present  case  I 
think  we  are  not  justified  in  drawing  any  such  inference.  For  these 
reasons,  I  think  that  the  judgment  of  the  Common  Pleas  should  be 
reversed. 

Bramwell,  J.  In  this  case  the  plaintiffs  declare  that  they  made  a 
policy  of  insurance,  and  that  "the  defendant,  in  consideration  of  a 
certain  premium  paid  him  by  the  plaintiffs,  subscribed  the  said  policy 
for  £100  and  became  an  insurer  thereon  to  the  plaintiffs  for  that 
amount."  The  defendant  pleads  "that  he  did  not  subscribe  the  said 
policy  or  become  insurer  as  alleged."  And  the  question  is  whether 
the  plaintiffs  have  proved  the  allegations  so  traversed.  This  is  the 
real  and  ultimate  question,  because,  though  this,  like  other  cases,  has 
been  argued  as  though  the  question  were  whether  the  defendant  was 
a  partner  with  somebody  else,  and  though  this  way  of  arguing  is  rea- 
sonable enough,  as  prima  facie  a  partner  is  liable  for  the  acts  of  his 
copartner  within  the  ordinary  scope  of  partnership  authority,  yet,  in- 
asmuch as  a  man  may  be  a  partner  and  not  liable,  or  not  a  partner 
and  yet  liable,  the  determination  of  partnership  or  no  partnership 
does  not  settle  the  question,  which  still  remains,  "did  the  de- 
fendant subscribe  the  policy  and  become  an  insurer?"  Now,  he 
did  not  subscribe  it  with  his  own  hand;  nor  is  he  liable  on  the 
ground  of  holding  himself  out  as  a  partner  or  principal  in  this  matter, 
for  he  has  not  done  so.  The  only  other  way  in  which  he  can  be  lia- 
ble is  by  reason  of  his  having  given  authority  to  the  person  who  signed 
it  so  to  sign  and  bind  him.  The  person  who  did  sign  it  is  described 
in  the  case  as  a  "clerk,"  and  he  signed  the  name  of  the  defendant's 
son.  Then  did  the  defendant  give  that  person  any  authority  so  to 
sign  and  bind  him?  That  he  did  not  in  words  is  certain;  nor  did  he 
in  intention ;  nor  did  the  clerk  intend  to  bind  him ;  nor  did  his  son, 
nor  Fenn ;  nor  did  the  plaintiffs  suppose  he  was  bound,  or  intend  to 
deal  with  or  trust  him,  but  his  son.  If,  then,  he  is  liable,  if  he  has 
given  such  authority,  it  is  against  the  intentions  of  all  parties.  It  is 
in  spite  of  their  m-eaning  the  contrary,  and  must  therefore  be  from 
some  force  in  the  nature  of  the  transaction  itself.  And  this  may  be. 
If  the  defendant  was  really  the  principal,  or  one  of  the  principals, 
in  the  transaction;  if  those  who  acted  really  were  his  agents;  if, 
on  the  truth  appearing,  he  had  a  right  to  say  the  contract  was  made 
with  him,  and  to  enforce  it — he  ought  to  be  and  would  be  liable.  As. 
for  instance,  if  there  was  a  business  which  required  the  buying  of 
goods  on  credit,  and  if  a  person  tried  to  carry  it  on  in  the  name  of  an 
agent,  whether  such  agency  was  an  agency  of  a  partnership  or  any 
other,  so  that,  upon  the  purchase  of  goods  by  the  agent  or  partner, 
the  property  vested  wholly  or  in  part  in  the  first-named  person,  then 


42  WHAT  CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

he  would,  as  it  seems  to  nie,  be  liable,  though  he  had  stipulated  with 
his  agent  or  partner  that  he  should  not  be,  because  he  would  have 
tried  for  an  impossibility,  for  a  thing  repugnant  in  itself,  viz.,  that 
the  contract  should  be  made  with  him,  for  his  benefit,  but  not  to 
bind  him.  It  becomes  necessary,  then,  to  examine  the  facts.  [After 
comm.enting  on  the  facts,  the  opinion  continues:] 

Why,  then,  the  deed  being  bona  fide,  is  the  defendant  a  partner  or 
principal" in  the  business?  He  can  make  no  contract,  nor  order  one, 
nor  forbid  one,  nor  enforce  one,  nor  release  one.  If  the  profits  were 
£10.000  in  the  year,  he  would  get  nothing  but  his  annuity.  The  re- 
sidue would  go  to  his  son  and  the  trust  fund.  His  annuity  would  be 
larger,  indeed ;  but  that  is  unimportant.  If  there  were  no  profits  in 
anv  year,  he  would  still  be  entitled  to  his  £500  annuity.  How  can 
this  state  of  facts  prove  that  the  defendant  "subscribed  the  said  policy 
and  became  an  insurer"?  It  seems  to  me,  therefore,  that  if  the  de- 
fendant is  held  to  have  "subscribed  this  policy  and  become  an  in- 
surer," it  will  be  so  held,  though,  as  I  have  said,  he  has  not  done  so 
in  form  nor  in  substance,  and  that  he  has  so  done  somehow,  though 
there  is  no  fraud,  without  his  or  any  one  else  concerned  intending 
it.  Surely  it  seems  enough  to  state  this  to  show  that  it  cannot  be  true, 
and  that  therefore  the  defendant  is  not  hable.  The  burthen  of  proof 
to  the  contrary  is  on  the  plaintiffs.  Now,  what  reason  do  they  give? 
They  say  that  the  defendant  is  a  partner  with  his  son,  and  that,  if 
not  partners  inter  se,  they  are  so  as  regards  third  parties — a  most 
remarkable  expression!  Partnership  means  a  certain  relation  be- 
tween two  parties.  How,  then,  can  it  be  correct  to  say  that  A.  and 
B.  are  not  in  partnership  as  between  themselves,  they  have  not. 
held  themselves  out  as  being  so,  and  yet  a  third  person  has  a  right 
to  say  that  they  are  so  as  relates  to  him?  But  that  must  mean  inter 
se ;  for ,  partnership  is  a  relation  inter  se,  and  the  word  cannot  be 
used  except  to  signify  that  relation.  A.  is  not  the  agent  of  B. ;  B. 
has  never  held  him  out  as  such;  yet  C.  is  entitled  as  between  him- 
self and  B.,  to  say  that  A.  is  the  agent  of  B. !  Why  is  he  so  entitled, 
if  the  fact  is  not  so,  and  B.  has  not  so  represented?  But  "partner- 
ship" and  a  "right  to  call  persons  partners  as  regards  third  parties," 
are  words,  and  the  thing  must  be  looked  at,  viz.,  the  taking  or  shar- 
ing of  profits,  which  it  is  said  gives  C.  a  right  as  against  B.  to  say  B. 
4s  a  partner  of  A.  Why  should  it?  I  trust  that,  in  the  present  state 
of  authority,  this  question  may  be  freely  handled  without  presump- 
tion, and  that  the  goodness  of  such  a  rule  may  be  examined ;  because, 
though  we  are  bound  to  administer  the  law  as  we  find  it,  yet,  when 
we  are  considering  what  is  the  law,  we  may  not  improperly  inquire 
into  the  reasonableness  of  that  suggested.  Why,  then,  does  a  taking 
or  sharing  of  A.'s  profits  by  B.  entitle  C.  to  demand  payment  of  B. 
of  A.'s  debts  in  the  trade?  How,  if  there  is  such  taking  or  sharing 
in  this  case,  does  it  prove  that  the  defendant  "subscribed  the  policy 
and  became  an  insurer"?     If  A.  agrees  with  B.  to  share  profits  and 


Sec.  3)  TESTS   OP  INTENTION.  43 

losses,  but  not  to  interfere  with  the  business,  and  not  to  buy  or  sell, 
and  does  not  interfere,  nor  buy  nor  sell,  and  C,  knowing  this,  deals 
with  B.,  he  would  have  no  claim  on  A.  Why  should  he,  if  he  does 
not  know  of  it?  Why,  upon  finding  out  something  between  A.  and 
B.  which  has  in  no  way  afTected  or  influenced  him,  should  he  who 
has  dealt  with  B.  have  a  claim  on  A.?  It  is  said,  because  profits 
are  what  the  creditor  trusts  to,  they  are  his  fund  for  payment.  This 
would  be  a  bad  reason,  if  true  in  fact.  A  man  who  trusts  another 
generally  has  a  claim  on  his  profits  and  capital  too.  How  docs  a 
man  who  trusts  the  former  only  more  affect  the  creditor's  fund?  But, 
further,  it  really  is  not  true  in  substance,  only  in  words.  It  is  not 
a  receipt  of  profits,  in  substance,  that  makes  a  man  liable.  If  I  agree 
to  receive  a  sum  in  proportion  to  profits,  as,  for  instance,  a  sum  equal 
to  a  tenth,  I  am  not  liable.  If  I  receive  a  tenth,  I  am.  What  is  the 
difference,  except  in  words,  at  least  as  far  as  creditors  are  concerned? 
How  can  one  set  of  words  between  A.  and  B.  give  C.  a  right,  and  the 
same  thing  in  other  words  not?  How  many  men  in  a  thousand,  not 
lawyers,  could  be  got  to  understand  that,  of  the  two  servants  of  a 
firm,  the  one  who  received  a  tenth  of  the  profits  was  liable  for  its 
debts,  and  the  other,  who  has  received  a  sum  equal  to  a  tenth,  was 
not?  This  Mr.  Justice  Story  calls  "satisfactory."  Satisfactory  in 
what  sense?  In  a  practical  business  sense?  No;  but  in  the  sense  of 
an  acute  and  subtle  lawyer,  who  is  pleased  with  refined  distinctions, 
interesting  as  intellectual  exercises,  though  unintelligible  to  ordinary 
men,  and  mischievous  when  applied  to  the  ordinary  afifairs  of  life. 
Lord  Eldon  did  not  think  it  satisfactory.  Such  law  is  a  law  of  sur- 
prise and  injustice,  and  against  good  policy.  It  fixes  a  liability  on  a 
man  contrary  to  his  intent  and  expectation,  and  without  reason,  and 
gives  a  benefit  to  another  which  he  did  not  bargain  for  and  ought 
not  to  have,  and  prevents  that  free  use  of  capital  and  enterprise  which 
is  so  important.  It  is  said  that  this  is  true  of  a  dormant  partner. 
It  is  not.  His  existence  may  be  unknown  to  the  creditor;  but  the 
dormant  partner  knows  he  is  liable,  and  means  to  be,  and  the  creditor 
trusts  all  such  persons.  He  means  to  deal  with  all  real  persons.  It 
may  be  said  that,  if  this  reasoning  is  right,  a  man  might  bargain  to 
receive  all  the  profits  of  a  business  and  not  be  liable.  The  answer 
is,  the  thing,  is  impossible.  There  never  was,  and  never  will  be,  a 
bona  fide  agreement  by  one  man  to  carry  on  a  business,  bear  all  its 
losses,  and  pay  over  all  its  profits.  Should  such  an  agreement  appear, 
it  would  obviously  be  colorable.  Where  there  is  a  chance  of  profit 
to  the  trader,  there  such  an  agreement  may  be  honest,  and,  where 
honest,  ought  not  to  make  him  liable  who  is  certainly  to  receive  some 
of  the  profits,  and  perhaps  all. 

I  have  hitherto  dealt  with  the  case  on  principle.  I  proceed  to  examine 
the  authorities.  The  labor  formerly  needful  is  now  rendered  unne*:es- 
sary  by  Cox  v.  Hickman,  8  H.  L.  C.  2G8.  That  case  has  settled  the 
law,  I  may  be  permitted,  I  hope,  to  say,  in  a  perfectly  satisfactory  man- 


44  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch,  1 

ner.  It  is  there  laid  down  that  the  question  in  such  cases  as  the 
present  is  one  of  authority,  one  of  agency.  Lord  Campbell  says  (page 
302)  :  "The  defendant  can  only  be  liable  upon  the  supposition  that 
the  person  who  wrote  the  acceptance  on  the  bills  of  exchange  was 
their  mandatory  for  that  purpose."  Lord  Wensleydale  says  (page 
311)  :  "And  the  simple  question  will  be  this,  whether  Haywood  was 
authorized  by  either  of  the  defendants  as  a  partner  in  that  company 
to  bind  him  by  those  acceptances."  His  Lordship  proceeds:  "Hay- 
wood must  be  taken  to  have  been  authorized  to  accept  for  them  by 
those  who  actually  carried  on  business  under  that  firm.  Were  the  ap- 
pellants partners  in  it?  And  further  (page  312)  :  "The  question, 
then,  is  whether  this  deed  makes  the  creditors  who  sign  it  partners 
with  the  trustees,  or,  what  is  really  the  same  thing,  agents  to  bind 
them  by  acceptances  on  account  of  the  business."  And,  generally, 
I  refer  to  his  whole  judgment,  particularly  to  the  passage  at  page 
313,  beginning,  "Hence  it  becomes  a  test  of  the  liability,"  down  to 
"liable  as  a  partner."  Lord  Cranworth  puts  the  same  two  arguments 
together  at  page  306.  I  refer  to  the  passage  beginning,  "It  was 
argued,"  and  ending,  "to  have  been  made."  This,  tlien,  is  our  guigl^ 
for  the  future. 

The  question  here  is,  was  the  underwriter's  business  carried  on  by 
persons  acting  on  the  defendant's  behalf?  Now,  it  certainly  was  not. 
The  clerk  who  signed  the  policy,  Fenn,  and  the  son,  acted  on  the  son's 
behalf;  that  is,  unless  the  whole  is  a  sham — which,  as  I  have  before  said, 
I  think  is  not  open  to  us  to  consider,  nor  true,  if  it  were  open  to  us. 
This  ought  to  dispose  of  the  case.  But,  even  if  we  assume  that  the 
law  supposed  to  exist  before  Cox  v.  Hickman,  8  H.  L.  C,  2G8,  re- 
mains untouched — that  is  to  say,  the  supposed  law  of  Waugh  v.  Car- 
ver, 2  H.  Bl.  235 — I  think  the  same  conclusions  ought  to  be  come  to. 
Lord  Wensleydale  does  not  notice  that  case.  Lord  Cranworth  does, 
and,  with  submission,  gives  a  better  reason  for  the  decision  than  is  to 
be  found  in  the  case  itself.  The  Cjiief  Justice  there  says  the  quesv 
tion  is  whether  they  have  not  constituted  themselves  partners  in  re- 
spect to  other  persons,  and  puts  his  decision  on  the  ground  that  "he 
who  takes  a  moiety  of  all  the  profits  indefinitely  shall  by  operation 
of  law  be  liable  to  losses."  Let  us  hope  that  this  notion  is  overruled 
— one  which  I  believe  has  caused  more  injustice  and  mischief  than 
any  bad  law  in  our  books.  But,  even  if  not,  how  is  this  case  within 
it?  By  the  letter  of  the  1st  of  January,  1859,  after  the  business  had 
proved  profitable,  the  son  agreed  to  pay  his  father,  for  their  joint 
lives,  £500  a  year  absolutely,  not  out  of  profits,  nor  dependent  on 
them,  with  a  provision  for  an  increase  in  proportion  to  profits  if  they 
reached  beyond  a  certain  amount.  This  would  not  make  the  defendant 
a  receiver  of  profits,  nor  give  him  a  right  to  an"  account,  nor,  in 
fact,  bring  him  within  any  of  the  old  fancied  rules  of  liability.  Then 
comes  the  settlement,  in  which  the  defendant  is  a  trustee.     As  far  as 


Sec.  3)  TESTS  OF  INTENTION.  45 

the  settlement  alone  is  concerned,  the  defendant  is  no  more  liable  than 
the  other  trustee.    And  why  is  he  to  be  liable  ? 

It  remains  to  notice  the  judgment  of  the  court  below.  With  great 
respect  I  think  Cox  v.  Hickman  was  not  followed.  The  Chief  Justice 
says  the  deed  made  the  defendant  a  partner,  by  giving  him  an  inter- 
est in  the  business;  and  he  finishes  by  saying  the  question  is  wheth- 
er the  creditors  may  come  on  the  defendant  in  respect  of  the  profits. 
But,  according  to  the  judgment  in  Cox  v.  Hickman,  the  question 
does  not  turn  on  that.  Byles,  J.,  seems  to  consider  the  deed  as  a 
contrivance  for  giving  the  defendant  the  profits — that  in  reality  it 
was  his  business.  If  so,  of  course  he  is  liable.  Montague  Smith,  J., 
says  he  thinks  the  deed  an  arrangement  by  which  the  defendant  was 
to  have  the  profits  as  eo  nomine,  and  that  he  is  liable  as  a  partner.  But 
if  Lords  Cranworth  and  Wensleydale  have  laid  down  the  true  rule, 
it  is  not  that  indicated  in  the  last  expression. 

It  seems  to  me,  then,  there  is  here  no  partnership,  no  taking  of 
profits,  which  could  have  brought  the  case  within  what  was  supposed 
to  be  law  before  Cox  v.  Hickman,  8  H.  L.  C.  2G8 ;  that  on  rea- 
son and  principle  that  supposed  law  was  wrong;  that  it  is  now  con- 
demned by  the  authority  of  Cox  v.  Hickman ;  that  anyhow  Cox  v. 
Hickman  is  the  governing  case ;  and  that  it  lays  down  rules  which 
decide  this  in  favor  of  the  defendant. 

The  opinions  of  the  majority  of  the  court  being  thus  in  favor  of 
the  defendant,  the  judgment  of  the  court  below  was  reversed. 

Judgment  reversed.^ 


GRAY,  J.,  IN  MEEHAN  v.  VALENTINE. 

(Supreme  Court  of  the  United  States,  1802.    145  U.  S.  G19.  12  Sup.  Ct.  072.  30 

L.  Ed.  835.) 

How  far  sharing  in  the  profits  of  a  partiiership  shall  make  one  liable 
as  a  partner  has  been  a  subject  of  much  judicial  discussion,  and  the 
various  definitions  have  been  approximate  rather  than  exhaustive. 

The  rule  formerly  laid  down,  and  long  acted  on  as  established,  was 
that  a  man  who  received  a  certain  share  of  the  profits  as  profits,  with 
a  lien  on  the  whole  profits  as  security  for  his  share,  was  liable  as  a 
partner  for  the  debts  of  the  partnership,  even  if  it  had  been  stipulated 
between  him  and  his  copartners  that  he  should  not  be  so  liable ;  but 
that  merely  receiving  compensation  for  labor  or  services,  estimated  by 
a  certain  proportion  of  the  profits,  did  not  render  one  liable  as  a 
partner.  Story,  Partn.  c.  4 ;  3  Kent,  Comm.  25,  note,  32-34;  Ex 
parte  Hamper.  17  Ves.  403;  Pott  v.  Eyton,  3  C.  B.  32,  40;  Bost- 
wick  V.  Champion,  11  Wend.  (N.  Y.)  571.  18  Wend.  (N.  Y.)  175, 
184,  185,   31  Am.   Dec.  376;    Burckle  v.  Eckart.  1   Denio    (N.  Y.) 

1  Channel,  B.,  delivered  a  concurring  opinion.  Shee,  J.,  and  Pigott,  B., 
dissented. 


46  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

337,  and  3  N.  Y.  132;  Denny  v.  Cabot,  6  Mete.  (Mass.)  82;  Fitch 
V.  Harrington,  13  Gray  (Mass.)  468,  474,  74  Am.  Dec.  641;  Brun- 
dred  v.  Muzzy,  25  N.  J.  Law,  268,  279,  674.  The  test  was  often 
stated  to  be  whether  the  person  sought  to  be  charged  as  a  partner 
took  part  of  the  profits  as  a  principal,  or  only  as  an  agent.  Benjamin 
V.  Porteus,  2  H.  Bl.  590,  592;  Coll.  Partn.  (1st  Ed.)  14;  Smith, 
Merc.  Law  (1st  Ed.)  4;  Story,  Partn.  §  55;  Loomis  v.  Marshall, 
12  Conn.  69,  78,  30  Am.  Dec.  596;  Burckle  v.  Eckart,  1  Denio  (N. 
Y.)  337,  341 ;   Hallet  v.  Desban,  14  La.  Ann.  529. 

Accordingly,  this  court,  at  December  term,  1860,  decided  that  a 
person  employed  to  sell  goods  under  an  agreement  that  he  should  re- 
ceive half  the  profits,  and  that  they  should  not  be  less  than  a  certain 
sum,  was  not  a  partner  with  his  employer.  "Actual  participation  in 
the  profits  as  principal,"  s^id  Mr.  Justice  Clifford  in  delivering  judg- 
ment, "creates  a  partnership  as  between  the  parties  and  third  persons, 
whatever  may  be  their  intentions  in  that  behalf,  and  notwithstanding 
the  dormant  partner  was  not  expected  to  participate  in  the  loss  be- 
yond the  amount  of  the  profits,"  or  "may  have  expressly  stipulated 
with  his  associates  against  all  the  usual  incidents  to  that  relation.  That 
rule,  however,  has  no  application  whatever  to  a  case  of  service  or 
special  agency,  where  the  employe  has  no  power  as  a  partner  in  the 
firm  and  no  interest  in  the  profits,  as  property,  but  is  simply  em- 
ployed as  a  servant  or  special  agent,  and  is  to  receive  a  given  sum 
out  of  the  profits,  or  a  proportion  of  the  same,  as  a  compensation  for 
his  services."  Berthold  v.  Goldsmith,  24  How.  536,  542,  543,  16  L. 
Ed  762.  See,  also,  Seymour  v.  Freer,  8  Wall.  202,  215,  222-226. 
19  L.  Ed.  306;  Beckwith  v.  Talbot,  95  U.  S.  289,  293,  24  L.  Ed.  496; 
Edwards  v.  Tracy,  62  Pa.  374;  Burnett  v.  Snyder,  81  N.  Y.  550, 
555,  37  Am.  Rep.  527. 

Mr.  Justice  Story,  at  the  beginning  of  his  Commentaries  on  Part- 
nership, first  published  in  1841,  said:  "Every  partner  is  an  agent  of 
the  partnership;  and  his  rights,  powers,  duties,  and  obligations  are 
in  many  respects  governed  by  the  same  rules  and  principles  as  those 
of  an  agent.  A  partner,  indeed,  virtually  embraces  the  character  both 
of  a  principal  and  of  an  agent.  So  far  as  he  acts  for  himself  and  his 
.  own  interest  in  the  common  concerns  of  the  partnership,  he  may 
properly  be  deemed  a  principal ;  and  so  far  as  he  acts  for  his  partners, 
he  may  as  properly  be  deemed  an  agent.  The  principal  distinction 
between  him  and  a  mere  agent  is  that  he  has  a  community  of  inter- 
est with  the  other  partners  in  the  whole  property  and  business  and 
responsibilities  of  the  partnership ;  whereas  an  agent,  as  such,  has  no 
interest  in  either.  Pothier  considers  partnership  as  but  a  species  of 
mandate,  saying,  'Contractus  societatis,  non  secus  ac  contractus  man- 
dati.'  "  Afterwards,  in  discussing  the  reasons  and  limits  of  the  rule 
by  which  one  may  be  charged  as  a  partner  by  reason  of  having  re- 
ceived part  of  the  profits  of  the  partnership,  Mr.  Justice  Story  ob- 
served that  the  rule  was  justified,  and  the  cases  in  which  it  had  been 


Sec.  3)  TESTS  OF   INTENTION.  47 

applied  reconciled,  by  considering  that  "a  participation  in  the  profits 
will  ordinarily  establish  the  existence  of  a  partnership  between  the 
parties  in  favor  of  third  persons,  in  the  absence  of  all  other  opposing 
circumstances,"  but  that  it  is  not  "to  be  regarded  as  anything  more 
than  mere  presumptive  proof  thereof,  and  therefore  liable  to  be  re- 
pelled and  overcome  by  other  circumstances,  and  not  as  of  itself  over- 
coming or  controlling  them,"  and  therefore  that,  "if  the  participation 
in  the  profits  can  be  clearly  shown  to  be  in  the  character  of  agent, 
then  the  presumption  of  partnership  is  repelled."  And  again:  "The 
true  rule,  ex  aequo  et  bono,  would  seem  to  be  that  the  agreement  and 
intention  of  the  parties  themselves  should  govern  all  the  cases.  If  they 
intended  a  partnership  in  the  capital  stock,  or  in  the  profits,  or  in 
both,  then  that  the  same  rule  should  apply  in  favor  of  third  persons, 
even  if  the  agreement  were  unknown  to  them.  And  on  the  other 
hand,  if  no  such  partnership  were  intended  between  the  parties,  then 
that  there  should  be  none  as  to  third  persons,  unless  where  the  parties 
had  held  themselves  out  as  partners  to  the  public,  or  their  conduct 
operated  as  a  fraud  or  deceit  upon  third  persons."  Story,  Partn.  §§ 
1,  38,  49.     *     *     * 

The  decision  [in  Cox  v.  Hickman]  was  put  upon  the  ground  that 
the  liability  of  one  partner  for  the  acts  of  his  copartner  is  in  truth 
the  liability  of  a  principal  for  the  acts  of  his  agent;  that  a  right  to 
participate  in  the  profits,  though  cogent,  is  not  conclusive,  evidence 
that  the  business  is  carried  on  in  part  for  the  person  receiving  them ; 
and  that  the  test  of  his  liability  as  a  partner  is  whether  he  has  au- 
thorized the  managers  of  the  business  to  carry  it  on  in  his  behalf. 
Cox  V.  Hickman,  8  H.  L.  Cas.  268,  304,  306,  312,  313,  nom.  Wheat- 
croft  V.  Hickman,  9  C.  B.  (N.  S.)  47,  90,  92,  98,  99. 

This  new  form  of  stating  the  general  rule  did  not  at  first  prove 
easier  of  application  than  the  old  one;  for  in  the  first  case  which  arose 
afterwards  one  judge  of  three  dissented  (Kilshaw  v.  Jukes,  3  Best. 
&  S.  847)  ;  and  in  the  next  case  the  unanimous  judgment  of  four 
judges  in  the  Common  Bench  was  reversed  by  four  judges  against 
tvv'o  in  the  Exchequer  Chamber  (Bullen  v.  Sharp,  18  C.  B.  [N.  S.] 
614,  and  L.  R.  1  C.  P.  86).  And,  as  has  been  pointed  out  in 
later  English  cases,  the  reference  to  agency  as  a  test  of  partnership 
was  unfortunate  and  inconclusive,  inasmuch  as  agency  results  from 
partnership  rather  than  partnership  from  agency.  Kelly,  C.  B.,  and 
Cleasby,  B.,  in  Holme  v.  Hammond,  L.  R.  7  Exch.  218,  227,  233; 
Jessel,  M.  R.,  in  Pooley  v.  Driver,  5  Ch.  Div.  458,  476.  Such  a  test 
seems  to  give  a  synonym,  rather  than  a  definition ;  another  name  for 
the  conclusion,  rather  than  a  statement  of  the  premises  from  which 
the  conclusion  is  to  be  drawn.  To  say  that  a  person  is  liable  as  a  part- 
ner, who  stands  in  the  relation  of  principal  to  those  by  whom  the  busi- 
ness is  actually  carried  on,  adds  nothing  by  way  of  precision,  for  the 
very  idea  of  partnership  includes  the  relation  of  principal  and  agent. 

In  the  case  last  above  cited.  Sir  George  Jessel  said:    "You  cannot 


48  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Cll.  1 

grasp  the  notion  of  agency,  properly  speaking,  unless  you  grasp  the  no- 
tion of  the  existence  of  the  firm  as  a  separate  entity  from  the  existence 
of  the  partners — a  notion  which  was  well  grasped  by  the  old  Roman 
lawyers,  and  which  was  partly  understood  in  the  courts  of  equity." 
And  in  a  very  recent  case  the  Court  of  Appeals  of  New  York,  than 
which  no  court  has  more  steadfastly  adhered  to  the  old  form  of  stat- 
ing the  rule,  has  held  that  a  partnership,  though  not  strictly  a  legal 
entity  as  distinct  from  the  persons  composing  it,  yet  being  commonly 
so  regarded  by  men  of  business,  might  be  so  treated  in  interpreting 
a  commercial  contract.  Bank  v.  Thompson,  121  N.  Y.  280,  24  N. 
E.  473. 

In  other  respects,  however,  the  rule  laid  down  in  Cox  v.  Hickman 
has  been  unhesitatingly  accepted  in  England,  as  explaining  and  modi- 
fying the  earlier  rule.  In  re  English  &  Irish  Society,  1  Hem.  &  M. 
85,  106,  107;  MoUwo  v.  Court  of  Wards,  L.  R.  4  P.  C.  419,  435; 
Ross  V.  Parkyns,  L.  R.  20  Eq.  331,  335;  Ex  parte  Tennant,  6  Ch. 
Div.  303;  Ex 'parte  Delhasse,  7  Ch.  Div.  511;  Badeley  v.  Bank,  38 
Ch.  Div.  238.  See,  also,  Davis  v.  Patrick,  122  U.  S.  138,  151,  7  Sup. 
Ct.  1102,  30  L.  Ed.  1090 ;  Eastman  v.  Clark,  53  N.  H.  276,  16  Am. 
Rep.  192;  Wild  v.  Davenport,  48  N.  J.  Law,  129,  7  Atl.  295,  57  Am. 
Rep.  552;  Seabury  v.  Bolles,  51  N.  J.  Law,  103,  16  Atl.  54,  11  L.  R. 
A.  136;  and  52  N.  J.  Law,  413,  21  Atl.  952,  11  L.  R.  A.  136;  Mor- 
gan V.  Farrel,  58  Conn.  413,  20  Atl.  614,  18  Am.  St.  Rep.  282. 

In  the  present  state  of  the  law  upon  this  subject,  it  may  perhaps  be 
doubted  whether  any  more  precise  general  rule  can  be  laid  down  than, 
as  indicated  at  the  beginning  of  this  opinion,  that  those  persons  are 
partners  who  contribute  either  property  or  money  to  carry  on  a  joint 
business  for  their  common  benefit,  and  who  own  and  share  the  profits 
thereof  in  certain  proportions.  If  they  do  this,  the  incidents  or  con- 
sequences follow  that  the  acts  of  one  in  conducting  the  partnership 
business  are  the  acts  of  all;  that  each  is  agent  for  the  firm  and  for 
the  other  partners;  that  each  receives  part  of  the  profits  as  profits, 
and  takes  part  of  the  fund  to  which  the  creditors  of  the  partnership 
have  a  right  to  look  for  the  payment  of  their  debts;  that  all  are 
liable  as  partners  upon  contracts  made  by  any  of  them  with  third 
persons  within  the  scope  of  the  partnership  business;  and  that  even 
an  express  stipulation  between  them  that  one  shall  not  be  so  liable, 
though  good  between  themselves,  is  ineffectual  as  against  third  per- 
sons. And  participating  in  profits  is  presumptive,  but  not  conclu- 
sive, evidence  of  partnership. 

In  whatever  form  the  rule  is  expressed,  it  is  universally  held  that 
an  agent  or  servant,  whose  compensation  is  measured  by  a  certain 
proportion  of  the  profits  of  the  partnership  business,  is  not  thereby 
made  a  partner,  in  any  sense.  So  an  agreement  that  the  lessor  of  a 
hotel  shall  receive  a  certain  portion  of  the  profits  thereof  by  way  of 
rent  does  not  make  him  a  partner  with  the  lessee.  Perrine  v.  Hankin- 
son,  11  N.  J.  Law,  181;   Holmes  v.  Railroad  Co.,  5  Gray  (Mass.)  58; 


Sec.  3)  TESTS   OF   INTENTION.  *9 

Beecher  v.  Bush,  45  Mich.  188,  7  N.  W.  785,  40  Am.  Rep.  465.  And 
it  is  now  equally  well  settled  that  the  receiving  of  part  of  the  profits  of 
a  commercial  partnership,  in  lieu  of  or  in  addition  to  interest,  by  way 
of  compensation  for  a  loan  of  money,  has  of  itself  no  greater  effect. 
Wilson  V.  Edmonds,  130  U.  S.  472,  482,  9  Sup.  Ct.  5G3,  32  L.  Ed. 
1025;  Richardson  v.  Hughitt,  76  N.  Y.  55,  32  Am.  Rep.  267;  Curry 
v.-Fowler,  87  N.  Y.  33,  41  Am.  Rep.  343;  Cassidy  v.  Hall,  97  N.  Y. 
159;  Smith  v.  Knight,  71  111.  148,  22  Am.  Rep.  94;  Williams  v.  Sout- 
ter,  7  Iowa,  435,  446;  Boston  &  C.  Smelting  Co.  v.  Smith,  13  R.  I. 
27,  43  Am.  Rep.  3 ;  Molhvo  v.  Court  of  Wards,  and  Badeley  v.  Bank, 
above  cited. 

In  some  of  the  cases  most  relied  on  by  the  plaintiff,  the  person  held 
liable  as  a  partner  furnished  the  whole  capital  on  which  the  business 
was  carried  on  by  another,  or  else  contributed  part  of  the  capital  and 
took  an  active  part  in  the  management  of  the  business.  Beauregard 
V.  Case,  91  U.  S.  134,  23  L.  Ed.  263;  Hackett  v.  Stanley,  115  N.  Y. 
625,  627,  628,  633,  22  N.  E.  745;  Pratt  v.  Langdon,  12  Allen  (Mass.) 
544,  97  Mass.  97,  93  Am.  Dec.  61;  Rowland  v.  Long,  45  Md.  439. 
And  in  Mollwo  v.  Court  of  Wards,  above  cited,  after  speaking  of  a 
contract  of  loan  and  security,  in  which  no  partnership  was  intended, 
it  was  justly  observed:  "If  cases  should  occur  where  any  persons, 
under  the  guise  of  such  an  arrangement,  are  really  trading  as  prin- 
cipals, and  putting  forward,  as  ostensible  traders,  others  who  are 
really  their  agents,  they  must  not  hope  by  such  devices  to  escape  lia- 
bility, for  the  law,  in  cases  of  this  kind,  will  look  at  the  body  and 
substance  of  the  arrangements,  and  fasten  responsibility  on  the  par- 
ties according  to  their  true  and  real  character."  L.  R.  4  P.  C.  438. 
But  in  the  case  at  bar  no  such  element  is  found.     *     *     ♦ 


BEECHER  et  al.   v.   BUSH   et  al. 

(bunreme  Court  of  Michigan,  ISSl.    4.T  ilich.  ISS,  7  N.  W.  TSj.  40  Am.  Rep. 

405.) 

CooLEY,  J.  The  purpose  of  the  action  in  the  court  below  was  to 
charge  Beecher  as  partner  with  Williams  for  a  bill  of  supplies  pur- 
chased for  the  Biddle  House  in  Detroit.  Beecher  was  owner  of  the 
Biddle  House,  and  Williams  proposed  in  writing  to  "hire  the  use" 
of  it  from  day  to  day,  and  open  and  keep  it  as  a  hotel.  Beecher  ac- 
cepted his  proposals  and  Williams  went  into  the  house  and  began 
business,  and  in  the  course  of  the  business  made  this  purchase.  The 
proposals  are  set  out  in  full  in  the  special  verdict.  The  question 
is  whether  by  accepting  the  proposals  Beecher  made  himself  a  partner 
with  Williams  in  the  hotel  business;  and  this  is  to  be  determined 
on  the  face  of  the  writing  itself.  It  is  conceded  that  Beecher  was 
never  held  out  to  the  public  as  a  partner,  and  that  the  bill  of  supplies 
Gil.  Part. — 4 


50  WHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

was  purchased  on  the  sole  credit  of  Williams  and  charg^ed  to  him  on 
the  books  of  the  plaintiffs  below.  The  case,  therefore,  is  in  no  way 
embarrassed  by  any  questions  of  estoppel,  for  Beecher  has  done  nothing 
and  suffered  nothing  to  be  done  which  can  preclude  him  from  standing 
upon  his  exact  legal  rights  as  the  contract  tixed  them. 

Nor  do  we  understand  it  to  be  claimed  that  the  parties  intended  to 
form  a  partnership  in  the  hotel  business,  o"r  that  they  supposed  they 
had  done  so,  or  that  either  has  ever  claimed  as  against  the  other  the 
rights  of  a  partner.  It  is  perfectly  dear  that  many  things  which 
are  commonly  incident  to  a  partnership  these  parties  meant  should 
be  wholly  excluded  from  their  arrangement.  Some  of  these  were  of 
primary  importance.  It  is  plain,  for  example,  that  Beecher  did  not 
understand  that  his  credit  was  to  be  in  any  way  involved  in  the  busi- 
ness, or  that  he  was  to  have  any  interest  in  the  supplies  that  should 
be  bought,  or  any  privilege  to  idecide  upon  them,  or  any  legal  control 
whatever  until  proceeds  were  to  be  divided,  or  any  liability  to  losses 
if  losses  were  suffered.  These  are  among  the  common  incidents  to 
a  partnership;'  and  while  some  of  them,  and  possibly  all  of  them,  may 
not  be  necessary  incidents,  yet  the  absence  of  all  is  very  conclusive 
that  the  parties  had  no  purpose  whatever  to  form  a  partnership,  or 
to  give  to  each  other  the  rights  and  powers,  and  subject  each  other 
to  the  obligations  of  partners.  In  general  this  should  be  conclusive. 
If  parties  intend  no  partnership  the  courts  should  give  effect  to  their 
intent  unless  somebody  has  been  deceived  by  their  acting  or  assuming 
to  act  as  partners;  and  any  such  case  must  stand  upon  its  peculiar 
facts  and  upon  special  equities.     *     *     * 

We  have  then  a  case  in  which  the  party  it  is  sought  to  charge  has 
not  held  himself  out,  or  suffered  himself  to  be  held  out  as  a  partner 
either  to  the  public  at  large  or  to  the  plaintiff,  and  has  not  intended 
to  form  that  relation.  He  is  not  therefore  a  partner  by  estoppel  nor 
by  intent;  and  if  he  is  one  at  all,  it  must  be  by  construction  of  law. 
What,  then,  are  the  indicia  of  partnership  in  this  case — the  marks 
which  force  that  construction  upon  the  court  irrespective  of  the  in- 
tent of  the  parties,  that  in  fact  control  their  intent  and  give  to  the 
parties  |3ringing  suit  rights  which  they  were  not  aware  of  when 
they  sold  the  supplies?  In  the  elaborate  and  able  brief  which  has 
been  presented  in  behalf  of  the  defendants  in  error  it  is  conceded  that 
the  fact  that  Beecher  was  to  receive  each  day  a  sum  "equal  to  one- 
third  of  the  gross  receipts  and  gross  earnings"  for  the  day  would  not 
necessarily  make  him  a  partner.  What  is  claimed  is  that  the  fact  is 
"cogent  evidence"  that  Beecher  was  to  participate  in  the  results  of 
the  business  in  a  manner  that  indicated  he  was  a  principal  in  it,  and 
was  not  receiving  compensation  for  the  use  of  property  merely.  The 
view  of  the  law  here  suggested  is  undoubtedly  correct.  There  may 
be  a  participation  in  the  gross  returns  that  would  make  the  receiver 
a  partner,  and-  there  may  be  one  that  would  not.  The  question  is  in 
what  capacity  is  participation  had.     Gross  returns  are  not  profits  and 


Sec.  3)  -  TESTS   OF   INTENTION.  ^       51 

may  be  large  when  there  are  no  profits,  but  it  cannot  be  predicated  of 
either  gro'ss  returns  or  profits  that  the  right  to  participate  is  con- 
clusive evidence  of  partnership.  This  is  settled  lav^  both  in  England 
and  in  this  country  at  this  time,  as  is  fully  shown  by  the  authorities 
cited  for  the  defendants  in  error.  It  was  recognized  in  Hinman  v. 
Littell,  23  ]\lich.  481;  and  in  New  York,  where  the  doctrine  that  partic- 
ipation in  profits  proves  partnership  has  been  adhered  to  most  close- 
ly, it  is  admitted  there  are  exceptions.    Eager  v.  Crawford,  76  N.  Y.  97. 

But  we  quite  agree  with  counsel  for  defendants  in  error  that  no 
case  ought  to  turn  upon  the  unimportant  and  mere  verbal  distinction 
between  the  statement  in  the  papers  that  Beecher  was  to  have  a  sum 
"equal  to"  one-third  of  the  gross  receipts  and  gross  earnings,  and  a 
statement  that  he  was  to  have  one-third  of  these  receipts  and  earn- 
ings. It  is  perfectly  manifest  it  was  intended  he  should  have  one-third 
of  them;  that  they  should  be  apportional  to^him  regularly  and  daily, 
and  not  that  Williams  was  to  appropriate  the  whole  and  pay  a  sum 
"equal  to"  Beecher's  proportion  when  it  should  be  convenient.  We 
can  conceive  of  cases  where  the  diflPerence  in  phraseology  might  be 
important,  because  it  might  give  some  insight  into  the  real  intent  and 
purpose  of  the  parties,  and  throw  light  upon  the  question  whether 
that  which  was  to  be  received,  was  to  be  received  as  partner  or  only 
by  way  of  compensation  for  something  supplied  to  the  other,  but  the 
intent  in  this  case  is  too  manifest  to  be  put  aside  by  any  mere  ingenuity 
in  the  use  of  words.  Loomis  v.  Marshall,  12  Conn.  G9,  79,  30  Am. 
Dec.  596. 

In  Cox  V.  Hickman,  8  H.  L.  Cas.  268,  506,  Lord  Cranworth  stated 
very  clearly  his  views  of  what  should  be  the  test  of  partnership.  "It 
is  often  said,"  he  says,  "that  the  test,  or  one  of  the  tests,  whether  a 
person  not  ostensibly  a  partner  is  nevertheless  in  contemplation  of 
law  a  partner,  is  whether  he  is  entitled  to  participate  in  the  profits. 
Tliis  is  no  doubt  in  general  a  sufficiently  accurate  test;  for  a  right 
to  participate  in  the  profits  affords  cogent,  often  conclusive  evidence 
that  the  trade  in  which  the  profits  have  been  made  was  carried  on  in 
part  for  or  on  behalf  of  the  person  setting  up  such  a  claim.  But 
the  real  ground  of  the  liability  is  that  the  trade  had  been  carried  on  by 
persons  acting  on  his  behalf.  \\'hen  that  is  the  case  he  is  liable  in 
the  trade  obligations,  and  entitled  to  its  profits  or  to  a  share  of  them. 
It  is  not  strictly  correct  to  say  that  his  right  to  share  in  the  profits 
makes  him  liable  to  the  debts  of  the  trade.  The  correct  mode  of  stating 
the  proposition  is  to  say  that  the  same  thing  which  entitles  him  to  the 
one  makes  him  liable  to  the  other,  namely,  the  fact  that  the  trade  has 
been  carried  on  in  his  behalf;  i.  e.  that  he  stood  in  the  relation  of 
principal  to  the  persons  acting  ostensibly  as  the  traders  by  whom  the 
liabilities  have  been  incurred,  and  imder  whose  management  the  profits 
have  been  made."  There  is  something  understandable  by  the  common 
mind  in  this  test;  there  is  nothing  artificial  or  arbitrary  about  it: 
it  falls  in  witli  reason  and  enables  everv  man  to  know  when  he  makes 


52  WHAT  CONSTITUTES  A  PARTNERSHIP,  (Ch,  1 

his  business  arrang-ements  whether  he  runs  the  risk  of  extraordinary 
liabilities  contracted  without  his  consent  or  approval. 

It  is  said,  and  we  believe  justly,  in  Bullen  v.  Sharp,  L.  R.  1  C.  B. 
86,  that  the  decision  in  Cox  v.  Hickman  brought  back  the  law  of  Eng- 
land to  what  it  should  be,  and  Mr.  Baron  Bramwell,  referring  to  what 
was  declared  to  be  law  in  Waugh  v.  Carver,  1  H.  Bl.  235,  expressed 
the  hope  "that  this  notion  is  overruled,"  adding  that  it  is  "one  which 
I  believe  has  caused  more  injustice  and  mischief  than  any  bad  law  in 
our  books."  Page  127.  It  is  certainly  overruled  very  conclusively 
in  Great  Britain.  Kilshaw  v.  Jukes,  3  B.  &  S.  847 ;  Shaw  v.  Gault,  16 
Irish  C.  L.  357;  Holme  v.  Hammond,  L,.  R.  7  Exch.  218;  Ex  parte 
Delhasse,  7  Ch.  Div.  411.  And  though  in  New  York  courts  hampered 
somewhat  by  early  cases  have  not  felt  themselves  at  liberty  to  adopt 
and  follow  the  decision  in  Cox  y.  Hickman  to  the  full  extent,  it  would 
be  easy  to  show  that  the  American  authorities  in  the  main  are  in 
harmony  with  it.  [The  court,  after  examining  numerous  cases,  con- 
tinues:] 

It  is  needless  to  cite  other  cases.  They  cannot  all  be  reconciled,  but 
enough  are  cited  to  show  that  in  so  far  as  the  notion  ever  took  hold 
of  the  judicial  mind  that  the  question  of  partnership  or  no  partnership 
was  to  be  settled  by  arbitrary  tests  it  was  erroneous  and  mischievous 
and  the  proper  correction  has  been  applied.  Except  when  one  allows 
the  public  or  individual  dealers  to  be  deceived  by  the  appearances  of 
partnership  when  none  exists,  he  is  never  to  be  charged  as  a  partner  un- 
less by  contract  and  with  intent  he  has  formed  a  relation  in  which  the 
elements  of  partnership  are  to  be  found.  And  what  are  these?  At 
the  very  least  the  following:  Community  of  interest  in  some  lawful 
commerce  or  business,  for  the  conduct  of  which  the  parties  eventually 
are  principals  of  and  agents  for  each  other,  with  general  powers  with- 
in the  scope  of  the  business,  which  powers  however  by  agreement  be- 
tween the  parties  themselves  may  be  restricted  at  option,  to  the  ex- 
tent even  of  making  one  the  sole  agent  of  the  others  and  of  the  busi- 
ness. 

In  this  case  we  have  the  lawful  commerce  or  business,  namely, 
the  keeping  of  the  hotel.  We  have  also  in  some  sense  a  community  of 
interest  in  the  proceeds  of  the  business,  though  these  are  so  divided 
that  all  the  profits  and  all  the  losses  are  to  be  received  and  borne  by 
one  only.  But  where  in  the  eventual  arrangements  does  it  appear, 
that  either  of  the  parties  clothed  the  other  with  an  agency  to  act  on 
his  behalf  in  this  business?  We  speak  now  of  intent  merely,  and  not 
of  any  arbitrary  implication  of  intent  which  the  law,  according  to 
some  authorities,  may  raise  irrespective  of  arui  perhaps  contrary  to 
the  intent.  Could  Beecher  buy  for  the  business  a  dollar's  worth  of 
provisions?  Could  he  hire  a  porter  or  a  waiter?.  Could  he  discharge 
one?  Could  he  say  the  house  shall  be  kept  for  fastidious  guests  ex- 
clusively and  charges  made  in  proportion  to  what  they  demand,  or 
on  the  other  hand  that  the  tables  shall  be  plain  and  cheap  so  as  to 


Sec.  3)  TESTS   OF   INTENTION.  53 

attract  a  greater  number?  Could  he  persist  in  lighting  with  gas  if 
Williams  chose  something  different,  or  reject  oil  if  Williams  saw  fit 
to  use  it?  Was  a  servant  in  the  house  at  his  beck  or  disposal,  or  could 
he  turn  off  a  guest  that  Williams  saw  fit  to  receive  or  receive  one  thai 
Williams  rejected  as  unfit?  In  short  what  one  act  might  he  do  or  au- 
thority exercise,  which  properly  pertains  to  the  business  of  keeping  ho- 
tel, except  merely  the  supervision  of  accounts,  and  this  for  the  purpose 
of  accounting  only?  And  how  could  he  be  principal  in  a  busi- 
ness over  which  he  had  absolutely  no  control?  Nor  must  we  for- 
get that  this  is  not  a  case  in  which  powers  which  might  otherwise 
be  supposed  to  exist  are  taken  away  or  excluded  by  express  stipu- 
lation ;  but  they  are  powers  which  it  is  plain  from  their  contract 
the  parties  did  not  suppose  would  exist,  and  therefore  have  not  deemed 
it  necessary  to  exclude. 

On  the  other  hand,  what  single  act  are  we  warranted  in  inferring 
the  parties  understood  Williams  was  to  do  for  and  as  the  agent  of 
Beccher?  Not  to  furnish  supplies  surely,  for  these  it  was  expressly 
agreed  should  be  furnished  by  Williams  and  paid  for  daily.  Not 
to  contract  debts  for  water  and  gas  bills  and  other  running  expenses, 
for  by  the  agreement  there  were  to  be  no  such  debts.  Nor  was  this 
an  agreement  merely  that  expenses  incurred  for  both  were  to  be  met 
without  the  use  of  credit,  but  it  was  expressly  provided  that  they 
were  to  be  the  expenses  of  one  party  only,  and  to  be  used  by  him  from 
his  own  means.  There  was  to  be  no  employment  of  credit,  but  il:  was. 
the  credit  of  Williams  alone  that  was  in  the  minds  of  the  parties. 

It  is  difficult  to  understand  how  the  element  of  agency  could  be 
more  perfectly  eliminated  from  their  arrangements  than  it  actually 
was.  Beecher  furnished  the  use  of  the  hotel  and  a  clerk  to  super- 
vise the  accounts,  and  received  for  so  doing  one-third  the  gross  re- 
turns. It  was  not  understood  that  he  was  to  intermeddle  in  any  way 
with  the  conduct  of  the  business  so  long  as  Williams  adhered  to  the 
terms  of  the  contract.  If  the  business  was  managed  badly  Beecher 
might  be  loser,  but  how  could  he  help  himself?  He  had  reserved  no 
right  to  correct  the  mistakes  of  Williams,  supply  his  deficiencies  or 
overrule  his  judgments.  He  did  indeed  agree  to  take  and  account 
for  whatever  furniture  should  be  brought  into  the  house  by  Williams, 
but  the  bringing  any  in  was  voluntary,  and  so  far  was  Beecher  from 
undertaking  to  pay  to  the  sellers  the  purchase  price,  that  on  the  con- 
trary the  value  was  to  be  offset  against  the  deterioration  of  that 
which  Beecher  supplied;  and  it  was  quite  possible  that,  as  between 
himself  and  Williams,  there  might  be  nothing  to  pay.  And  while 
Williams  was  not  compellable  to  put  any  in,  Beecher,  on  the  other 
•hand,  had  no  authority  to  put  any  in  at  the  cost  of  Williams. 

It  is  plain,  therefore,  that  if  there  is  any  agency  in  this  case  for 
Beecher  to  act  for  Williams,  or  Williams  to  act  for  Beecher,  it  is  an 
agencv  implied  by  law,  not  only  without  having  expressed  a  pur- 
pose that  an  agency  shall  exist,  but  in  spite  of  the  plain  intent  that 


54  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

none  shall  exist.  If  therefore  we  shall  say  that/ agency  of  each  to 
act  for  the  other,  or  agency  of  one  to  act  for  both  in  the  common 
business,  is  to  be  the  test  of  partnership,  or  to  be  one  of  the  tests, 
but  that  the  law  may  imply  the  agency  irrespective  of  the  iqtent,  and 
then  imply  the  partnership  from  the  agency,  we  see  at  once  that 
the  test  disappears  from  all  our  calculations.  To  imply  something 
in  order  that  that  something  may  be  the  foundation  whereupon  to 
erect  an  implication  of  something  else  is  a  mere  absurdity.  The  test 
of  partnership  must  be  found  in  the  intent  of  the  parties  themselves. 
They  may  say  they  intend  none  when  their  contract  plainly  shows 
the  contrary ;  and  in  that  case  the  intent  shall  control  the  contradictory 
assertion;  but  here  the  intent  is  plain. 

We  have  not  overlooked  any  one  of  the  circumstances  which  on  the 
argument  were  pointed  out  as  peculiar  to  this  case.  None  of  them  is 
inconsistent  with  the  intent  that  Beecher  was  to  'be  paid  for  the  use 
of  his  building  and  furniture  merely.  He  retained  possession;  but 
a  reason  for  this  appears  in  the  power  he  reserved  to  terminate  the 
arrangement  whenever  the  contract  was  broken  by  Williams.  Being 
in  possession,  he  might  suppose  he  could  eject  Williams  without  suit. 
He  might  also  think  it  important  to  the  reputation  of  the  hotel  that 
no  landlord  should  be  in  debt  for  supplies  or  for  servants'  wages; 
and  for  that  reason  require  cash  payments.  It  is  easy  to  see  that  as 
lessor  he  might  have  had  an  interest  in  all  the  stipulations  to  which 
Williams'  assent  was  required.  [After  deciding  that  defendant  could 
not  be  treated  as  a  dormant  partner,  the  opinion  concludes:] 

Our  conclusion  is  that  Beecher  and  Williams,  having  never  in- 
tended to  constitute  a  partnership,  are  not  as  between  themselves  part- 
ners. There  was  to  be  no  common  property,  no  agency  of  either  to 
act  for  the  other  or  for  both,  no  participation  in  profits,  no  sharing  of 
losses.  If  either  had  failed  to  perform  his  part  of  the  agreement, 
the  remedy  of  the  other  would  have  been  a  suit  at  law,  and  not  a 
bill  for  an  accounting  in  equity.  If  either  had  died  the  obligations 
he  had  assumed  would  have  continued  against  his  representatives. 
We  also  think  there  can  be  no  such  thing  as-  a  partnership  as  to  third 
•persons  when  as  between  the  parties  themselves  there  is  no  partner- 
ship and  the  third  persons  have  not  been  misled  by  concealment  of 
facts  or  by  deceptive  appearances. 

The  judgment  must  be  reversed  with  costs  and  a  new  trial  ordered. 


JOHNSON  BROS.  v.  CARTER  &  CO.  et  al. 

fSnpreme  Court  of  Iowa,  1903.     120  Iowa,  355,  94  N.  W.  8.50.) 

Action  on  a  promissory  note  of  $1,232.12,  signed  "Carter  &  Co., 
by  J,  E.  Carter,"  dated  February  7,  1900,  and  payable  in  60  days. 
The  petition  alleges  that  the  defendant  Brown  was  a  member  of  that 
firm,  and  as  such  liable  on  the  note.     The  defendant  put  these  alle- 


Sec.  3)  TESTS   OF   INTENTION.  55 

gations  in  issue.  After  plaintiffs  had  introduced  their  evidence,  the 
court  directed  a  verdict  for  the  defendant.  Judgment  was  entered 
thereon,  and  the  plaintiffs  appeal. 

L-\DD,  J.  [McGce,  Kahman  &  Co.,  having  entered  into  a  contract 
with  the  Ft.  Dodge  &  Omaha  Railroad  Company  to  grade  its  entire 
road,  made  a  subcontract  with  J.  E.  Carter  to  grade  two  miles  there- 
of. Carter,  not  having  the  necessary  capital  to  carry  on  the  work, 
agreed  with  Brown,  a  banker,  to  give  him  one-half  of  the  profits  if 
he  would  furnish  the  money  and  also  a  man,  whose  time  was  to  off- 
set that  of  Carter,  who  was  to  keep  the  books  and  oversee  the  work. 
Brown  furnished  John  Campbell,  who  kept  the  books  in  the  name  of 
Carter  &  Co.  and  transacted  all  the  business,  buying  all  supplies  and 
handling  all  funds,  while  Carter  had  charge  of  the  men  doing  the 
work.  The  men  employed  were  boarded,  and  the  price  of  board  de- 
ducted from  their  wages.  The  note  sued  on  was  for  supplies  bought 
by  Campbell  and  by  his  direction  charged  to  Carter  &  Co.  Brown 
honored  sight  drafts  on  his  bank,  signed  "Carter  &  Co.,"  and  receiv- 
ed notes  so  signed  for  moneys  advanced.  Upon  the  completion  of 
the  grading  contract,  including  three  additional  miles,  Carter  exe- 
cuted his  note  to  Brown  for  one-half  of  the  cost  of  the  horses,  scrap- 
ers, etc.,  bought  during  the  season  and  remaining  on  hand.  On  the 
one  hand,  plaintiff  contends  ^that  there  was  sufficient  evidence  to 
carry  the  question  of  partnership  to  the  jury,  while,  on  the  other,  de- 
fendant insists  that  the  evidence  shows  what  the  agreement  was,  and 
that  it  was  properly  construed  as  not  creating  the  relationship  of  part- 
ners between  Brown  and  Carter.] 

It  may  be  conceded  that,  where  an  agreement  is  fully  proven  and 
is  not  ambiguous  in  terms,  the  court  should  declare  its  meaning,  and 
define  the  rights  and  obligations  of  the  parties  created  thereby.  But 
we  do  not  think  this  is  such  a  case.  While  the  firm  name  of  Carter 
&  Co.  was  apparently  selected  for  convenience  in  bookkeeping,  there  is 
nothing  to  indicate  that  it  was  not  to  include  both  parties  to  the  en- 
terprise. Brown's  employment  of  Campbell,  at  his  own  expense,  to 
act  as  bookkeeper  and  to  handle  the  funds  of  Carter  &  Co.,  as  an  off- 
set to  Carter's  time,  together  with  his  assurance  of  Campbell's  full 
authority  to  act  for  him,  are  circumstances  tending  to  show  that  such 
was  their  intention.  True,  he  advanced  the  money  to  execute  the 
contract ;  but  he  was  a  banker,  and  under  the  arrangement  was  to  re- 
ceive for  its  use  the  highest  legal  rate  of  interest.  In  these  circum- 
stances, the  stipulation  for  one-half  the  net  profits  of  the  enterprise 
is  more  consistent  with  the  theory  of  a  partnership  than  a  mere  loan. 
The  use  of  the  words  "net  profits"  may  well  have  been  understood  as 
profits  after  the  payment  of  interest.  Both  parties  appreciated  that 
large  expenditures  would  be  necessary,  and  the  reference  to  such  prof- 
its cannot  be  held,  as  a  matter  of  law,  to  exclude  the  inference  of  the 
obligation  of  each  to  bear  his  just  proportion  of  the  losses,  if  any 
should     occur.       The    thought,     doubtless,     was     that     all     expenses 


56  "WHAT  CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

should  be  paid  out  prior  to  the  division"  of  gains.  If  the  money  ad- 
vanced was  merely  loaned  to  Carter,  how  happened  it  to  be  handled 
exclusively  by  Brown's  representative,  all  purchases  made  by  him, 
and  everything  done  in  the  name  of  Carter  &  Co.?  Possibly  in- 
ferences explanatory  of  this  may  be  drawn  from  the  evidence,  but 
not  necessarily  so.  The  conclusion  that  there  was  a  partnership 
seems  quite  as  reasonable.  Of  course,  the  mere  sharing  of  profits 
will  not  be  construed  as  establishing  the  partnership  relation.  Rud- 
dick  v.  Otis,  33  Iowa,  402.  But  it  is  an  important  circumstance  to 
be  taken  into  consideration.  The  obligation  to  share  losses  is  an  es- 
sential element  to  its  existence.  Winter  v.  Pipher,  96  Iowa,  17,  G4 
N.  W.  663.  But  enterprises  are  not  usually  undertaken  with  a  view 
of  loss,  and  the  mere  fact  that  provision  therefor  is  not  expressly 
made  does  not  preclude  the  inference  that  each  partner  is  to  bear  his 
portion  of  the  burdens,  as  well  as  reap  his  share  of  the  benefits,  of 
the  venture.  "An  agreement  to  share  profits,  nothing  being  said  about 
losses,  amounts  prima  facie  to  an  agreement  to  share  losses  also; 
for  it  is  but  fair  that  the  chance  of  gain  and  of  loss  should  be  taken 
by  the  same  persons,  and  it  is  natural  to  suppose  that  it  was  their  in- 
tention, if  they  have  said  nothing  to  the  contrary;  and  accordingly  it 
has  been  held  that,  unless  an  intention  to  the  contrary  can  be  shown, 
persons  engaged  in  any  business  or  venture,  and  sharing  the  profits 
to  be  derived  from  it,  are  partners  as  regards  the  business  or  adven- 
ture-" 1  Lindley  on  Partnership  (Ewell)  30.  [After  examining  vari- 
ous Iowa  cases,  the  opinion  continues:]  From  these  authorities  may 
be  deduced,  as  established  in  this  state,  the  following  principles:  (1) 
That  the  agreement  only  to  share  profits  will  not  constitute  partner- 
ship, though  evidence  of  existence  of  that  relation.  (2)  The  shar- 
ing of  'losses  is  essential  in  a  partnership,  though  the  undertaking  to 
do  so  may  be  inferred  from  an  agreement  to  divide  profits,  unless 
precluded  by  the  terms  thereof.  (3)  That  payment  for  services,  or 
for  the  use  of  money  or  property  to  be  used  in  the  business,  may  con- 
sist of  a  share  of  profits,  without  making  of  the  loaner  or  employe  a 
partner.  The  absence  of  any  participation  in  or  control  of  the  busi- 
ness is  generally  mentioned  as  indicating  that  a  party  is  not  a  partner ; 
and,  of  course,  the  converse  must  follow.  Indeed,  it  will  be  found, 
in  most  of  the  cases  where  the  relationship  is  declared  to  exist  inter 
se,  the  party  held  has  enjoyed  a  direct,  rather  than  merely  a  contin- 
gent, interest  in  the  enterprise.  The  use  of  the  term  "partnership" 
is  not  essential,  and  the  adoption  of  a  firm  name  may  be  dispensed 
with.  The  facts  of  no  two  c^ses  are  exactly  alike.  The  only  crucial 
test  seems  to  be  the  intention  of  the  parties.  If  it  appears  to  have 
been  their  purpose  to  enter  into  the  relation  of  partners,  all  subter- 
fuges of  either,  resorted  to  in  order  to  evade  liability  for  possible 
losses,  while  securing  certainty  of  the  advantages  to  be  derived  from 
the  relation,  must  be  disregarded.  Brown  was  careful  to  guard  his 
portion  of  the  prospective  profits.    From  what  he  did, in  agreeing  to  a 


Sec.  3)  TESTS   OF   INTENTION.  57 

firm  name,  though  ostensibly  for  convenience  in  bookkeeping,  in  ac- 
quiescing in  its  use  in  all  matters  connected  with  -the  enterprise,  in 
the  division  of  the  profits  after  exacting  the  highest  legal  rate  of  in- 
terest for  money  supplied,  in  furnishing  a  man  to  act  in  his  behalf  in 
transacting  the  business  as  an  offset  to  the  labor  of  Carter  in  over- 
seeing the  employes,  in  taking  Carter's  note  for  the  cost  of  half,  in- 
stead of  all,  the  materials  bought  and  remaining  on  hand,  and  in 
admitting  that  Campbell,  in  making  use  of  the  firm  name  "Carter  & 
Co.,"  had  full  authority  to  represent  him,  it  might  have  been  inferred 
that  he  \va§  not  merely  acting  as  a  money  loaner,  but  as  a  partner,  and 
that  both  he  and  Carter  so  understood  in  the  selection  of  a  firm  name, 
and  so  intended  in  carrying  on  their  joint  enterprise. 
Judgment  reversed. 


Ill,    Common  Enterprise  or  Business. 

BURT  v.  LATHROP  et  al. 
(Supreme  Court  of  Michigan,  1S83.     52  Micli.  106,  17  N.  W.  716.) 

Campbell,  J.  Plaintiff  sued  a  large  number  of  defendants  as  joint- 
ly liable  to  him  for  his  services  as  attorney  in  defending  some 
patent  suits  concerning  the  right,s  to  use  certain  hard-rubber  material 
in  dentistry.  He  declared  specially  and  with  the  common  counts 
for  these  services,  and  also  set  up  two  judgments  rendered  in  Jack- 
son county  for  the  same  causes  of  action.  Upon  trial  court  below 
ordered  a  verdict  for  defendants.  The  counts  which  describe  tlie 
judgments  do  not  set  them  out  in  such  a  way  as  to  make  out  any 
legal  liability  under  them  against  all  these  defendants,  and  the  proofs 
are  not  any  more  definite.  It  appears  affirmatively  that  no  jurisdiction 
existed  to  bind  more  than  a  part  of  them,  and  there  can  be  nothing 
claimed  for  them  under  the  issue  as  presented.  They  may,  therefore, 
be  laid  aside.  The  ground  for  asserting  a  claim  against  the  de- 
fendants jointly  is  that  they  are  claimed  to  have  become  members" 
of  an  association  combined  for  the  purpose  of  legal  resistance  to  the 
claims  of  a  patentee,  and  that  plaintiff  was  employed  by  their  officers. 

There  is  no  testimony  tending  to  show  any  immediate  personal 
employment  of  plaintiff  by  the  defendants,^  jointly  or  individually,  so 
as  to  justify  this  joint  action.  But  it  was  claimed  that  they  stood 
on  the  footing  of  partners,  bound  by  the  action  of  their  designated 
managing  members.  The  testimony  indicates  that  several  of  the  de- 
fendants, at  various  times,  became  members  of  an  association  which, 
so  far  as  pertinent  to  this  inquiry,  required  them  to  pay  five  dollars 
each  into  the  treasury,  and  to  pay  such  assessments  as  should  be  levied 
pro  rata,  on  pain  of  being  left  out  of  the  association  and  its  privileges. 
The  officers  were  to  employ  counsel,  and  money  was  to  be  paid  on  the 
order  of  the  president  and  secretary. 


58  WHAT  CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

We  can  find  in  this  arrangement  nothing  analogous  to  a  partnership. 
There  was  no  common  business,  and  nothing  involving  profit  and 
loss  in  a  business  sense.  No  one  was  empowered  to  make  contracts 
binding  on  the  subscribers  personally,  and  no  one  was  to  be  liable 
except  for  assessments,  nor  even  for  those  except  as  he  saw  fit  to 
pay  them  to  keep  his  membership.  It  was  nothing  more  than  a  com- 
bination which  may  have  made  the  parties  in  some  respects  responsible 
to  each  other,  but  which  did  not,  we  think,  authorize  any  contract 
with  third  persons  which  should  bind  any  member  personally  be- 
yond his  assessments.  As  plaintiff  was  not  only  aware  of  the  articles, 
but  showed  that  he  acted  under  them  and  in  furtherance  of  them  in 
various  ways,  no  question  arises  in  the  nature  of  an  equitable  estop- 
pel. We  are  not  concerned  on  this  record  whether  plaintiff  has  any 
other  adequate  means  of  securing  compensation.  The  only  question 
now  is  whether  these  defendants  are  his  joint  debtors.  We  think 
they  are  not. 

Judgment  affirmed. 


BUTLER  SAVINGS  BANK  v.  OSBORNE  et  al. 

(Supreme  Court  of  Pennsylvania,  1893.     159  Pa.  10,  28  Atl.  103,  39  Am.  St. 

Rep.  665.) 

Williams,  J.  The  question  raised  on  this  record  grows  out  of  the 
following  facts:  The  firm  of  D.  Osborne  &  Bros,  was  engaged  in 
drilling  oil  w^ells,  and  producing  oil.  It  was  an  owner  of  some  leases 
on  which  it  was  operating,  and  a  part  owner,  as  a  tenant  in  common 
with  other  part  owners,  in  others.  In  the  same  district,  the  firm  of 
Carruthers  &  Peters  was  engaged  in  the  same  business,  and  in  the 
same  manner.  Each  of  these  firms  bought  an  undivided  one-half  of 
two  leases,  known,  respectively,  as  the  "Cookman  Lease"  and  the 
"Duncan  Lease."  Both  leases  were  obtained  from  the  same  vendor, 
who  was  engaged  in  drilling  a  well  upon  one  of  them  at  the  time  of 
sale.  The  sale  included  the  drilling  tools  and  machinery  in  actual  use, 
and  it  was  agreed  that  Duncan,  their  vendor,  should  proceed  to  com- 
plete the  work  of  drilling  he  had  begun.  When  this  was  done,  the 
two  firms  proceeded  to  prepare  the  well  for  pumping,  each  paying 
one-half  of  the  expenses  incurred.  As  soon  as  the  first  well  was  put 
in  order,  the  owners  entered  into  an  agreement  with  each  other  to 
drill  another  well  on  the  same  lease,  and  to  pay  their  one-half  part  of 
the  cost  of  it.  They  divided  the  expenses  incurred  in  pumping  and 
in  the  care  of  the  leases  in  the  same  manner,  each  paying  one-half. 
The  oil  produced  was  run  into  pipe  lines  serving  the  district,  and  there 
credited,  one-half  to  Osborne  &  Bros.,  and  one-half  to  Carruthers 
&  Peters. 

Upon  these  facts  the  appellant  contends  that  the  tenants  in  common 
of  the  Cookman  and  Duncan  leases  became  partners.     It  is  not  alleg- 


Sec.  3)  TESTS   OF   INTENTION.  59 

cd  that  any  contract  of  partnership  was  ever  entered  into  between  the 
two  firms,  or  that  any  new  partnership  name  was  adopted  to  repre- 
sent them  in  their  operations  upon  these  leases.  Their  relation  to- 
wards each  other,  as  the  result  of  their  purchase  of  their  respective 
interests  in  the  leases,  was  that  of  tenants  in  common.  They  were  en- 
gaged in  the  development  and  oi)cration  of  the  common  property  for 
their  individual  benefit.  They  were  doing  what  tentants  in  common 
may  properly  do,  and  in  the  only  way  practicable  for  them,  viz.  turn- 
ing the  common  property  to  the  profit  of  its  owners  at  their  individual 
cost,  and  dividing  the  product  between  themselves,  in  the  pipe  lines, 
in  shares  corresponding  with  their  interest  in  the  title.  The  firm  of 
D.  Osborne  &  Bros,  seems  to  have  been  badly  in  debt.  The  Butler 
Savings  Bank  was  among  its  creditors,  and  was  the  holder  of  two 
judgments  against  the  firm  and  the  individuals  composing  it,  on  which 
writs  of  fieri  facias  were  issued  on  29th  of  June,  1892.  The  appel- 
lant was  also  a  creditor,  having  one  or  more  judgments  entered 
against  the  firm.  On  the  2d  of  July,  1892,  it  caused  a  special  writ 
of  fi.  fa.  to  be  issued  directing  the  sheriff  to  levy  on  the  interest  of 
D.  Osborne  &  Bros,  in  an  alleged  partnership  composed  of  the  firms 
of  D,  Osborne  &  Bros,  and  Carruthers  &  Peters.  The  sherifif  seized 
and  sold,  at  the  instance  of  the  bank,  the  title  of  Osborne  &  Bros, 
in  both  leases.  At  the  instance  of  the  appellant,  he  seized  and  sold 
the  interest  of  Osborne  &  Bros,  in  the  alleged  new  firm. 

Whether  iiie  appellant  is  entitled  to  come  in  on  the  fund  raised  by 
the  sheriff  by  means  of  a  sale  made  upon  all  the  writs  in  his  hands 
depends  on  whether  the  alleged  partnership  between  the  tenants  in 
common  had  any  existence.  If  it  did,  the  two  leases  were  partnership 
property  belonging  to  that  partnership.  The  interest  of  Osborne  & 
Bros,  would,  in  that  case,  go  to  the  purchaser  at  sheriff's  sale,  subject 
to  a  settlement  of  the  partnership  business,  and  would  be  simply  a 
right  to  receive  one-half  of  what  might  remain  after  that  business 
.  was  closed  up,  and  the  proceeds  of  such  sale  would  go  to  the  special 
writ  of  fi.  fa.  If,  on  the  other  hand,  no  such  partnership  existed,  then 
the  title  of  D.  Osborne  &  Bros,  was  that  of  a  tenant  in  common  own- 
ing one-half  of  the  leases.  The  purchaser  at  sheriflf's  sale  would 
succeed  to  their  title,  and  the  money  raised  would  go  to  the  bank, 
as  the  proceeds  of  the  sale  of  the  property  of  its  debtor.  In  the  case 
of  Dunham  v.  Loverock,  158  Pa.  107,  27  Atl.  990,  38  Am.  St.  Rep.  838, 
we  have  held,  at  the  present  term,  that  tenants  in  common  engaged 
in  the  improvement  or  development  of  the  common  property  will  be 
presumed,  in  the  absence  of  proof  of  a  contract  of  partnership,  to 
hold  the  same  relation  to  each  other  during  such  improvement  or 
development  as  before  it  began.  .As  to  third  persons,  they  may  sub- 
ject themselves  to  liability  as  partners  by  a  course  of  dealing,  or  by 
their  acts  and  declarations;  but  as  to  each  other  their  relation  depends 
on  their  title,  until,  by  their  agreement  with  each  other,  they  change 
it.    The  act  of  25th  April,  1850,  gives  the  courts  jurisdiction  in  equity 


60  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

over  the  settlement  of  accounts  between  tenants  in  common  of  mines 
and  minerals,  and  empowers  them  to  "cause  to  be  ascertained  the 
quantity  and  value  of  the  coal,  iron  ore  or  other  minerals,  so  taken 
respectively  by  the  respective  parties,  and  the  sum  that  may  be  justly 
and  equitably  due  by,  and  from,  and  to,  them  respectively  therefor, 
according  to  the  respective  portions  and  interests  to  which  they  may 
be  respectively  entitled  in  the  lands."     This  power  over  the  accounts 
between  tenants  in  common  was  exercised  by  the  courts  of  equity  in 
England  long  before  our  statute  was  passed,  and,  as  between  the  ten- 
ants in  common  and  third  parties,  the  same  controversy  frequently 
arose  that  exists  in  this  case.     The  effort  of  third  parties,  extending 
credit  to  them,  was  to  hold  them  liable  as  partners,  just  as  the  appel- 
lant seeks  to  do  here.     But  the  rule  in  England,  as  I  understand  it  to 
be,  is  that  when  tenants  in  common  agree  to  carry  on  mining  opera- 
tions upon  their  land,  each  contributing  towards  the  expenses  in  pro- 
portion to  his  or  her  respective  interest  or  estate  in  the  land,  they  will 
be  considered,  with  respect  both  to  themselves  and  third- persons,  as 
the  ordinary  owners  of  land  working  their  respective  shares  of  the 
mines,  responsible  only  for  their  own  acts,  subject  to  no  laws  of  part- 
nership   whatever,    and    possessing    distinct    rights    in   the   property. 
Bainb.  Mines,  c.  9,  p.  20G.    The  several  owners  may  form  a  partner- 
ship for  the  purpose  of  operating  the  common  property,  if  they  so 
agree ;    but  in  the  absence  of  an  agreement  they  will  be  presumed  to 
deal  with  each  other  and  the  common  property  as  part  owners,  hold- 
ing as  tenants  in  common,  and  liable  to  each  other  in  account  render- 
ed or  in  equity,  as  the  circumstances  may  seem  to  require.     In  the 
case  now  before  us,  there  is  no  need  to  rely  on  the  presumption,  as 
the  auditor  has  found,  as  a  fact,  that  no  partnership  existed  between 
the  two  firms  owning  the  Cookman  and  Duncan  leases.     From  this 
finding  of  fact  the  auditor  correctly  concluded,  as  a  matter  of  law, 
that  the  special  writ  of  fieri  facias  issued  by  the  appellant  against  the 
interest  of  D.  Osborne  &  Bros,  in  the  alleged  partnership  had  nothing 
on  which  it  could  be  executed.     The  contention  of  the  appellant  fails, 
therefore,  on  both  grounds.     The  law  does  not  imply  a  partnership 
between  tenants  in  common  because  of  the  fact  that  they  agree  to 
develop  or  operate  the  common  property,  since  they  may  rightfully 
do  this  by  virtue  of  their  respective  titles  as  part  owners ;   and,  next, 
the  existence  of  an  express  agreement  creating  a  partnership  is  nega- 
tived by  the  finding  of  the  auditor,  concurred  in  by  the  court  below. 
As  it  is  thus  settled  that  the  alleged  partnership  did  not  exist,  the  con- 
clusion is  inevitable  that  the  sale  on  the  writ  in  favor  of  the  bank  pass- 
ed the  title  of  D.  Osborne  &  Bros,  in  the  two  leases  to  the  sheriff's 
vendee,  who  thereupon  -became  a  tenant  in  common  with  the  other 
part  owner.     The  proceeds  of  the  sale  were  therefore  properly  dis- 
tributed in  the  court  below,  and  the  decree  of  distribution  is  affirmed. 


Sec  3)  TESTS   OF  INTENTION.  61 

LOGAN  V.  OKLAHOMA  MILL  CO. 

(Supreme  Court  of  Oklahoma,  1904.    14  Old.  402,  79  Pac.  103.) 

BuRWELL,  J.  G.  H.  Logan  and  R.  C.  Brennen  bought  two  farms, 
and  had  the  titles  conveyed  to  themselves  jointly.  During  the  three 
or  four  years  that  they  owned  the  land,  Brennen  farmed  it  to  wheat, 
Logan  paying  for  half  of  his  time  and  half  of  the  expenses.  Bren- 
nen each  year  sold  the  wheat  to  the  defendant  in  error,  Collecting  the 
money  for  the  same,  and  paid  Logan  his  half,  except  for  the  year 
1901,  which  is  in  controversy  in  this  action.  The  evidence,  we  think, 
also  shows  that  the  defendant  was  in  possession  of  facts  which 
would  charge  him  with  notice  of  the  arrangement  between  Logan 
and  Brennen.  In  June  or  July  of  1901  Brennen  sold  to  the  defendant 
some  2,000  bushels  of  wheat  which  was  grown  on  the  Logan  and 
Brennen  farm,  and  the  defendant  contends  that  he  agreed  to  apply 
the  wheat  on  the  payment  of  a  debt  from  his  son  to  the  mill,  while 
Brennen  festified  that  he  agreed  to  apply  only  his  half  of  the  wheat 
to  the  payment  of  his  son's  debt.  Tickets  to  the  amount  of  $500 
were  surrendered  and  applied  in  that  way,  and  the  other  tickets  for 
948  bushels,  amounting  to  $455.04,  were  by  Brennen  turned  over  to 
Mr.  Logan,  who  presented  them  for  payment,  and  the  defendant  re- 
fused to  take  them  up,  and  assigned  as  a  reason  that  the  wheat  was 
to  be  applied  on  the  debt  of  Brennen's  son.  In  fact,  the  defendant 
had  declined  to  pay  Brennen  the  amount  of  the  Logan  tickets  before 
they  were  turned  over  to  Logan,  and  gave  that  as  a  reason  therefor. 
Logan  then  commenced  this  suit,  alleging  that  he  had  sold  and  de- 
livered to  defendant  948  bushels  of  wheat  at  48  cents  per  bushel, 
and  that  there  was  still  due  and  unpaid  therefor  the  sum  of  $455.04. 
The  answer  was  a  general  denial.  On  this  state  of  facts  the  trial 
court  found  for  the  defendant,  and  taxed  the  costs  to  the  plaintiff,  who 
appeals  to  this  court.     *     *     * 

It  is  first  contended  by  the  defendant  that  the  plaintiff  had  no  legal 
capacity  to  sue,  because  Logan  and  Brennen  were  partners,  and  suit 
could  only  be  maintained  by  them  as  such.     *     *     * 

This  brings  us  to  a  consideration  of  the  legal  status  of  Logan  and 
Brennen,  and,  in  presenting  this  matter,  the  appellee  insists  that  Logan 
and  Brennen  were  partners,  while  the  appellant  maintains  that  they 
were  tenants  in  common.  It  is  sometimes  quite  difficult  to  determine 
whether  persons  are  tenants  in  common  or  partners,  but,  when  meas- 
ured by  the  rules  laid  down  by  the  law  writers,  the  case  at  bar  can 
be  classified,  leaving  no  room  for  reasonable  doubt.  It  has  long  since 
been  the  settled  law  that  persons  may  be  joint  owners  of  real  estate 
or  other  property,  and  not  be  partners.  In  other  words,  joint  owner- 
ship does  not  necessarily  mean  partnership.  In  Lindley  on  Partner- 
ships, vol,  1,  bottom  of  page  122,  it  is  said:  "No  partnership  neces- 
sarily  subsists   amongst   persons   to   whom    property   descends,   or   is 


62  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

given  jointly  or  in  common ;  and,  even  if  several  persons  agree  to 
buy  property  to  hold  jointly  or  in  common,  although  by  the  purchase 
they  become  co-owners,  they  do  riot  become  partners,  unless  that 
also  was  their  intention."  The  Supreme  Court  of  Illinois,  in  the  case 
of  Ryhiner  et  al.  v.  Feickert,  93  111.  305,  3-i  Am.  Rep.  130,  had  oc- 
casion to  consider  the  effect  of  naming  two  persons  as  payees  in  a 
note;  and  it  was  there  held  that  the  mere  fact  that  a  note  ran  to 
Charles  and  William  Feickert,  did  not,  as  a  matter  of  law,  authorize 
the  public  to  assume  that  they  were  partners,  and  that  it  required  the 
indorsement  of  both  to  effect  a  legal  transfer.  The  Supreme  Court 
of  California,  in  Quackenbush  v.  Sawyer,  54  Cal.  439,  stated  the  rule 
as  follows:  "A  mere  joint  ownership  in  personal  property  does  not 
constitute'' a  partnership;  nor  w^as  a  partnership  created  by  an  agree- 
ment to  divide  the  income  of  a  business  carried  on  by  a  third  party 
with  the  joint  property  of  the  plaintiff  and  defendant  and  paid  to 
the  latter  for  the  joint  use  of  himself  and  the  plaintiff."  One  of  the 
tests  of  a  partnership  is:  Can  either  party  sell  his  part  of  the  prop- 
erty or  thing  in  question,  and  his  grantee  compel  recognition  of  his 
rights?  If  he  can,  then  it  is  not  a  partnership,  as  one  cannot  pur- 
chase the  interest  of  one  partner  in  a  business,  and  then  compel  the 
other  partner,  against  his  will,  to  continue  the  business  with  him.  See 
Kent's  Commentaries,  vol.  3,  star  page  25,  and  volume  4,  star  page 
368  et  seq.  It  cannot  reasonably  be  contended  that  the  grantee  of 
Logan  or  Brennen,  either  of  the  wheat  or  land,  would  not  have  the 
same  rights  as  his  grantor.  There  was  no  express  agreement  of  part- 
nership between  Logan  and  Brennen,  and  the  facts  do  not  justify 
an  inference  of  partnership.  They  were  joint  owners  of  the  land,  and 
each  was  interested  in  reaping  the  fruits  of  his  investment;  and, 
in  order  to  get  some  returns  from  the  land,  Brennen  farmed  the  land  to 
wheat,  and  Logan  paid  him  for  his  services.  Each  owned  half  of  the 
wheat,  and  neither  could  sell  the  half  which  belonged  to  the  other  with- 
out his  consent.  This  consent,  however,  Brennen  had,  and,  in  selling 
Logan's  half  of  the  wheat,  he  acted  as  his  agent ;  and,  were  this  a  case 
where  the  defendant  or  Logan  must  suffer  on  account  of  some  wrong- 
ful act  of  Brennen,  of  course,  the  loss  would  fall  on  Logan,  but  that  is 
not  the  case.  The  defendant  was  in  possession  of  such  facts  and 
circumstances  as  to  charge  it  with  knowledge  of  the  arrangement  be- 
tween Logan  and  Brennen,  but,  even  if  it  were  not,  the  wheat  actually 
belonged  to  Logan,  and  the  defendant  did  not  part  with  any  valuable 
thing  to  get  it ;  and  it  should  be  compelled  to  either  pay  for  the  wheat 
or  return  it,  and,  upon  failure  so  to  do,  Logan  could  sue  and  recover 
its  value.    Goell  v.  Morse  and  others,  126  Mass.  480. 

Under  the  facts  in  this  case,  the  plaintiff  ought  to  have  recovered. 
The  judgment  of  the  lower  court  is  hereby  reversed,  and  judgment 
is  hereby  rendered  for  the  plaintiff  for  $455.04,  with  interest  at  7 
per  cent,  thereon  since  October  15,  1901. 


Sec  3)  TESTS   OF   INTENTION,  63 

DONNELIv  V.  HARSHE. 

(Supreme  Court  of  Missouri,  1877.    67  Mo.  170.) 

Napton,  J.  The  principal  and  decisive  question  in  this  case 
is  the  propriety  of  the  following  instruction  given  by  the  court: 
"The  court  instructs  the  jury  that  a  copartnership  is  an  agreement  be- 
tween two  or  more  persons  of  sufficient  capacity  to  contract  to  carry 
on  a  given  business  and  share  the  profits  of  such  business;  and  if 
the  jury  believe  from  the  evidence  in  this  case  that  there  was  either 
a  verbal  or  written  agreement  between  the  plaintiff  and  Emeline 
Harshe,  by  which  the  former  was  to  occupy  and  cultivate  the  farm 
of  said  Emeline  Harshe  for  any  given  length  of  time,  and  that  each 
was  to  receive  a  moiety  or  share  of  the  crops  raised  or  grown  thereon 
imder  such  agreement,  then  such  farming  was  a  copartnership  business, 
and  belongs  to  another  adjustment,  and  must  be  settled  or  adjusted 
in  a  different  form  of  action,  and  cannot  be  made  available  in  this 
action ;  and  if  they  find  that  the  matters  embraced  in  defendant's 
account  were  connected  with  or  arose  out  of  such  business  they  will 
exclude  all  evidence  of  such  account  from  their  minds,"  etc.  The 
evidence  in  the  case  is  not  stated  in  the  bill  of  exceptions,  but  it  is 
stated  that  evidence  was  offered  tending  to  prove  that  plaintiff  and 
defendant  entered  into  an  agreement  by  which  plaintiff*  was  to  culti- 
vate a  farm  of  defendant,  lying  in  St.  Francis  county,  on  shares ; 
that  plaintiff  and  defendant  were  each  to  defray  one  moiety  of -the  ex- 
penses attending  such  cultivation  of  said  farm,  and  were  to  share  equal- 
ly in  the  profits  thereof.  The  instruction  asserts,  as  a  matter  of  law, 
that  the  occupancy  and  cultivation  by  one  of  the  farm  of  another, 
under  an  agreement  that  the  owner  and  occupant  will  divide  crops 
raised  in  an  agreed  proportion,  constitutes  the  owner  and  occupant 
copartners.  This  is  probably  a  very  common  mode  of  leasing  farms 
in  this  state,  but  the  proprietor  and  occupant  might  be  equally  surpris- 
ed to  be  informed  that  they  were  partners. 

A  definition  of  partnership,  broad  enough  to  embrace  all  cases 
and  narrow  enough  to  exclude  such  as  ought  to  be  excluded,  has 
been  found  a  very  difficult  and  embarrassing  task  to  those  writers 
who  have  published  books  on  the  subject.  The  courts  have  been 
embarrassed,  also,  in  nice  refinements  about  partnerships  inter  se 
and  partnerships  which  are  only  as  to  creditors.  Indeed,  Judge 
Story,  after  a  prolonged  examination  of  these  distinctions,  seems  to 
conclude  that  the  intention  of  the  parties  ought  to  be  th'e  controlling 
circumstance  to  determine  their  relations,  and  therefore,  where  the 
profits  and  losses  are  to  be  shared  by  the  parties  in  fixed  proportions, 
and,  to  use  his  language,  "each  is  intended  to  be  clothed  with  the  pow- 
ers and  rights  and  duties  and  responsibilities  of  a  principal,  either  as 
to  the  capital  stock  or  the  pro.^its,  or  both,  there  may  be  a  just  ground 


61  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

to  assert,  in  the  absence  of  all  controlling  stipulations  and  circum- 
stances, that  they  entered  a  partnership."  This,  it  will  be  perceived, 
is  quite  indefinite. 

It  is  essential  to  a  partnership  that  there  be  a  community  of  interest 
in  the  subject  of  it,  and  this  community  of  interest  must  not  be  that 
of  mere  joint  tenants  or  tenants  in  common.  When  the  effect  of  the 
agreement  is,  as  propounded  in  the  instruction,  that  one  should  oc^ 
cupy  and  cultivate  the  farm,  and  the  crops  should  be  divided  equally 
between  the  occupant  and  the  owner,  no  partnership  is  necessarily 
intended  or  created.  In  the  case  of  Dry  v.  Boswell,  1  Cham,  329, 
where  there  was  an  agreement  between  the  owner  of  a  lighter  and  a 
lighterman  that  the  lighterman  should  work  the  lighter,  and  the  gross 
earnings  should  be  equally  divided  between  him  and  the  owner,  Lord 
EUenborough  held  that  this  was  only  a  mode  of  paying  the  lighter- 
man for  his  wages,  and  was  not  a  participation  in  profits  and  loss, 
and  no  partnership  existed.  So  in  Ambler  v,  Bradley,  6  Vt.  119,  A, 
owned  a  sawmill  and  agreed  with  B.  that  the  latter  should  work  it  and 
divide  the  gross  earnings  equally.  They  were  held  not  to  be  part- 
ners. In  Putnam  v.  Wise,  1  Hill  (N.Y.)  234,  37  Am.  Dec.  309,  an 
agreement  between  the  owner  of  a  farm  and  the  occupant  that  the 
latter  should  work  it  on  shares,  and  a  division  be  made  of  the  gross 
earnings  of  the  farm,  was  held  not  to  be  a  partnership.  In  Dwinel 
V,  Stone,  30  i\Ie,  384,  it  was  held  that  a  mere  participation  in  profit 
and  loss  does  not  necessarily  constitute  a  partnership,  "There  must 
be,"  said  Shipley,  C.  J,,  "such  a  community  of  interest  as  empowers 
each  party  to  make  contracts,  incur  liabilities,  manage  the  whole  busi- 
ness, and  dispose  of  the  whole  property,  a  right  which,  upon  the  dis- 
solution of  the  partnership  by  death  of  one,  passes  to  the  survivor, 
and  not  to  the  representatives  of  the  deceased."  In  Caswell  v.  Dis- 
trich,  15  Wend.  (N.  Y.)  379,  the  court  held  an  agreement  between 
landlord  and  tenant  that  the  tenant  should  sow  certain  kinds  of  grain 
and  yield  a  certain  portion  of  each  crop  to  the  landlord  made  them  ten- 
ants in  common  with  the  crops.  In  Denny  v.  Cabot,  G  Mete.  (Mass.) 
82,  an  agreement  was  made  between  H.  and  B.,  by  which  H,  was 
to  supply  B,  with  stock  to  be  manufactured  into  cloth  at  his  mill,  on 
H,'s  account,  and  B.  was  to  manufacture  the  stock  into  cloth  and  to 
deliver  the  cloth  to  H.  at  a  certain  sum  per  yard,  and  H.  could  pay 
him  one-third  part  of  the  net  profits  of  the  business,  and  this  was 
held  not  to  make  A.  and  B.  partners.  In  Harrowcr  v.  Heath  &  Cole, 
19  Barb.  (N.  Y.)  331,  an  agreement  similar  to  the  one  to  establish 
which  proof"  was  offered  in  the  present  case  was  held  to  constitute 
the  owner  and  occupiers  tenants  in  common,  both  of  the  farm  and  the 
crops.  And  in  Johnson  v,  Hoffman,  53  Mo.  504,  a  similar  contract 
was  held  to  make  the  landlord  and  tenants  merely  tenants  in  common 
of  the  crops  and  not  the  farm.  It  is  useless,  however,  to  multiply 
authorities  on  this  subject,  as  hardly  any  two  cases  are  exactly  alike. 


Sec.  3)  TESTS   OF   INTENTION.  65 

and  very  slight  shades  of  distinction  lead  to  different  conclusions.    The 
instruction  was  erroneous,  as  we  think,  and  the  judgment  must  there- 
fore be 
Reversed.* 


NOYES  V.  CUSHMAN  et  al. 
(Supreme  Court  of  Vermont,  18u3.     25  Vt.  390.) 

IsiiAM,  J.  The  auditors  have  reported  a  balance  due  the  plain- 
tiff, subject  to  objections  which  have  been  taken  by  the  defendants. 

It  is  insisted  by  the  defendants  that  they, were  not  partners  when 
the  services  were  rendered  by  the  plaintiff,  and  that  this  joint  action 
against  them  as  such  cannot  be  sustained.  We' learn  from  the  report 
that  the  gristmill  and  privilege  were  at  first  purchased  by  the  de- 
fendants, Cushman  and  Noyes,  under  an  agreement  to  rebuild  the 
same  and  share  equally  in  its  expense,  and  that  afterwards  one-sixth 
of  the  same  was  purchased  of  them  by  the  defendant  Morse  under 
an  agreement  to  be  at  a  like  proportion  of  the  expense  of  rebuilding 

1  "It  Is  sometimes  difficult  to  determine  whether  a  person  who  works  the 
land  of  another  on  shares  is  a  tenant  in  common  of  the  crop  with  the  owner 
of  the  land  or  a  mere  cropper.  Much  depends  upon  the  wording  of  the  con- 
tract between  the  parties.  Lanyon  v.  Woodward,  55  Wis.  052,  13  N.  W.  8G3; 
farrier  v.  Atwnnd.  c:;  Wis.  301.  24  N.  W.  82:  Wodd  v.  Xoack,  84  Wis.  398, 
54  N.  W.  785;  Rowlands  v.  Voechting,  115  Wis.  352,  91  N.  W.  990;  Warner 
V.  Abbey,  112  Mass.  355.  In  the  case  at  bar  there  is  practically  no  dispute 
as  to  the  facts.  The  plaintiff  furnished  the  land  and  the  seed.  The  defend- 
ant was  to  plow  the  ground,  plant  and  care  for  and  harvest  the  potatoes, 
and  have  one-half  of  what  should  be  raised.  After  plowing  the  ground  and 
planting  the  potatoes,  the  defendant  moved  away.  Finally  his  son-in-law 
came  and  went  over  the  potatoes  with  a  cultivator  one  way  and  partly  over 
them  the  other  way.  But  the  potatoes  became  badly  damaged  for  want  of 
care,  and  finally  the  plaintiff  got  another  man  to  care  for  the  potatoes,  and 
agreed  to  give  him  a  share  of  the  crop  for  doing  so.  The  defendant  testi- 
fied to  the  effect  that  the  plaintiff  was  to  furnish  the  land  and  the  seed, 
and  that  he  was  to  cultivate  the  ground  and  have  half  the  crop,  provided  he 
stayed  there ;  and  if  he  did  not  stay,  and  no  one  else  would  buy.  then  the 
plaintiff  would  buy  his  share  of  the  potatoes.  The  trial  court  manifestly 
held  that  the  parties  were  tenants  in  common  of  the  crop.  If  such  was  the 
relation  of  the  parties,  then  the  decision  may  be  justified.  Section  4257, 
St.  1898 :  Foley  v.  Land  Co.,  94  Wis.  329,  GS  N.  W.  994 :  Sullivan  v.  Sherry. 
Ul  Wis.  476,  87  N.  W.  471,  87  Am.  St.  Rep.  890;  Orcutt  v.  Moore,  134  Mass. 
48,  45  Am.  Rep.  278.  If,  on  the  other  hand,  the  defendant  was  a  mere  crop- 
per, then  the  decision  was  wrong.  The  general  rule  is  that:  'The  legal  pos- 
session to  the  land,  as  well  as  the  title  to  the  entire  crop,  is  in  the  owner  of 
the  soil.  The  possession  of  the  cropper  being  merely  that  of  a  servant,  and 
inrideut  to  his  right  and  duty  of  entering  the  close  for  the  purpose  of  planting, 
cultivating,  and  gathering  tlie  crop,  it  is  not  the  legal  possession  of  the 
premises  which  usually  gives  the  possessor  the  title  to  the  produce.  He  has 
no  property  in  his  share  of  the  crop  until  the  division,  which  Is  made  by  the 
owner  of  the  land.'  8  Am.  &  Eng.  Eney.  of  Law  (2d  Fid.)  324,  325.  It  is  said 
that  'the  term  "cropper"  is  applied  to  a  person  hired  by  the  landowner  to 
cultivate  the  land,  receiving  for  his  compensation  a  portion  of  the  crop  raised.' 
Id."  rer  Cassoday,  C.  J.,  in  Kelly  v.  Rummerfleld,  117  Wis.  i;20,  IM  N.  W. 
G49.  98  Am.  St.  Rep.  951  (1903). 

Gil.Pakt. — 5 


66  WHAT  CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

and  putting  the  mill  in  proper  condition  for  improvement  and  use. 
These  several  purchases  vested  the  title  and  interest  in  these  premises 
in  the  defendants  as  tenants  in  common.  Their  mutual  oljligation  to 
rebuild  and  repair  does  not  necessarily  constitute  them  partners,  for, 
as  observed  by  Judge  Bronson  in  Porter  v.  McClure,  15  Wend.  (N. 
Y.)  192,  "they  tnay  or  may  not  become  partners  in  carrying  on  mill- 
ing business."  A  mere  community  of  interes,t  in  real  or  personal  es- 
tate does  not  constitute  a  partnership.  But  where  a  purchase  of  that 
character  is  made,  and  the  premises  are  rebuilt  or  repaired  for  the 
purpose  of  prosecuting  some  joint  enterprise  or  adventure,  and  under 
an  agreement  to  share  in  the  profits  and  loss  of  the  undertaking,  the 
contract  then  becomes  one  constituting  a  partnership,  and  each  mem- 
ber thereof  is  liable  as  a  partner,  and  they  are  liable  jointly  for  ser- 
vices performed  in  perfecting  their  joint  undertaking. 

The  report  of  the  auditors  shows  this  to  have  been  the  character 
of  the  contract  as  made  by  these  defendants.  After  having  obtained 
a  joint  interest  in  the  gristmill  and  privilege,  they  became  obligated  to 
rebuild  and  repair  the  same,  for  the  purpose  of  prosecuting  a  joint 
undertaking  in  the  use  of  this  property  for  millirrg  purposes ;  and  the 
defendant  Morse  was  to  have  one-sixth  of  the  toll  or  profits  of  the 
mill  and  one-half  of  the  remainder  for  taking  charge  of  the  same,  and 
the  other  defendants,  Cushman  and  Noyes,  were  to  have  the  remain- 
ing shares.  In  this  contract  are  found  all  the  elements  of  a  partner- 
ship even  as  between  themselves,  much  more  as  to  third  persons; 
and  whatever  agreement  may  have  been  made  as  between  themselves, 
as  to  the  manner  in  which  other  persons  were  to  be  employed  and 
paid,  it  can  have  no  effect  upon  their  liability  to  those  who  have  ren- 
dered services  in  promoting  their  joint  undertaking,  particularly 
where,  as  in.  this  case,  the  services  were  rendered  under  the  under- 
standing that  the  defendants  were  jointly  liable  therefor,  and  when 
the  plaintiff  was  ignorant  of  any  different  arrangement  as  between  the 
defendants.  We  think,  therefore,  the  auditors  came  to  a  right  con- 
clusion that  the  defendants  were  liable  as  partners  on  this  account  to 
the  plaintiff. 

The  result  is  that  the  judgment  of  the  county  court  is  affirmed. 


/  QUACKENBUSH  v.   SAWYER. 

(Supreme  Court  of  California,  1880.    54  Cal.   439.) 

McKee,  J.  We  do  not  regard  the  action  in  this  case,  as  does  coun- 
sel for  the  appellant,  as  an  action  for  the  settlement  of  a  partnership 
account.  In  substance  it  is  alleged,  in  the  complaint  in  the  case,  that 
the  parties  had  severally  advanced  certain  sums  of  money  in  pur- 
chasing the  "circus  property"  mentioned  in  the  complaint;  that  they 
then  entered  into  an  agreement  that  the  defendant  should  take  and 


Sec.  3)  TESTS   OF   INTENTION.  C7 

keep  possession  of  the  property,  and  cause  it  to  be  used  afid  employed 
by  circus  companies  or  managers  for  the  joint  benefit  of  himself  and 
the  plaintiff  in  equal  shares ;  that  in  using  or  employing  it  for  this 
purpose  he  should  make  provision  that  the  "'rent  or  compensation"  re- 
ceivable for  the  use  of  the  property  should  be  first  paid  to  him ;  and 
that,  upon  collecting  or  receiving  such  rent  or  compensation,"  he 
should  account  therefor  and  pay  it  over  every  month  to  the  plaintiff, 
until  the  money  which  plaintiff  had  advanced  for  the  purchase  of  the 
proper'ty,  and  interest  thereon  from  the  time  of  its  advancement, 
should  be  paid,  and,  after  such  payment,  defendant  should  account 
for  and  pay  over  to  the  plaintiff  one-half  of  said  rent  or  compensa- 
tion. And  it  is  charged- that  the  defendant  received  as  "rent  or  com- 
pensation" for.  the  use  of  tlie  property  large  sums  of  money,  of  the 
amount  of  which  plaintiff  is  ignorant,  and  he  prays  for  an  account- 
ing and  division  of  the  property, 

Bach  allegation  of  the  complaint  is  specifically  denied  by  the  an- 
swer, and  a  special  defense  is  also  set  up.  The  proofs  on  the  trial  es- 
tablish these  facts :  That  in  June,  1873,  one  Conklin  was  owner  of 
the  "circus  property"  mentioned  in  the  pleadings,  and  manager  of  a 
certain  troupe  or  company  of  circus  performers;  that  by  a  bill  of 
sale  Conklin  transferred  the  property  to  the  parties  in  this  action  as 
security  for  the  payment  to  them  of  certain  sums  of  money  which 
they  had  severally  advanced  to  him ;  that  they  agreed  with  each  other 
that  defendant  should  take  possession  of  the  property,  and  transport 
it  from  place  to  place  in  the  state  of  California,  upon  a  performing 
tour,  and  receive  or  collect  the  income  of  the  performances  and  apply 
it,  first  of  all,  to  the  payment  of  money  advanced  by  the  plaintiff",  and  ' 
then  to  the  payment  of  what  he  himself  had  advanced  to  Conklin.     ' 

Pursuant  to  this  agreement,  defendant  took  possession  of  the  prop- 
erty, and,  being  a  teamster,  made  a  contract  with  Conklin  for  the 
transportation  of  the  property,  during  the  summer  season  of  1ST3, 
from  place  to  place  in  the  state  of  California,  on  a  performing  tour, 
under  the  direction  of  Conklin.  Performances  were  given  in  various 
interior  towns  and  cities  of  the  state,  at  wdiich  the  defendant  collect- 
ed or  received  $4,200 ;  but  he  has  failed  and  refused  to  account  for  or 
pay  to  the  plaintiff  any  portion  thereof.  Upon  these  proofs  the  court 
below  rendered  judgment  against  the  defendant  for  the  amount  of 
money  advanced  by  the  plaintiff  to  Conklin.  and  interest  thereon  from 
the  date  of  its  advancement.  The  bill  of  sale  to  the  parties  made  them 
joint  owners  of  the  property.  Hcyland  v.  Badger,  35  Cal.  404.  But 
a  mere  joint  ownership  in  personal  property  does  not  constitute  the 
owners  partners.  Post  v.  Kimberly,  9  Johns.  (N.  Y.)  470;  Hawes  v. 
Tillinghast,  1  Gray  (Mass.)  289.  Nor  did  the  agreement  between 
them  have  that  effect.  A  partnership  is  the  association  of  two  or 
more  persons  for  the  purpose  of  carrying  on  business  together,  and 
dividing  its  profits  between  them.  Section  2395,  Civ.  Code.  But 
plaintiff  and  defendant  were  not  engaged  in  the  circus  business,  noi 


68  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Cll.  1 

did  they  agree  to  carry  it  on.  The  business  belonged  to  Conklin 
alone;  and  in  it  the  defendant  used  the  joint  property  of  himself  and 
the  plaintilT — as  he  was  authorized  to  use  it  in  the  business  of  any 
other  circus  manager — upon  the  terms  and  conditions  that  he  was  to 
receive  the  income  of  the  business  from  Conklin  for  the  payment  of 
their  claims  against  Conklin.  Only  to  the  extent  of  the  income,  or,  as 
the  pleader  calls  it,  "rent  or  compensation,"  receivable  by  the  defend- 
ant, were  they  at  all  interested  in  the  business;  but  an  agreement  to 
divide  the  income  of  a  business  does  not  create  a  partnership.  There- 
fore, when  the  defendant  received  the  income,  he  did  not  receive  it  as 
a  partner,  but  as  a  trustee;  and  he  held  so  much  of  it  as  was  neces- 
sary to  pay  the  plaintiff's  demand  against  Conklin  in  trust  for  that 
purpose,  and  it  was  his  duty  to  account  for  it  to  the  plaintiff.  Fail- 
ing in  that,  the  plaintiff  had  a  right  to  compel  him  to  account  for  so 
much  of  it  as  came  into  his  hands  for  the  purpose  of  discharging  his 
trust. 

Judgment  affirmed. 


EVERITT  et  al.  v.  CHAPAIAN  et  al. 
(Supreme  Court  of  Connecticut,  1827.    6  Conn.  347.) 

Action  by  the  plaintiffs  against  Isaac  Chapman  and  Russel  Mott, 
surviving  members  of  a  partnership  composed  of  the  defendants  and 
Henry  R.  Mott,  engaged  in  the  business  of  manufacturing  leather, 
under  the  firm  name  of  Chapman  &  Motts.  By  the  partnership  ar- 
ticles the  parties  agreed  to  unite  for  the  purpose  of  carrying  on  a 
tannery.  Chapman  agreed  to  furnish  his  tannery  and  equipment  for 
a  fixed  annual  rental,  to  be  paid  one-half  by  him  and  one-half  by  the 
Motts,  and  to  furnish  one-half  of  the  hides  necessary  to  keep  the 
tannery  in  operation  and  to  receive  and  make  market  for  one-half 
of  the  leather  produced.  The  Motts  agreed  to  furnish  a  similar  quanti- 
ty of  hides  and  to  market  a  similar  quantity  of  leather,  to  take  care  of 
all  the  bark  necessary  to  tan  said  stock,  to  do  all  the  work  of  tanning 
for  45^  cents  per  pound  of  leather,  and  to  pay  one-half  the  ex- 
penses for  keeping  the  tannery  in  repair.  "All  the  said  parties  also 
agree  to  use  their  own  credit  separately,  and  not  jointly,  in  purchas- 
ing anything;  and  no  notes  are  to  be  given,  only  by  each  individual 
in  his  own  name."  The  business  was  conducted  by  H.  R.  Mott,  who 
ordered  the  hides  in  question  from  the  plaintiffs  in  his  own  name. 
The  plaintiffs  were  ignorant  of  any  partnership  when  they  furnished 
the  hides  and  charged  them  to  H.  R.  Mott.  The  hides  were  made  into 
leather  for  the  joint  benefit  of  the  defendants.  Chapman,  having 
furnished  his  proportion  of  the  hides  according  to  the  partnership 
articles,  denied  his  liability  to  the  plaintiffs. 

The  judge  charged  the  jury  that  upon  tlie  facts  admitted  the  de- 


Sec.  3)  TESTS  OF   INI  ICNTION.  69 

fendant  Chapman  was  liable  as  a  partner  for  the  value  of  these  hides 
to  the  plaintifTs.  The  jury  returned  a  verdict  for  the  plaintiffs  accord- 
ingly, and  the  defendants  moved  for  a  new  trial  on  tlie  ground  of  a 
misdirection. 

Daggett,  J.  It  was  suggested,  by  the  counsel  for  the  defendants, 
though  not  pressed,  that  it  should  have  been  left  to  the  jury  to  decide 
whether  the  defendant  Chapman  was  a  partner.  Surely  it  was  a 
question  of  law,  and  therefore  within  the  province  of  the  court  to  de- 
cide, whether  by  the  articles  recited  and  the  facts  admitted  a  part- 
nership, which  subjected  the  partners  to  this  debt,  existed.  There  be- 
ing no  fact  in  controversy,  it  was  the  undoubted  duty  of  the  judge 
to  state  to  the  jury  whether  the  defendants  were  liable  as  partners. 

It  was  further  suggested  that  the  plaintiffs  trusted  Ilenry  R.  Mott 
and  charged  the  hides  to  him.  Such  is  the  fact,  in  every  case,  where 
the  suit  is  brought  against  a  dormant  partner;  yet,  when  he  is  dis- 
covered, he  is  rendered  liable.  This  is  familiar  law,  and  hardly  re- 
quires support  from  aulhorilies.  In  Iloare  et  al.  v.  Dawes,  1  Doug.  371, 
Lord  Mansfield  said  "that  the  law  with  respect  to  dormant  partners 
is  not  disputed,  viz.,  that  they  are  liable  when  discovered."  Indeed, 
it  would  be  most  unjust  that  a  person  really  in  partnership,  and  par- 
ticipating in  the  profits,  should  not  be  rendered  liable  for  the  debts 
of  the  partnership,  merely  because  he  chose  to  conceal  himself,  or 
because  his  partner,  when  buying  goods  for  the  use  of  the  partner- 
ship, did  not  disclose  his  connection.  Such  a  principle  is  not  to  be 
tolerated. 

It  was  also  suggested  that  the  leather,  when  manufactured,  was  to 
be  divided  between  the  copartners ;  that  is,  tlie  two  Motts  were  to  re- 
ceive and  sell  one  half,  and  Chapman  the  other.  Be  it  so.  The  leather 
was  to  be  divided  into  moieties  in  quantity  and  quality.  Such  is  the 
clear  meaning  of  the  article.  Is  it  not  the  same,  then,  if  the  whole 
leather  was,  by  agreement,  to  be  sold  by  either  of  the  partners,  or  by 
an  agent,  and  the  avails  divided?  Where,  then,  is  there  room  for  a 
question  in  this  case?  The  counsel  for  the  defendants  answer:  Here 
is  no  copartnership  in  purchases  for  tliis  establishment,  because  the 
Motts,  by  the  articles,  were  to  purchase  one  half  the  hides,  and  Chap- 
man the  other  half;  and  neither  of  these  parties  were  to  use  the  cred- 
it of  the  other.  This  agreement  might  bind  the  parties.  And  it  could 
not  influence  the  present  decision,  if  it  were  adiliitted,  that  it  ought 
to  affect  third  persons,  dealers  with  either  of  the  partners,  if  they  were 
cognizant  of  the  fact;  but  it  is  no  part  of  the  case  that  either  the 
public  at  large,  or  these  plaintiffs  in  particular,  were  acquainted  with 
the  stipulations  in  question.  On  the  contrary,  it  is  conceded  in  the 
motion  for  a  new  trial  that  the  plaintiff's  were  ignorant  of  any  co- 
partnership at  all.  It  is  therefore  to  these  plaintiffs  a  case  of  a 
dormant  partner,  discovered  after  the  debt  was  contracted.  And  is 
it  to  be  endured  that  a  clause  inserted  in  a  private  agreement  between 
two  or  more  partners,  that  one  of  the  partners  only  should  be  liable 


70  WHAT  CONSTITUTES   A  PARTNERSHIP.  (Ch.  1 

for  the  property  purchased  for  the  use  and  benefit  of  the  whole,  should 
bind  third  persons,  ignorant  of  any  partnership?  The  injustice  of 
such  a  doctrine  is  too  great  to  need  animadversion.  The  case,  then, 
under  consideration  presents  a  partnership  betv/een  three  persons,  with 
an  agreement  between  themselves  substantially  to  share  in  profit  and 
loss,  but  that  in  the  purchase  of  one  of  the  materials  for  the  manu- 
facture, viz.,  hides,  two  of  them  should,  with  their  own  funds  or 
credit,  purchase  one  half,  and  the  third  the  other  half.  For  hides, 
thus  purchased  for  the  tannery  by  either,  I  am  satisfied  all  the  part- 
ners are  liable.  It  would  be  to  depart  from  the  spirit  of  all  the  de- 
cisions on  this  subject  to  decide  otherwise. 

The  only  case  cited  with  confidence  by  the  counsel  for  the  defend- 
ants is  that  of  Saville  v.  J.  Robertson  &  J.  Hutchinson,  4  T^rm  Rep. 
720.  In  that  case  it  was  decided  that  in  an  action  against  the  defendants 
for  goods  sold  and  delivered,  if  it  clearly  appeared  that  no  copartner- 
ship existed  at  the  time  of  the  contract  to  sell  to  one  of  them,. any  sub- 
ftequent  agreement  between  them  to  share  in  the  profits  of  the  goods, 
svould  not  render  them  liable  as  partners.  The  court  compared  it  to  a 
case  where  several  persons  agree  to  enter  into  partnership,  each  to 
bring  in  a  stipulated  sum  of  money,  and  each  borrowing  his  proportion 
of  dififerent  persons,  in  which  ca^e  the  persons  advancing  the  money 
could  not  maintain  actions  against  all  the  partners  for  their  several 
proportions  lent  to  each.  So  in  our  courts  it  has  been  decided  that 
where  two  agreed  to  build  a  vessel,  one  to  furnish  the  materials  and 
the  other  to  do  the  work,  and  then  to  own  it  together,  the  building  of 
the  vessel  was  not  a  partnership  concern.  But  Lord  Kenyon,  in 
giving  his  opinion  in  the  case  of  Saville  v.  Robertson,  above  cited,  says: 
"It  is  clear  that  if  all  these  parties  had  been  partners  at  the  time  when 
their  goods  were  furnished,  though  that  circumstance  was  not  known 
to  the  plaintiff,  they  would  all  have  been  liable  for  the  value  of  the 
goods."  And  Buller,  in  giving  his  opinion,  says :  "It  is  certainly  true 
that  if  one  partner  order  goods  himself  without  disclosing  the  names 
of  the  other  partners,  and  the  goods  be  afterwards  delivered  to  them 
all,  they  are  all  liable."  And  one  of  the  judges  (Ashliurst)  thought 
it  a  case  of  partnership.  This  authority,  then,  is  so  far  from  justi- 
fying the  defense  that  it  vindicates  the  claim  of  the  plaintiffs ;  for 
these  defendants  were  in  partnership  when  the  hides  were  purchased, 
they  were  bought  for  the  concern,  they  were  delivered  into  their  tan- 
nery, and  they  went  to  their  joint  benpfit  having  been  purchased  by 
H.  R.  Mott,  without  disclosing  the  names  of  his  copartners. 

In  Gouthwaite  v.  Duckworth,  Brown  and  Powell,  12  East,  421,  the 
facts  were  more  like  those  in  this  case.  That  was  an  action  for  goods 
sold  and  delivered.  There  was  an  agreement  in  that  case  that  Brown 
and  Powell  were  to  purchase  goods  for  an  adventure  to  Lisbon,  which 
were  to  be  shipped  on  board  the  Betsey,  and  to  pay  for  the  same,  and 
the  returns  of  such  adventure  were  to  be  made  to  Duckworth,  and  to 
go  in  liquidation  of  his  demands  on  Brown  and  Powell.     Brown  and 


Sec.  3)  TESTS   OF   INTENTION. 


71 


Powell  purchased  goods  of  the  plaintiff;  but  Duckworth  was  not 
known  in  the  purchase,  nor  did  he  authorize  the  purchase  on  account 
of  the  three,  who  were  to  share  in  the  profits  and  loss.  Duckworth, 
in  liis  own  name,  purchased  and  paid  for  goods  sent  out  at  the  same 
time.  Brown  and  Powell  were  to  share  in  the  profit  and  loss  of  these 
good.s.  They  were  all  consigned  to  Barlow,  who  acted  as  the  agent 
of  all  the  defendants.  The  whole  Court  of  King's  Bench  adjudged 
this  to  be  a  partnership  transaction,  and  held  the  defendants  jointly 
liable. 

I  think  the  court  are  warranted,  from  a  view  of  all  the  cases  and  the 
general  principles  of  law  on  this  subject,  to  declare  the  purchase  of 
these  hides  to  be  for  the  defendants  and  said  H.  R.  Mott ;  that,  had 
a  loss  been  sustained  in  the  hides,  it  must  have  been  borne  by  the 
three,  and  any  profit  shared  in  like  manner;  that  the  stipulation  re- 
specting the  individual  purchases  of  hides  cannot  affect  creditors,  who 
furnished  this  joint  fund;  and,  therefore,  that  the  charge  was  cor- 
rect, the  verdict  right,  and,  of  course,  that  no  new  trial  ought  to  be 
granted.  The  other  judges  were  of  the  same  opinion,  except  Brain- 
ARD,  J.,  who  was  absent. 

New  trial  not  to  be  granted.^ 


BRUCE  V.  HASTINGS. 

(Supreme  Court  of  Vermout,  3SG7.     41  Vt  3S0,  98  Am.  Dec.  592.) 

Assumpsit.  Plea,  the  general  issue.  Trial  by  jury,  June  term,  1867; 
Steele,  J.,  presiding.  On  trial  it  appeared  that  the  plaintiff's  claim 
was  for  one-half  the  profits  which  accrued  from  the  purchase  and 
sale  of  a  farm,  stock,  and  produce.  The  plaintiff  testified  that  the  de- 
fendant had  obtained  the  refusal  of  the  farm,  stock,  and  produce  of 
one  Nelson  at  a  price  named,  and  proposed  to  him,  the  plaintiff,  to 
complete  the  trade,  if  the  plaintiff  would  enter  into  the  speculation 
with  him ;  that  their  plan  of  operations  was  to  buy  the  property,  and 
then  sell  the  real  estate  in  parcels  and  the  personal  property  at  auction, 
or  to  sell  the  whole  in  some  manner  which  they  should  find  advisable, 
so  as  to  clear  the  matter  up  in  a  short  time;   that  the  plaintiff  accepted 

1  "When  two  or  move  persons  employ  a  common  stock,  whether  consisting 
of  property,  or  mere  labor  and  skill,  in  a  common  undertaking,  with  a  view 
to  a  common  proflt,  they  are  partners.  It  is  not  necessary  that  there  should  be 
a  romi>iunity  of  interest  in  the  property  that  produces  the  profits,  or  a  com- 
munity of  fosses,  or  an  equality  of  profits:  but  a  community  of  profits  is 
essential  to  a  complete  partnership,  and  where  there  is  no  express  stipulation 
to  the  contrary  the  law  presumes  that  the  losses  are  to  be  shared  in  propor- 
tion to  profits.  In  contemplation  of  law  the  profits  of  a  partnership  consist 
of  the  surplus  realized  from  a  business,  after  the  debts  and  losses  are  ad.jiisteil. 
One  partner  may  expressly  stipulate  that  he  is  not  to  share  in  losses,  and  such 
an  agreement  will  be  valid  between  the  parties;  but  he  cannot  thus  withdraw 
himself  from  his  oblication  as  a  partner  to  strangers."  Per  Dick.  J.,  in  Op- 
penheimer  v.  Clemmons  (C.  C.)  18  Fed,  SS6  (1883). 


72  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Cll.  1 

the  proposition,  and  that  he  and  the  defendant  bouglit  the  property 
of  Nelson  in  accordance  with  the  refusal  the  defendant  had  obtained, 
but  took  no  deed;  that,  as  they  sold  the  real  estate  to  different  par- 
ties, Nelson  deeded  directly  to  these  parties,  and  the  most  of  the  per- 
sonal property  was  sold  at  auction  in  Nelson's  name;  that  the  profits 
of  the  enterprise  were  over  $1,000 ;  and  that  by  the  agreement  the 
plaintiff  was  to  have  one-half  of  the  sum  so  cleared,  and  the  defend- 
ant had  that  amount  of  money  which  belonged  to  him,  the  plaintiff. 
The  defendant  denied  any  such  agreement.  The  original  bargain  with 
Nelson  was  made  by  the  defendant  before  he  had  any  talk  with  the 
plaintiff,  and  Nelson  was  not  informed  by  the  defendant  that  any  one 
besides  the  defendant  was  to  be  interested  in  the  trade.  The  original 
bargain  was  merely  a  refusal  of  the  property  at  a  price  named.  The 
refusal  was  evidenced  by  a  written  bond  or  contract,  which  was  not 
produced.  There  was  no  written  agreement  of  any  kind  between  the 
plaintiff  and  the  defendant.  The  plaintiff  claimed  that,  after  the  de- 
fendant closed  the  trade  in  accordance  with  the  refusal.  Nelson  asked 
him,  the  plaintiff,  if  he  was  interested  in  the  trade,  and  he  told  him 
he  was.  The  plaintiff  testified  that  he  was  to  share  equally  with  the 
defendant;  that  nothing  was  said  about  losses,  but  if  there  had  been 
a  loss  he  did  not  know  why  he  should  not  have  had  to  share  it ;  that 
if  there  had  been  a  loss  he  should  have  paid  one-half  of  it.  Belden 
testified  that  Bruce,  the  plaintiff,  told  him  before  the  auction  that  he 
"was  jointly  interested"  with  the  defendant.  The  court  rendered 
judgment  that  the  plaintiff  become  nonsuit,  to  which  the  plaintiff  ex- 
cepted. 

Wilson,  J.  This  is  an  action  of  assumpsit  to  recover  one-half  the 
profits  which  accrued  from  the  purchase  and  sale  of  a  farm,  stock, 
and  produce.  The  defendant  insists  that  the  action  involves  the  set- 
tlement of  partnership  transactions,  and  should  be  account,  instead  of 
assumpsit.  *  *  *  The  question  is  whether  the  action  of  assiimp- 
sit  will  lie  upon  the  agreement  under  which  the  plaintiff  claims  to  re- 
cover. As  a  general  rule,  the  action  of  assumpsit  cannot  be  sustained 
by  one  partner  against  his  copartner  in  respect  to  any  matter  connect- 
ed with  the  partnership  transactions  or  which  involved  the  considera- 
tion of  their  partnership  dealings.  Chitty  on  Contracts,  269.  But 
we  think  a  partnership  does  not  arise  on  the  agreement  which  the 
evidence  tends  to  show  was  made  between  these  parties.  The  defend- 
ant, in  his  own  name  and  upon  his  own  individual  credit,  bargained 
with  Nelson  for  the  property,  but  took  no  deed  of  it.  The  defend- 
ant sold  the  real  estate  to  different  parties,  and  Nelson,  by  direction 
of  the  defendant,  deeded  it  directly  to  those  parties.  The  most  of  the 
personal  property  was  sold  in  Nelson's  name  by  direction  of  the  de- 
fendant'. It  does  not  appear  that  the  title  to  the  real  estate  ^ver  vest- 
ed in  either  of  these  parties.  It  would  seem  that,  if  the  plaintiff  ac- 
quired any  interest  in  or  title  to  the  personal  property,  he  held  as  a 
tenant  in  comm.on  with  the  defendant,  and  not  as  a  partner.     It  was 


Sec.  3)  TESTS   OF   IxMKNTION.  73 

not  an  agreement  to  put  in  capital  and  labor  for  the  purpose  of  trade 
generally;  but  the  agreement,  as  shown  by  the  evidence,  was  limited 
to  a  single  specific  purchase  by  the  defendant,  with  the  understand- 
ing that  the  property  should  be  sold  as  soon  as  a  purchaser  could  be 
found,  and  that  the  defendant  would  give  the  plaintiff  one-half  that 
should  be  made  in  the  enterprise,  in  consideration  of  his  agreement  to 
aid  and  assist  the  defendant  in  carrying  out  his  contract  with  Nelson. 
The  form  of  the  contract  has  very  much  the  appearance  of  being  a 
mode  of  determining  the  plaintiff's  compensation  for  the  assistance 
which  he  contributed  to  the  defendant  in  the  purchase  and  sale  of  the 
property.  But,  treating  the  parties  as  tenants  in  common,  there  can 
be  no  serious  objection  to  adjusting  the  plaintiff's  claim  in  this  form 
of  action  under  the  circumstances  of  the  case.  We  have  before  re- 
marked that  the  contract  contemplated  a  single  specific  purchase  of 
property  and  sale  of  it.  It  has  been  sold  and  disposed  of  according 
to  the  understanding  and  to  the  satisfaction  of  both  parties.  It  was 
the  duty  of  the  defendant  to  pay  Nelson  the  contract  price  for  the 
property.  He  did  pay  him,  and  the  defendant  had  in  his  hands  nearly 
$1,000,  profits  of  the  enterprise.  Neither  party  had  any  right,  under 
the  agreement,  to  appropriate  the  profits  of  the  enterprise  for  the  pur- 
pose of  further  trade  on  their  joint  account.  Their  relation,  as  ten- 
ants in  common  of  the  specific  property  purchased,  was  at  an  end 
when  the  property  was  sold  in  pursuance  of  the  agreement  of  the  par- 
ties. If  the  defendant  made  such  contract  as  the  testimony  tends  to 
show  he  did  make,  he  is  indebted  to  the  plaintiff  for  one-half  the  prof- 
its after  deducting  the  expenses  of  selling  the  property;  and  the  de- 
fendant is  not  holding  the  money  as  a  credit,  to  be  balanced  in  whole 
or  in  part  by  other  money  or  property  received  by  the  plaintiff*  from 
the  enterprise.  The  adjustment  of  the  plaintiff's  claim  involves  no 
accounting  as  to  any  matter  or  dealing  except  "what  relates  to  the  spe- 
cific property  purchased  and  sold  under  the  contract,  from  which  the 
profits  in  question  accrued.  It  is  conceded  by  the  defendant  that  the 
whole  proceeds  of  the  sales,  including  the  profits,  passed  into  his  hands 
or  were  paid  out  for  his  benefit,  and  that  the  plaintiff  has  never  re- 
ceived any  part  of  the  property,  or  avails  of  it.  Hence  the  reason  of 
the  rule,  that  "it  would  be  useless  for  one  tenant  in  common  to  re- 
cover what,  upon  taking  a  general  account,  he  might  be  liable  to  re- 
fund," is  not  applicable  to  the  facts  of  tills  case.    We  are  agreed  that 

the  remedy  may  be  assumpsit  under  the  circumstances  of  this  case. 
*     *     * 

The  judgment  of  the  county  court  is  reversed,  and  the  cause  is  re- 
manded for  trial. 


74 


WHAT  CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 


McMURTRIE  v.  GUILER  et  al. 
(Supreme  JiKlicial  Court  of  Massachusetts,  1903.    183  Mass.  451,  67  N.  E.  358.) 

Suit  by  Lawrence  H.  AIc2\Iurtrie  against  James  Guiler  and  another. 
There  were  ruhngs  adverse  to  defendants,  and  they  bring  exceptions. 

Braley,  J.  This  case  is  before  us  on  a  bill  of  exceptions  instead  of 
by  appeal  with  a  report  of  the  evidence,  and  the  principal  question 
presented  for  decision  is  whether  there  was  any  evidence  to  support 
the  finding  that,  as  between  themselves,  the  parties  were  partners. 
While  there  was  some  slight  difference  as  to  details  in  the  testimony  of 
the  plaintiff,  enough  appeared  to  show  that  he  was  at  work  on  a  sal- 
ary for  the  defendants,  who  were  contracting  and  mechanical  engi- 
neers, when,  in  consequence  of  a  more  advantageous  offer  which  he  had 
received,  to  induce  him  to  remain  with  them,  they  proposed  to  admit 
him  as  a  member  of  the  firm.  No  written  articles  of  partnership  were 
prepared,  but  it  was  understood  and  agreed  between  them  that  the 
plaintiff  should  receive  from  the  profits  of  the  business  at  least  $2,- 
400,  and  probably  enough  more  to  make  the  sum  of  $5,000,  as  his 
share  for  one  year.  He  then  ceased  to  work  on  a  salary,  but  appar- 
ently drew  $200  a  month  during  the  time,  and  at  the  close  of  the  fiscal 
year,  a  dispute  having  arisen  as  to  his  relation  to  the  defendants,  he 
left  the,  firm,  claiming  at  least  one-quarter  part  as  his  share  of  the 
profits.  After  the  proposition  had  been  made  to  and  accepted  by  him, 
he  was  introduced  as  a  partner,  and  his  name  so  appeared  on  the  sta- 
tionery and  business  cards  of  the  firm.  No  fractional  proportion  of 
the  profits  which  the  plaintiff  was  to  receive  as  his  share  seems  to 
have  been  fixed,  and,  while  various  suggestions  were  discussed,  it 
was  finally  left  unsettled.  While  in  substance  the  evidence  of  the  de- 
fendants tended  to  show  that  they  understood  the  arrangement  to  be 
that  the  plaintiff  was  to  share  in  the  business  of  the  firm  only  by  way 
of  compensation,  and  that  there  was  no  understanding  that  he  was  to 
be  admitted  as  a  member,  it  appeared  that  one  of  them  had  as  a  wit- 
ness in  another  case  stated  to  the  contrary,  and  had  testified  that  the 
plaintiff  was  his  partner.  On  the  whole  evidence  one  of  two  results 
may  be  reached — cither  that  the  plaintiff  was  interested  in  the  business 
as  a  member  of  the  firm,  or  that  he  was  at  work  for  the  defendants 
under  an  agreement  that  his  compensation  was  to  be  a  share  in  the 
'profits;  and  the  judge  before  whom  the  case  was  tried  found  in  fa- 
vor of  the  plaintiff's  contention. 

As  between  themselves  and  creditors,  having  represented  that  they 
were  partners,  and  held  themselves  out  as  such,  they  would  be  estopped 
to  deny  the  fact;  but  in  this  case  no  such  question  arises,  and,  in  or- 
der to  determine  their  relation  to  each  other,  their  intention  must  con- 
trol. If  no  general  definition  of  the  contract  of  partnership  to  fit  all 
cases  can  be  given,  and  each  case  as  it  arises  must  be  decided  on  the 
facts   presented,  there   seems  to  be  an   agreement  of  the  authorities 


Sec.  3)  TESTS   OF  INTENTION.  75 

that  where  persons  associate  themselves  together  to  carry  on  a  joint 
business  for  their  common  benefit,  to  which  each  contributes  either 
property  or  services,  and  the  profits  arising  therefrom  are  to  be  shared 
between  them,  the  essential  elements  of 'a  contract  of  partnership 
are  made  out.  Ryder  v.  Wilcox,  103  Mass.  34;  Somerby  v.  Euntin, 
lis  Mass.  27d,  19  Am.  Rep.  459 ;  Meehan  v.  Valentine,  145  U.  S. 
611,  618,  13  Sup.  Ct.  973,  36  L.  £d.  835 ;  Pooley  v.  Driver,  L.  R. 
5  Ch.  Div.  458,  471.  While  the  firm  was  not  a  commercial  partnership, 
and  it  does  not  appear  what  property,  if  any,  outside  the  partnership 
accounts  and  profits,  was  owned  by  them,  a  community  of  interest  in 
the  profits  as  such  by  the  plaintiff  was  sufficient  to  establish  the  rela- 
tion and  to  entitle  him  to  a  decree.  Howe  v.  Howe,  99  Mass.  71^ 
There  was  enough  to  show  that  a  going  business  enterprise  was  in 
existence,  to  which,  by  mutual  consent,  the  plaintiff  was  admitted. 
He,  in  common  with  the  defendants,  contributed  his  services  as  a  con- 
tracting and  mechanical  engineer,  and  with  them  was  to  share  in  the 
profits  of  their  joint  undertaking;  and  this  is  all  that  is  necessary,  as 
matter  of  law,  to  sustain  the  finding. 

But  the  defendant  contends  that,  in  case  t^liere  was  no  agreement 
as  to  the  proportion  in  which  the  parties  were  to  share  the  profits,  the 
contract  is  not  complete,  and  there  being,  therefore,  no  way  of  as- 
certaining the  plaintiff's  share,  he  cannot  prevail.  W^e  are  not  pre- 
pared to  hold  that,  because  it  was  left  undetermined  by  their  agree- 
ment what  share  the  plaintiff  was  to  take  in  the  profits,  a  court  of  chan- 
cery must  dismiss  his  bill,  and  allow  the  defendants  to  hold  the  result 
of  his  labor  and  skill  for  their  exclusive  benefit.  Where  the  contract 
is  silent,  equity  will  adjust  the  rights  of  the  partners  to  profits  on  the. 
basis  of  what  their  intention  was  as  shown  from  all  the  facts  of  the 
case.  Whitcomb  v.  Converse,  119  Mass.  38,  43,  30  Am.  Rep.  311; 
Harris  v.  Carter,  147  Mass.  313,  17  N.  E.  649 ;  Winchester  v.  Glazier, 
153  Mass.  316,  335,  35  N.  E.  738,  9  L.  R.  A.  434.  The  plaintiflf  might 
well  have  claimed  one-third  of  the  profits,  -and,  if  the  defendants 
sought  to  cut  down  this  claim,  and  to  overcome  any  presumption  aris- 
ing from  the  partnership  relation  by  evidence  of  a  different  under- 
standing originally,  or  to  be  gathered  from  the  course  of  dealing  be- 
tween them,  they  could  not  be  heard  to  deny  to  the  plaintiff  the  equity 
of  sharing  in  the  profits  while  seeking  on  their  part  to  limit  the  extent 
of  his  interest  at  less  than  one-third,  because  to  allow  him  to  partici- 
pate to  that  amount  would  be  unjust  to  themselves.  Seeking  equity  for 
their  protection,  they  must  do  equity  to  him.  But  the  agreement  final- 
ly made  by  the  parties  at  the  trial  fixed  the  amount  the  plaintiff  was  to 
recover  if  found  entitled  to  relief,  and  the  finding  followed  the  agree- 
ment.    *     ♦     * 

Exceptions  overruled. 


76  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 


FECHTELER  et  al.  v.  PALM  BROS.  &  CO. 

(Circuit  Court  of  Appeals  of  the  United  States,  1904.    133  Fed.  402,  66  C.  C.  A- 

336.) 

Bill  to  obtain  an  accounting  under  a  contract  between  the  com- 
plainants, comprising  a  firm  engaged  in  business  in  the  city  of  New 
York,  under  the  name  of  Palm,  Fechteler  &  Co.,  and  the  defendant, 
a  corporation  of  Ohio,  doing  business  at  Cincinnati,  under  the  corpo- 
rate name  of  Palm  Bros.  &  Co.  The  contract  provided  in  substance 
the  following:  The  plaintiffs  agreed  to  supply  at  actual  cost  all 
goods  in  the  plaintiffs'  line  which  defendant  should  select,  and  to  pay 
to  tiie  defendant  a  sum  of  money  equal  to  30  per  cent,  of  the  total  and 
entire  gross  profits  made  each  year  in  the  plaintiff's  business.  Plaintiffs 
further  agreed  to  employ  at  least  $100,000  in  their  business  during  the 
life  of  the  contract.  The  defendant  agreed  to  supply  at  actual  cost 
all  goods  in  defendant's  line  which  plaintiffs  should  select,  and  to  pay  to 
plaintiffs  a  sum  of  money  equal  to  64  per  cent,  of  the  total  and  entire 
gross  profits  made  each 'year  in  the  defendant's  business.  The  plain- 
tiffs and  defendant  were  engaged  in  the  same  line  of  business.  The 
agreement  was  to  continue  12  years,  and  settlements  were  to  be  made 
annually. 

LuRTON,  Circuit  Judge.  *  *  *  But  does  the  contract  in  suit 
actually  create  the  relation  of  partners  between  the  complainants  and 
the  defendant  coi'poration,  assuming  the  corporation  to  have  the  power 
to  enter  into  such  relation  ?  The  question  here  presented  is  not  wheth- 
er the  nature  of  the  agreement  is  such  that  liability  as  a  partner  might 
exist  as  to  third  persons,  but  whether  this  contract  provides  for  an 
actual  partnership. 

The  defendant  has  repudiated  the  contract,  and  defends,  when  sued, 
upon  the  ground  that  it  had  no  power  to  enter  into  a  partnership  agree- 
ment. To  make  good  this  defense,  it  must  show  that  the  contract  is 
one  for  a  partnership — an  actual  partnership — and  it  will  not  do  to  say 
that,  although  no  actual  partnership  was  intended  or  existed,  it  is 
enough  to  show  that  third  persons  might  hold  both  complainants  and 
defendants  liable  as  partners,  although  in  fact  no  such  relation  existed. 
Liability  as  a  partner  to  third  persons  misled  by  appearances  may  some- 
times arise,  though  no  actual"  partnership  exists.  But  this  rests  upon 
the  doctrine  of  estoppel.  Partnership  is  a  fact — a  fact  sometimes  made 
out,  like  other  facts,  from  circumstances,  as  well  as  by  direct  evidence. 
Evidence  may  raise  a  presumption  of  a  partnership  so  strong  as  to  be 
conclusive  when  third  persons  are  involved.  And  this  is  the  case  when 
one  has  held  himself  out  as  a  partner  to  one  ignorant  of  the  actual 
fact.  But  this  case  presents  no  such  question,  as  the  rights  of  third 
persons  are  not  involved.  Indeed,  it  would  be  difficult  to  imagine  a 
case  of  liability  to  third  persons  upon  the  ground  of  holding  out,  when 
the  supposititious  partnership   was  with  a  corporation   incapable,  as 


Sec.  3)  TESTS   OF    INTENTION.  77 

matter  of  law,  of  entering  into  such  a  relation.  If  the  contract  sued 
upon  is  not  one  which  deprives  the  stockholders  of  the  corporation  of 
their  power  and  duty  to  manage  the  corporate  affairs,  or  subjects  the 
corporation  to  the  domination  incident  to  the  affairs  of  a  copartner- 
ship, it  is  not  ultra  vires.  'It  devolves,  therefore,  upon  the  defendant 
to  establish  that  the  contract  into  which  it  has  entered  is,  in  substance 
and  legal  effect,  one  of  partnership. 

It  is  not  very  prudent  to  define  a  partnership.  Many  definitions 
have  been  attempted,  and  Sir  George  Jcssell,  Master  of  the  Rolls,  in 
Pooley  V.  Driver,  L.  R.  5  Ch.  Div.  45S,  471,  referred  to  the  fact  that 
no  less  than  fifteen  such  definitions  by  different  learned  lawyers,  no 
two  of  which  he  says  agree,  are  given  in  the  third  edition  of  Lindley 
on  Partnership,  pp.  2,  3.  Concerning  these  he  says,  "And  I  suppose 
anybody,  by  reading  the  fifteen,  may  get  a  general  notion  of  what  a 
partnership  means." 

The  Supreme  Court,  in  Meehan  v.  Valentine,  145  U.  S.  611,  618, 
12  Sup.  Ct.  972,  973,  36  L.  Ed.  835,  has,  through  Mr.  Justice  Gray, 
defined  a  partnership.    The  very  learned  justice  in  that  case  said: 

"The  requisites  of  a  partnership  are  that  the  parties  must  have  join- 
ed together  to  carry  on  a  trade  or  adventure  for  their  common  benefit, 
each  contributing  property  or  services,  and  having  ?  community  of 
interest  in  the  profits." 

All  would  possibly  not  agree  that  the  contribution  by  each  of  "prop- 
erty or  service"  is  essential. 

Sir  George  Jessell,  in  Pooley  v.  Driver,  cited  above,  states  that  un- 
der English  law  you  can  have  a  partner,  a  dormant  partner,  "who 
puts  nothing  in — neither  capital  nor  skill,  nor  anything  else." 

L  ndoubtedly,  there  must  be  an  association  of  two  or  more  persons 
for  the  purpose  of  carrying  on  a  trade  or  business  or  adventure  togeth- 
er and  dividing  the  profits.  The  presence  or  absence  of  certain  other 
incidents  of  a  partnership  by  special  arrangement  between  the  parties 
would  not  seem  to  be  of  the  essence  of  the  matter.  Fleming  v.  Lay, 
109  Fed.  952,  955,  48  C.  C.  A.  748. 

There  is  found  in  some  of  the  earlier  cases  a  disposition  to  regard 
evidence  of  a  participation  in  profits  as  affording  so  cogent  a  pre- 
sumption of  a  partnership  as  to  make  one  liable  to  third  persons, 
though  ignorant  of  the  fact,  in  defiance  of  the  positive  agreement  of 
the  parties  that  they  should  not  be  partners.  Grace  v.  Smith.  2  W. 
Bl.  998;  Waugh  v.  Carver,  2  H.  Bl.  235;  Berthold  v.  Goldsmith, 
24  How.  (U.  S.)  536,  542,  16  L.  Ed.  762;  Wood  v.  Vallette,  7  Ohio 
St.  172. 

This  rule — that  by  operation  of  law  one  was  liable  as  a  partner  to 
third  persons,  irrespective  of  the  actual  agreement  between  the  parties, 
or  of  anv  misleading,  seems  to  have  been  rested  upon  the  theory  that 
one  who  shares  in  the  profits  must  also  share  in  the  losses  and  stand  li-- 
able  for  the  debts.  The  reason  given  in  Waugh  v.  Carver.  2  H.  Bl.  235, 
for  this,  is  that  in  taking  part  of  the  profits  he  takes  a  part  of  the  fund 


78  WHAT  CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

which  the  creditor  reHes  upon  for  payment.  This  reasoning  has  been 
repeated  in  many  cases  following  VVaugh  v.  Carver.  But  as  Judge 
Story  observes,  this  reasoning  is  utterly  fallacious,  inasmuch  as  prof- 
its do  not  exist  until  creditors  are  paid  or  provided  for,  as  well  as  be- 
cause creditors  rely  upon  the  entire  assets,  and  not  the  net  profits. 
Story,  Part.  §  36,  and  note  3. 

If  the  presumption  arising  from  evidence  of  a  participation  in 
profits  had  been  as  rigid  as  some  of  the  judges  have  supposed,  it  was 
possible  from  that  circumstance  alone  to  fasten  liability  in  the  face  of 
other  evidence  showing  that  in  actual  fact  no  partnership  existed.  But 
as  this  doctrine  was  based  only  upon  a  presumption  of  the  fact  of 
partnership  from  evidence  of  a  participation  in  .profits,  it  has  never 
been  regarded  as  an  irrebuttable  presumption,  and  its  cpgency  as  evi- 
dence of  a  partnership  has  been  much  relaxed  by  subsequent  cases  in 
which  a  wider  view  of  the  subject  has  been  taken.  The  most  that  can 
be  said  of  it,  as  the  law  is  now  understood,  is  that  a  participation  in 
profits  is  strong  evidence  of  a  partnership,  and  enough,  unless  ex- 
plained by  other  circumstances  showing  a  different  relation.  Cox  y. 
Hickman,  8  H.  L.  Cases,  268,  304,  306,  312,  313;  March  &  Co.  v. 
Court  of  Wards,  L.  R.  4  P.  C.  419,  435.;  In  re  Eng.  &  Irish  Soc,  1 
Hefh.  &  Mil.  85;  Ross  v.  Perkins,  L.  R.  20  Eq.  331,  335;  Pooley  v. 
Driver,  L.  R.  5  Ch.  IDiv.  458,  476,  479. 

While  the  reference  to  agency  as  a  test  of  partnership  has  not  been 
accepted  with  much  favor  by  the  courts  of  either  England  or  the 
United  States,  inasmuch  as  an  agency  is  a  consequence,  and  not  a 
cause,  of  partnership,  made  so  prominent  in  Cox  v.  Hickman,  the 
case  has  otherwise  met  with  general  approval  as  a  more  reasonable 
statement  of  the  inferences  deducible  from  evidence  of  a  participa- 
tion in  profits.  Davis  v.  Patrick,  122  U.  S.  138,  151,  7  Sup.  Ct.  1102, 
30  L.  Ed.  1090;  Story  on  Partnership,  §§  38,  49,  notes;  Meehan  v. 
Valentine,  145  U.  S.  611,  620,  623,  12  Sup.  Ct.  972,  36  L.  Ed.  835; 
Harvey  v.  Childs,  28  Ohio  St.  319,  22  Am.  Rep.  387. 

If  participation  in  profits  is  only  evidence  of  a  partnership,  and 
subject  to  be  explained  even  as  to  third  persons,  it  must  follow  that 
the  intent  and  agreement  of  the  parties  themselves  should  govern  in 
all  cases,  and  that  the  same  rule  should  apply  in  favor  of  third  per- 
sons, unless  there  has  been  conduct  calculated  to  deceive,  which  ap- 
plies between  the  parties  themselves.     *     *     * 

The  intent  to  be  partners  is  made  out  when  we  find  a  business  car- 
ried on  for  the  joint  benefit  of  two  or  more  persons,  with  an  agree- 
ment for  a  mutual  participation  in  profits,  as  profits.  The  fact  that 
one  of  the  incidents  of  a  partnership— mutual  liability  for  debts — has 
been  eliminated  by  agreement  does  not  change  the  essential  nature  of 
the  relation,  which  is  nevertheless  that  of  a  partnership.  Fleming  v. 
Lay,  109  Fed.  952,  955,  956,  48  C.  C.  A.  748.  Such  a  stipulation,  though 
good  between  the  parties,  will  not  be  valid  as  against  third  persons. 
This  view  reconciles  the  inconsistency  of  holding  that  a  partnership 


Sec.  3)  TESTS   OF   INTENTION.  79 

exists  in  defiance  of  the  agreement  and  intention  of  the  parties,  as  ex- 
hibited in  some  of  the  cases  which  seem  to  sanction  the  notion  that 
there  may  be  a  partncrsliip  as  to  third  persons,  though  there  had  been 
no  conduct  to  create  an  estoppel,  and  none  between  the  parties  them- 
selves. 

But  in  every  phasp  of  the  question  as  to  the  cogency  of  evidence  of 
a  participation  in  profits  it  has  been  understood  that  the  person  sought 
to  be  charged  as  a  partner  must  have  an  interest  in  profits,  as  profits. 
Thus  it  is  said  by  Judge  Story  in  section  49  of  his  work  upon  Part- 
nership, adopting  the  view  of  Collier  upon  Partnerships,  "that  in  order 
to  constitute  a  communion  of  profits  between  the  parties,  which  shall 
make  them  partners,  the  interest  in  the  profits  must  be  mutual ;  that 
is,  each  person  must  have  a  specific  interest  in  the  profits  as  a  princi- 
pal trader."  Meehan  v.  Valentine,  145  U.  S.  611,  619,  623,  12  Sup.  Ct. 
972,  36  L.  Ed.  835.  Hence  it  always  has  been  the  rule  that  if  you  could 
show  that  the  participation  in  profits  was  not  a  sharing  in  profits  as  a 
principal — in  profits  as  profits  of  a  joint  business — but  under  an  agree- 
ment by  which  a  sum  was  to  be  received  which  should  be  equal  to  a 
definite  proportion  of  the  profits  as  a  compensation  for  services  or 
rent,  or  money  advanced  as  a  loan,  there  will  be  no  liability  as  a  part- 
ner. Such  an  arrangement  would  contradict  the  notion  of  a  partner- 
ship, for  there  would  be  no  participation  in  profits  as  a  principal,  no 
receipt  of  profits  as  profits.  Upon  the  contrary,  the  relation  of  cred- 
itor would  be  made  out;  the  amount  of  the  debt  being  a  sum  of 
money  estimated  by  a  certain  proportion  of  the  profits,  as  a  mere 
measure  or  yardstick,  "The  way  in  which  the  profits  are  to  be  parti- 
cipated in  is  the  essence  of  the  whole  matter."  Cotton,  L.  J.,  in  Ex 
parte  Tennant,  6  Ch.  Div.  303,  316.  This  definition  of  sharing  in  prof- 
its as  evidence  of  a  partnership  is  supported  by  all  the  cases,  and  we 
need  cite  but  a  few  of  the  more  recent  and  controlling:  Berthold  v. 
Goldsmith,  24  How.  (U.  S.)  536,  542,  543,  16  L.  Ed.  762;  Meehan  v. 
Valentine,  145  U.  S.  611,  619,  12  Sup.  Ct.  972,  36  L.  Ed.  835 ;  Story, 
Part.  §§  33,  34;    Burnett  v.  Snyder,  81  N.  Y.  550,  37  Am.  Rep.  ry27. 

Applying  these  principles,  the  case  at  bar  is  of  easy  solution.  The 
contract  in  suit  does  not  in  terms  provide  for  a  partnership,  nor  con- 
template any  of  the  incidents  of  a  partnership,  unless  the  provision 
in  reference  to  the  participation  of  each  in  the  profits  of  the  business 
of  the  other  establishes  the  relation  and  liability  of  partners.  But  it 
is  very  clear  that  the  provision  for  a  participation  in  profits  does  not 
contemplate  any  sharing  in  profits  as  a  principal  or  division  of  profits, 
as  profits.  "Profit"  implies,  without  more,  the  gain  resulting  from  the 
employment  of  capital — the  excess  of  receipts  over  expenditure. 
Black's  Law  Dictionary,  citing  Connolly  v.  Davidson,  15  Minn.  519, 
530  (Gil.  428),  2  Am.  Rep.  154;   Story  on  Part.  §  36.  note  3. 

The  old  cases  drew  a  distinction  between  net  profits  and  gross 
profits.  In  discussing  the  kind  of  participation  in  profits  which  oper- 
ated to  create  the  relation  of  partners,  it  is  said  that: 


80  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

"The  true  meaning  of  the  language,  an  'interest  in  profits,  as  profits,' 
seems  to  be  that  the  party  is  to  participate,  indirectly  at  least,  in  the 
losses,  as  well  as  in  the  profits,  or,  in  other  words,  that  he  is  to  share 
in  the  net  profits,  and  not  in  the  gross  profits.  If  he  is  to  share  in  the 
net  profits,  which  supposes  him  to  have  a  participation  of  profit  and 
loss,  that  will  constitute  him  a  partner ;  if  in  the  ^ross  profits,  then  it 
will  be  otherwise."    Story  on  Part.  §§  34,  42,  and  cases  cited. 

Under  the  contract  in  suit,  the  sharing  was  to  be  not  in  the  net 
gains  or  profits  made  by  the  one  party  in  the  business  carried  on  by 
the  other,  but  in  the  gross  profits.  That  net  profits  were  not  meant, 
they  make  plain  by  a  definition  found  in  the  fifth  paragraph,  where 
it  is  stated,  in  substance,  that  "gross  profit"  means  the  aggregate 
sales  made,  whether  collected  or  not,  after  deducting  the  cost,  import 
duties,  and  carriage,  and  that  "no  other  charges,  expenses  or  losses 
of  whatever  kind  or  nature  shall  be  deducted  from  said  gross  profits." 
Thus  the  participation  was  in  the  gross  amount  of  sales  after  the  de- 
ductions above  mentioned  were  made.  The  losses  in  bad  debts  and 
the  cost  of  business  might  consume  the  margin  between  the  cost  and 
sale  price,  and  yet  the  complainants  would  be  entitled  to  receive  a 
certain  per  cent,  of  the  gross  profit,  though  the  business  had  made  no 
actual  gains,  or  had  even  made  a  loss.  There  was,  then,  no  sharing 
in  losses,  and,  under  the  old  cases,  no  participation  in  profits,  as  prof- 
its, such  as  would,  without  more,  raise  a  presumption  of  partnership. 

*  *     * 

Thus,  though  there  is  to  be  a  sharing  in  gross  profits,  it  is  not  to 
be  a  participation  in  profits,  as  profits,  or  as  a  principal  in  trade.  Up- 
on the  contrary,  the  plain  purpose  is  that  each,  in  consideration  of  the 
privilege  of  picking  and  choosing  the  goods  or  designs  made  or  im- 
ported by  the  other,  agrees  to  pay  the  actual  cost  of  such  goods  so 
selected  and  furnished,  and  also  "to  pay"  the  other  at  the  end  of  each 
year  "a  sum  of  money  equal  to"  a  definite  per  cent,  of  the  entire 
gross  sales  of  the  party  making  the  payment,  less  only  the  actual  cost 
and  carriage  of  such  goods.  It  is  an  agreement  to  pay,  not  to  divide 
as  principals  would  do,  but  to  pay  a  sum  of  money  "equal  to"  (that 
is,  measured  or  estimated  by)  a  certain  proportion  of  the  gross  prof- 
its. It  is  evident  from  these  considerations  that  the  character  in  which 
the  one  party  would  receive  a  proportion  of  the  gross  profit  realized 
from  the  business  of  the  other  would  be  that  of  a  creditor,  rather  than 
that  of  a  principal  trader. 

Unsupported  as  the  claim  of  a  partnership  is  by  any  provision:, 
giving  either  party  the  slightest  control  of  the  business  of  the  other, 
or  any  indication  that  the  plan  is  a  mere  scheme  or  device  to  carry  on 
trade  as  partners  without  subjecting  themselves  to  the  incidents  and 
liabilities  of  such  an  arrangement,  we  can  but  reach  the  conclusion  that 
the  learned  judge  below  erred  in  the  view  he  took  of  the  contract. 

*  *     * 

Decree  dismissing  the  bill  reversed,  with  directions  to  remand  for 
an  answer. 


Sec  3)  TESTS   OF   INTENTION.  81 

McDonald  bros.  v.  Campbell  &  eergeson. 

(Supreme  Oourt  of  Minnesota,  1905.    96  Minn.  87,  104  N.  ^^'    YOG.) 

Elliott,  J.  The  action  was  brought  against  the  defendants  as 
partners  to  recover  the  unpaid  balance  of  an  account  for  merchan- 
dise sold  and  delivered  to  the  firm  of  Campbell  &  Bergeson.  The  only 
issue  of  fact  at  the  trial  was  whether  the  defendant  Emily  P.  Camp- 
bell was  a  member  of  the  firm,  and  upon  this  issue  the  trial  court  found 
in  favor  of  the  plaintiffs.  From  an  order  denying  a  motion  for  a 
new  trial,  the  defendant  Emily  P.  Campbell  appeals  to  this  court. 

2.  The  evidence  tending  to  establish  the  existence  of  a  partnership 
between  Bergeson  and  Mrs.  Campbell  was  not  very  satisfactory ;  but 
it  was  sufficient  to  convince  the  trial  court,  and  we  find  no  reason 
for  disturbing  its  conclusion.  The  witness  Rudd,  who  appears  to 
have  been  entirely  fair  and  disinterested,  testified  that  he  called  upon 
Emily  P.  Campbell  at  her  residence  as  the  representative  of  a  com- 
mercial agency  for  the  purpose  of  obtaining  information  about  the 
financial  condition  of  the  firm  of  Campbell  &  Bergeson,  and  that  in 
answer  to  his  inquiry  Mrs.  Campbell  stated  that  she  was  furnishing 
the  capital  to  carry  on  the  business  and  was  personally  responsible 
for  all  the  debts  of  the  firm.  Mr.  Campbell  testified  that  he  was  the 
member  of  the  firm,  and  that  his  wife  at  no  time  had  any  connection 
with  the  business.  But  it  appeared  that  on  March  3,  190i,  he  had 
made  a  statement  of  assets  and  liabilities  on  behalf  of  the  firm,  to. 
which  he  signed  the  name  of  his  wife  as  a  member  of  the  firm.  The 
witness  Rudd  testified  that  he  had  this  statement  in  his  possession, 
but  he  was  not  able  to  say  whether  he  had  ever  exhibited  it  to  Mrs. 
Campbell.  It  was,  therefore,  not  competent  evidence  to  charge  Mrs. 
Campbell  as  a  partner.  McNamara  v.  Eustis,  46  Minn.  311,  48  N. 
W.  1123.  But  it  may  have  very  materially  affected  the  value  of  Mr. 
Campbell's  statement  at  the  trial  that  his  wife  had  never  been  a  mem- 
ber of  the  firm.  The  court  believed  the  testimony  of  Rudd,  and  was 
of  the  opinion  that  his  evidence,  when  taken  in  connection  with  the 
conditions  and  circumstances,  was  sufficient  to  show  that  Mrs,  Camp- 
bell was  a  member  of  the  firm. 

It  was  necessary  for  the  plaintiffs  to  establish  the  relation  of  part- 
ners as  a  fact,  because  there  is  no  element  of  estoppel  in  the  case. 
The  witness  Rudd  did  not  represent  the  plaintiffs,  and  there  is  no 
evidence  to  show  that  the  statement  made  to  him  by  Mrs.  Campbell 
was  ever  communicated  to  the  plaintiffs.  Accepting  the  facts  as  found 
by  the  trial  court,  we  think  the  conclusion  fairly  follows  that  Mrs. 
Campbell  was  a  member  of  the  firm.  Partnership  is  a  contractual 
relation  existing  between  persons  who  have  combined  their  property, 
labor,  and  skill  in  an  enterprise  or  business  as  principals  for  the  pur- 
pose of  joint  profit.  Baldwin  v.  Eddv,  64  Minn.  425,  67  N.  W.  349 ; 
Meehan  v.  Valentine,  145  U:  S.  611,  623,  12  Sup.  Ct.  972,  36  L. 
Gil.  Part. — U 


82  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch    1 

Ed.  835  (Gray,  ].).  It  exists  when  there  is  a  community  of  interests 
in  the  whole  property,  business,  and  responsibihty  of  the  concern. 
It  is  true  that  some  of  the  ordinary  indicia  of  partnership  are  not 
disclosed  by  the  evidence  in  this  case.  An  admission  by  a  party  that 
he  is  a  member  of  a  firm  is  sufficient  to  bind  him  as  such.  Boosalis 
V.  Stevenson,  62  Minn.  193,  64  N.  W.  380.  Such  an  admission  is 
shown  by  this  evidence.  Mrs.  Campbell  was  to  furnish  the  capital 
and  be  responsible  for  the  losses,  and  the  fair  inference  is  that  she 
was  to  participate  in  the  profits.  The  question  of  partnership  or  no 
partnership  is  not  to  be  determined  by  any  arbitrary  formula.  In 
some  of  the  early  cases  in  this  court  the  rule  then  generally  prevailing 
was  adopted,  and  the  agreement  to  share  profits  was  said  to  be  a 
conclusive  test  of  the  existence  of  a  partnership.  Fay  v.  Davidson, 
13  Minn.  523  (Gil.  491);  Wright  v.  Davidson,  13  Minn.  449  (Gil. 
415);  Connolly  v.  Davidson,  15  Minn.  519  (Gil.  428),  2  Am  Rep. 
154;  Warner  v.  Myrick,  16  Minn.  91  (Gil.  81).  But,  according  to 
the  modern  doctrine,  even  an  agreement  to  participate  in  profits  is 
not  conclusive  evidence  of  a  partnership.  As  said  by  Mr.  Justice  Cool- 
ly, in  Beecher  v.  Bush,  45  Mich.  188,  7  N.  W.  785,  40  Am.  Rep.  465 : 
"So  far  as  the  notion  ever  took  hold  of  the  judicial  mind  that  the 
question  of  partnership  or  no  partnership  was  to  be  settled  by  arbi- 
trary tests,  it  was  erroneous  and  mischievous."  The  gradual  aban- 
donment of  the  idea  that  such  arbitrary  tests  exist  may  be  traced 
from  Grace  v.  Smith,  3  W.  Bl.  999,  through  Waugh  v.  Carver,  2  H. 
Bl.  235,  2  Smith,  L.  C.  (9th  Ed.)  1178,  to  the  celebrated  case  of  Cox 
V.  Hickman,  8  H.  L.  Cas.  268,  which  established  the  rule  that  even 
persons  who  share  profits  do  not  incur  the  liabilities  of  partners,  un- 
less the  business  is  carried  on  by  themselves  personally  or  by  others 
as  their,  real  or  ostensible  agents.  Cox  v.  Hickman  has  been  gen- 
erally followed  in  this  country.  See  authorities  cited  in  note  to  George, 
Partn.  143. 

The  question  of  partnership  depends  upon  the  consent  and  inten- 
tion of  the  parties,  and  this  intention  must  be  ascertained  from  the 
whole  evidence  and  all  the  circumstances  of  the  case.  Bates,  Partn. 
vol.  1,  §  15  et  seq. ;  Shumaker,  Partn.  §  31,  and  the  cases  there  cited. 
But,  where  a  partnership  is  the  legal  result  of  the  agreement  actually 
made,  parties  are  partners,  even  though  they  have  stipulated  that 
they  are  not  to  be  partners.  "The  intention  is  ascertained  from  the 
whole  contract,  from  the  actual  result  it  creates,  and  not  from  the  fact 
that  the  parties  denominated  it  a  partnership  or  may  declare  a  part- 
nership is  not  intended."  Bestor  v.  Barker,  106  Ala.  250,  17  South. 
389 ;  Anderson  v.  Newbigging,  L.  R.  13  App.  Cas.  316.  In  Badeley 
V.  Consolidated  Bank,  38  Ch.  Div.  238,  Lord  Justice  Lindley  said: 
'T  take  it  that  it  is  quite  plain  now,  ever  since  Cox  v.  Hickman,  that 
what  we  have  to  get  at  is  the  real  agreement  between  the  parties." 
In  the  same  case  Lord  Justice  Bowen  said:  "To  my  mind  the  true 
test  of  partnership  has  been  settled  by  the  House  of  Lords  and  by 


Sec.  4)        RELATIONS    DISTINGUISHABLE    FUOM    PARTNERSHIP.  83 

court  after  court  in  a  way  which  leaves  it  no  longer  open  to  discussion. 
The  real  test  is  that  which  is  decided  by  a  catena  of  cases,  beginning 
with  Cox  V.  Hickman  and  ending,  I  hope,  with  this  case,  though  I 
am  not  sure  of  that.  The  question  is  whether  there  is  a  joint  busi- 
ness, or  whether  the  parties  are  carrying  on  business  as  principals 
and  agents  for  each  other.  *  *  *  f  he  right  way  is  to  weigh  the 
facts  separately  and  togetlier,  and  to  draw  your  conclusions."  See 
Ames,  Cases  on  Partnership,  1^4,  note. 

It  thus  appears  that  no  one  fact  or  circumstance  can  be  taken  as 
the  conclusive  test  by  which  to  determine  the  question  of  partnership 
or  no  partnership.  All  that  is  necessary  is  that  there  be  competent 
evidence  to  show  that  the  parties  have  entered  into  a  contractual  re- 
lation by  which  they  have  combined  their  property,  labor,  and  skill 
in  an  enterprise  as  principals  for  the  purpose  of  joint  profits.     *     ♦     *■ 

The  order  appealed  from  is  affirmed. 


SECTION  4.— RELATIONS  DISTINGUISHABLE  FROM 
PARTNERSHIP. 


NELSON,  J.,  IN  COSTER  v.  LORILLARD. 

(Supreme  Ck)urt  of  New  York,  1835.     14  Wend.  336.) 

At  common  law,  an  estate  in  joint  tenancy,  says  Sir  W.  Blackstone, 
is  where  lands  or  tenements  are  granted  to  two  or  more  persons  to 
hold  in  fee  simple,  fee  tail,  for  life,  for  years,  or  at  will.  In  conse- 
quence of  such  grants,  an  estate  is  called  an  estate  in  joint  tenancy, 
which  signifies  a  union  or  conjunction  of  interest.  Each  joint  tenant 
has  the  entire  possession  of  every  parcel  and  of  the  whole ;  and  this 
union  and  entirety  of  interest  and  possession  has  given  rise  to  the 
principal  incident  to  the  estate,  which  is  the  right  of  survivorship. 
The  interest  being  not  only  equal  or  similar,  but  also  one  and  the  same, 
on  the  death  of  his  companion  the  sole  interest  in  the  whole  remains 
to  the  survivor.  2  Black.  Com.  82  to  187;  1  Co.  Litt.  810,  845;  2 
Cruise,  503,  4.  Tenants  in  common  are  such  as  hold  by  several  and 
distinct  titles,  but  by  unity  of  possession,  because  none  knows  his  own 
severally,  and  therefore  they  all  occupy  promiscuously.  Lord  Coke 
draws  the  true  distinction  between  these  estates  in  his  Commentaries 
on  Littleton.  The  essential  difference,  he  says,  between  joint  tenants 
and  tenants  in  common,  is  that  joint  tenants  have  the  land  by  one 
joint  title  and  in  one  right,  and  tenants  in  common  by  several  titles, 
or  by  one  title  and  several  rights,  which  is  the  reason  joint  tenants 
have  one  joint  freehold,  and  tenants  in  common  have  several  free- 
holds.    1  Co.  Litt.  875.     In  the  more  brief  language  of  Mr.  Preston, 


84  WHAT   CONSTITUTES   A    rARTNERSHIP.  (Ch.  1 

joint  tenants  have  one  estate  in  the  whole  and  no  estate  in  any  partic- 
ular part.  Tenants  in  common  have  several  and  distinct  estates  in 
their  respective  parts.     Preston  on  Estates,  137. 


HELME  V.  SMITH. 

(Court  of  Common  Pleas,  1S31.     7  BIng.  709.) 

This  was  an  action  by  the  plaintiff,  as  part  owner  and  managing 
owner  of  the  ship  Brailsford,  against  the  defendant,  another  part 
owner  of  the  same  ship,  for  his  portion  of  the  balance  due  to  the 
plaintiff  for  the  outfit  of  the  ship  for  several  voyages. 

The  cause  having  been  referred  to  arbitration,  the  arbitrator  found 
specially  as  follows : 

That  the  plaintiff  was  part  owner  of  the  ship  Brailsford,  and  acted 
as  ship's  husband  thereof  during  the  several  voyages  in  respect  of 
which  the  claim  in  this  action  was  made;  that  the  defendant  was  also 
owner  of  one-fourth  of  the  said  ship,  and  interested  to  the  extent  of 
one"- fourth  in  all  the  said  voyages;  and  that  the  dealing  between  the 
plaintiff  and  defendant  in  respect  of  which  this  action  was  brought 
was  upon  the  footing  of  the  defendant  being  owner  of  one-fourth, 
and  interested  as  aforesaid.     He  then  awarded  and  adjudged: 

That  the  said  plaintiff  do  recover  against  the  defendant  in  the  ac- 
tion the  sum  of  i463  8s.  6d.,  being  the  balance  due  at  the  time  of  the 
commencement  of  the  suit  from  the  defendant  as  such  owner  of  one- 
fourth  part  of  the  ship  Brailsford  to  the  plaintiff"  as  such  part  owner 
thereof,  for  the  share  of  the  defendant  of  the  expenses  incurred  and 
paid  by  the  plaintiff  as  managing  owner  or  ship's  husband  as  afore- 
said, for  the  outfit  of  the  said  ship  for  four  several  voyages,  being  the 
voyages  aforesaid,  while  the  defendant  was  such  part  owner  and  in- 
terested as  aforesaid.  No  account  having  been  stated  or  settled  be- 
tween the  parties,  no  express  contract  to  account  having  been  proved 
before  the  arbitrator,  but  all  the  voyages  having  been  concluded,  and 
the  ship  sold  as  thereafter  mentioned  before  this  action  was  brought, 
if  the  court  should  be  of  opinion  that  an  action  was  not  maintainable 
by  one  part  owner  against  another  for  the  cause  and  under  the  cir- 
cumstances aforesaid,  then  he  awarded  that  the  verdict  for  the  plain- 
tiff should  be  set  aside,  and  a  nonsuit  entered  in  lieu  thereof.  A  rule 
nisi  was  obtained  to  enter  up  judgment  for  plaintiff,  pursuant  to  the 
award. 

TiNDAL,  C.  J.  On  looking  at  this  award,  two  questions  arise: 
One,  whether  an  action  will  lie  by  one  part  owner  of  a  ship  against 
another  for  his  share  of  the  expenses  of  outfit ;  the  other,  whether 
the  defendant,  being  in  point  of  fact  owner  of  a  fourth,  is  liable  to 
the  expenses  in  that  proportion,  although  legally  entitled  to  no  more 


Sec.   0        RELATIONS    DISTINGUISHABLE    FROM    PAUTNEKSHIP.  85 

than  an  eighth.  And  there  seems  to  be  no  reason  for  depriving  the 
plaintiff  of  the  full  benefit  of  the  award. 

If,  indeed,  the  plaintiff  and  defendant  were  partners,  there  is  an 
end  of  the  question ;  but  part  owners  of  a  ship  are  not  necessarily 
partners.  If  the  parties  had  laid  out  money  on  a  speculation  in  goods, 
the  proceeds  to  be  divided  on  the  ship's  return,  they  would  have  been 
partners  in  every  sense ;  but  there  is  nothing  here  to  show  that  they 
were  more  than  part  owners,  and  the  question  is  whether,  if  one  lays 
out  money  to  enable  the  ship  to  proceed,  he  may  not  sue  each  of  the 
owners  for  his  share  of  the  expense.  There  is  nothing  to  show  thnt 
the  plaintilT's  claim  was  to  depend  on  the  profits  of  the  voyage,  or  that 
he  was  to  be  deprived  of  remuneration  if  the  voyage  turned  out  to  be 
without  profit.  The  outfit  was  a  portion  of  the  capital  which  each  was 
to  advance,  and,  if  the  plaintiff  had  lent  either  of  the  part  owners  the 
capital  he  was  to  contribute,  that  would  clearly  have  formed  the 
ground  of  a  separate  claim.  It  might  have  been  otherwise  if  by  the 
course  of  trade  it  were  the  custom  for  a  ship's  husband  to  look  to  the 
returns  of  the  ship  for  the  payment  of  his  bill ;  but  no  such  custom 
is  stated  on  the  award,  nor  anything  to  show  that  the  plaintiff  and 
defendant  were  partners. 

With  respect  to  the  second  question,  it  is  true  that  neither  at  law 
nor  equity  can  an  owner  of  a  vessel  claim  any  other  interest  than  that 
which  appears  on  the  registry;  but,  if  a  party  holds  himself  out  and 
deals  as  owner  of  a  fourth,  he  is  liable  to  others  on  that  proportion. 

Rule  absolute. 


THE  QUEEN  v.  ROBSON. 

(Orown  Cases  Reserved,  18S5.     L.  R.  16  Q.  B.  Dlv.  137.> 

The  prisoner  was  tried  and  convicted  at  the  Autumn  Assizes  for 
the  county  of  Northumberland  on  the  31st  of  October,  18S5,  on  an 
indictment  framed  under  St.  31  &  32  Vict.  c.  116,  §  1,  charging  that 
he,  being  a  member  of  a  copartnership  called  the  Bedlington  Colliery 
Young  Men's  Christian  Association  (hereafter  called  the  "associa- 
tion"), feloniously  did  in  January,  March,  and  May,  ISSo,  embezzle 
three  several  sums  of  money  of  and  belonging  to  the  said  copartner- 
ship. 

The  object  of  the  association  was,  to  use  the  language  of  one  of 
its  printed  rules,  "the  extension  of  the  kingdom  of  the  Lord  Jesus 
Christ  among  young  men  and  the  development  of  their  spiritual  life 
and  mental  powers."  It  was  composed  of  members  and  associates. 
The  number  of  members  did  not  exceed  20.  Any  person  was  eli- 
gible for  membership  "who  gave  decided  evidence  of  his  conversion 
to  God";  but  before  he  could  become  a  member  he  must  be  proposed 
and  seconded  by  two  members  of  the  association  and  elected  by  the 
committee,  on  their  being  satisfied  as  to  his  suitability.     Trustees  for 


86  WHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

the  time  being,  in  whom  the  real  property  belonging  to  the  associa- 
tion was  vested,  became  members  by  virtue  of  their  appointment 
as  trustees.  Members  were  required  to  subscribe  three  shiUings  per 
annum.  It  was  not  material  to  consider  the  qualification  or  status  of 
associates.  The  affairs  of  the  association  were  in  the  hands  of  a 
general  committee  of  management,  consisting  of  a  president,  two 
vice  presidents,  a  treasurer,  two  secretaries,  and  at  least  nine  mem- 
bers. The  committee  had  power  to  suspend  or  expel  any  member 
whose  conduct  was  found  inconsistent  in  their  judgment  with  the 
Christian  character.  The  agencies  for  the  attainment  of  the  objects 
of  the  association  were,  first,  the  personal  efforts  of  the  members; 
second,  devotional  meetings ;  third,  social  meetings ;  fourth,  classes 
for  Biblical  instruction ;  fifth,  the  delivering  of  addresses  and  lectures ; 
and,   sixth,  the  dift'usion  of   Christian  and   other   suitable  literature. 

Before  the  first  of  the  offenses  charged  against  the  prisoner  was 
committed,  the  members  of  the  association  proposed  to  build,  and 
afterwards  built,  a  hall  or  place  of  meeting  for  the  purposes  of  the 
association  at  a  cost  of  nearly  £200,  of  which  about  £40  was  still 
owing.  To  this  building  every  member  had  the  right  of  entry  and 
was  entitled  to  a  latchkey.  The  prisoner  became  a  member  of  the 
association  in  1878,  and  had  continued  to  be  a  member  up  to  the 
time  of  the  trial.  As  and  being  such  a  member  he  solicited  and  ob- 
tained for  the  association  from  divers  persons  many  sums  of  money 
as  donations  or  subscriptions  on  account  of  and  for  the  general  pur- 
poses of  the  association,  towards  the  building  fund,  and  towards  the 
liquidation  of  the  aforesaid  debt  of  i40.  Three  of  these  sums  it 
was  that  the  prisoner  was  charged  with  and  found  guilty  of  embez- 
zling. 

If  the  association  was  a  copartnership  within  the  meaning  of  St. 
31  &  32  Vict.  c.  116,  §  1,  the  conviction  was  to  stand  affirmed.  If 
on  the  contrary  it  was  not,  the  conviction  was  to  be  reversed.^ 

Walton,  for  the  prisoner.  The  only  question  is  whether  this  as- 
sociation is  a  copartnership.  The  terms  of  the  statute  clearly  show 
that  the  copartnerships  contemplated  thereby  are  copartnerships  in 
the  ordinary  sense  of  the  term,  viz.,  for  the  purposes  of  gain  or 
profit.  Lindley,  L.  J.,  in  his  work  on  Partnership,  p.  1,  gives  an 
explanation  of  the  term  "partnership,"  which  shows  that  the  neces- 
sary idea  of  a  partnership  is  that  it  should  have  for  its  object  the 
acquisition  and  division  of  gain.  He  says:  "Without  attempting  to 
define  the  terms  'partners'  and  'partnership,'  it  will  suffice  to  point 
out  as  accurately  as  possible  the  leading  ideas  involved  in  these  words. 

1  St.  31  &  32  Vict.  c.  116,  §  1,  provides  that  "If  any  person,  being  a  member 
of  any  copartnership,  or  being  one  of  "two  or  more  beneficial  owners  of  any 
money,  goods,  or  effects,"  etc.,  "shall  steal  or  embezzle  any  such  money,  goods, 
or  effects,"  etc.,  "of  or  belonging  to  any  such  copartnership  or  to  such  joint 
beneficial  owners,  every  such  person  shall  be  liable  to  be  dealt  with,  tried, 
convicted,  and  punished  for  the  same  as  if  such  i>erson  had  not  been  or  was 
not  a  member  of  such  copartnership  or  one  of  such  beneficial  owners." 


,SeC.  4)         RELATIONS    DISTINGUISHABLE    FTIOJI    PARTNERSHIP,  87 

The  terms  in  question  are  evidently  derived  from  to  part,  in  the  sense 
of  to  divide  amongst  or  share;  and  this  at  once  Hmits  their  applica- 
tion, although  not  very  precisely,  for  persons  may  share  almost  any- 
thing imaginable,  and  may  do  so  either  by  agreement  or  otherwise. 
But,  in  order  that  persons  may  be  partners  in  the  legal  acceptance 
of  the  word,  it  is  requisite  that  they  shall  share  something  by  virtue 
of  an  agreement  to  that  effect,  and  that  that  wiiich  they  have  agreed  , 
to  share  shall  be  the  profit  arising  from  some  predetermined  business 
engaged  in  for  their  common  benefit.  *  *  *  To  use  the  word 
'partnership'  to  denote  a  society  not  formed  for  gain  is  to  destroy 
the  value  of  the  word,  and  can  only  lead  to  confusion.  Xor  is  it/ con- 
sistent with  the  modern  usage.  Lord  Hale  and  older  writers  use 
copartnership  in  the  sense  of  co-ownership,  but  this  is  no  longer  cus- 
tomary, and,  as  will  be  shown  hereafter,  tliere  are  many  important 
differences  between  the  two,"  This  is  not  an  association  for  the 
purposes  of  profit  or  gain. 

Lord  CoLERiDcn,  C.  J.  It  seems  to  me  that  this  conviction  cannot 
be  supported.  I  cannot  find  any  authority  throwing  any  doubt  on  the 
accuracy  of  the  passage  in  Lindley  on  Partnership,  which  makes  the 
participation  in  profits  essential  to  the  English  idea  of  partnership, 
and  states  that,  although  in  former  times  the  word  "copartnership" 
was  used  in  the  sense  of  "co-ownership,"'  th.e  modern  usage  has  been 
to  confine  the  meaning  of  the  term  to  societies  formed  for  gain.  A 
number  of  definitions  given  by  writers  from  all  parts  of  the  world  are 
appended  to  the  passage,  and  in  all  of  them  the  idea  involved  appears 
to  be  that  of  joint  operation  for  the  sake  of  gain.  The  association  in 
the  present  case  ;s  not  a  copartnership  in  any  sense  of  the  word  into 
which  the  notion  of  co-operation  for  the  purpose  of  gain  enters.  We 
must  construe  the  word  "copartnership"  as  used  in  the  act  accord- 
ing to  the  meaning  ordinarily  attached  to  it  by  the  decisions  and  text- 
books on  the  subject.  This  association  does  not  come  within  that 
meaning.  The  only  point  reserved  for  us  is  whether  this  association 
is  a  copartnership  within  the  act.  Inasmuch  as  we  are  of  opinion  that 
it  is  not,  the  conviction  must  be  reversed.'- 

FiELD,  H.vwKiNS,  and  Willis  JJ,,  concurred. 


DOW  V.  STATE  BANK  OF  SLEEPY  EYE. 

(Supreme  Court  of  Minnesota,  1903.    SS  Minn.  3.".").  93  N.  W.  121.) 

Action  by  Lorenzo  E.  Dow  against  the  State  Bank  of  Sleepy  Eye. 
Judgment  for  plaintiff,  and  from  an  order  denying  a  motion  for  new 
trial  defendant  appeals. 

Collins,  J.  March  18,  1001,  five  persons  (Whiteside,  Farrell, 
Spence,  and  Reichenthal,  of  the  city  of  Chicago,  ^nd  L.  P.  Jensen, 

2  Tiie  coucurriii;;  opinion  of  DtMunan,  J.,   is  omitted. 


88  WHAT   CONSTITUTES   A   rAUTNEUSHIP.  (Ch.  1 

of  Sleepy  Eye,  in  the  state  of  Minnesota)  entered  into  a  written  agree- 
ment in  which  they  stipulated  that  they  "have  agreed  and  do  hereby 
mutually  agree  to  form  a  limited  partnership"  to  engage  in  a  specified 
line  of  business  in  Chicago  "for  the  term  of  five  years,  commencing 
with  December  1,  1901,  under  the  firm  style  of  Whiteside,  Farrell  & 
Co."  Each  of  the  four  men  first  mentioned  was  to  contribute  a  cer- 
tain sum  of  money  to  the  capital  fund,  to  be  paid  in  full  on  or  before 
December  1st,  and  were  to  be  general  partners.  Jensen  was  to  be 
a  special  partner,  in  accordance  with  the  laws  of  Illinois,  contributing 
$10,000  towards  the  capital — two-fifths  of  the  whole — which  sum 
was  also  to  be  paid  on  or  before  December  1st.  It  was  recited  that 
each  of  the  parties,  except  Jensen,  had  deposited  in  bank,  and  in  the 
name  of  the  firm,  on  account  of  his  subscription  to  the  capital,  the 
sum  of  $1,000,  and  that  Jensen  had  deposited  with  Farrell  his  duly 
certified  check  for  the  same  amount  on  account  of  his  subscription, 
and  that  the  deposit  made  by  each  of  these  parties  was  "as  a  guar- 
anty of  his  faithful  performance  on  his  part  of  the  agreement."  This 
check  was  made  payable  to  the  order  of  Whiteside,  Farrell  &  Co.,  the 
agreed  firm  name,  and  was  to  be  held  by  Farrell  personally,  instead 
of  being  deposited  in  the  bank.  It  was  covenanted  that  on  the  fail- 
ure on  the  part  of  any  of  the  persons  named  to  pay  over  the  balance 
of  his  agreed  contribution  on  or  before  December  1st,  "and  to  proceed 
with  and  to  engage  in  the  partnership  business  herein,  in  this  agree- 
ment provided  for,  as  therein  provided,  then  the"  amount  of  the  de- 
posit of  the  party  in  default,  with  all  interest,  should  be  forfeited  to 
such  of  the  other  parties  as  might  be  ready  and  willing  to  pay  and 
to  proceed  with  the  partnership  business;  the  amount  forfeited  to 
be  divided  equally  between  the  nondefaulting  parties.  All  interest 
earned  on  the  amounts  deposited  by  each  of  the  persons  not  in  default 
was  to  be  paid  over  to  them  individually.  It  was  also  provided  that: 
"Nothing  contained  in  this  paragraph  shall  be  construed  as  depriving 
any  of  the  parties  to  this  agreement  of  any  rights  which  they  other- 
wise have  at  law  or  in  equity  for  damages,  beyond  such  sum  so  for- 
feited, for  a  failure  on  the  part  of  any  party  or  parties  hereto  to  carry 
out  and  perform  this  contract." 

There  were  other  provisions  as  to  a  division  of  the  profits,  for  a 
division  of  the  work,  the  management  of  the  business,  the  authority 
of  the  partners,  for  the  submission  of  all  questions  of  dispute  between 
them,  prohibiting  the  general  partners  from  engaging  in  any  other 
business  after  December  1st,  during  the  five  years,  and  also  that,  "in 
oase  of  the  death  of  any  of  the  general  partners  or  the  special  part- 
ner, such  death  shall  not  work  a  dissolution  of  the  firm,  but  the  sur- 
viving general  partners  shall  continue  the  business  in  such  case  for 
the  full  time  and  in  the  manner  provided  for  herein ;  and  in  such 
case  the  heirs  and  legal  representatives  of  such  deceased  general  par- 
net  shall  stand  in*  the  same  relation  to  such  partnership  as  a  special 


I 


Sec.  4)        RELATIONS    DISTINGUISHABLE    FROM    PARTNERSHIP.  89 

partner   would,   subject   to   no   greater   liabilities   and   ci. titled    to   the 
same  relative  rights." 

The  check  bore  date  of  March  13th,  a  few  days  prior  to  the 
execution  of  the  contract  in  Chicago,  and  evidently  was  made  in  con- 
templation of  it.  On  the  day  of  its  date  it  was  certified  as  good  by 
the  duly  authorized  ofiicer  of  the  bank  on  which  it  was  drawn,  at 
Jensen's  request.  Before  anything  further  was  done  under  the  agree- 
ment, and  on  October  9,  1901,  Jensen  died.  From  the  testimony  it 
appears  that  on  December  1st  Farrell  delivered  the  check  to  White- 
side, Spence,  Reichenthal,  and  himself,  who,  it  seems,  were  then  act- 
ing as  a  partnership  under  the  firm  name  mentioned  in  the  check 
and  in  the  agreement.  On  the  17th  of  December  one  of  these  four 
men,  by  authority  of  his  associates,  placed  this  firm  name  on  the  back 
of  the  check,  and  at  the  same  time  each  one  of  the  four  indorsed  the 
check  individually  to  their  attorneys  in  Chicago — Heckman,  Elsdon' 
&  Shaw.  It  is  claimed  that  on  the  same  day  the  check  was  disposed 
of  by  Heckman  to  this  plaintifif  for  value,  and  that  the  latter  was  a 
bona  fide  purchaser  thereof.  At  this  time  it  was  indorsed  by  this 
firm  of  attorneys  and  by  Wallace  Heckman  individually,  one  of  the 
firm.  At  the  trial  a  verdict  for  the  plaintifif  was  ordered  and  return- 
ed for  the  full  amount  of  the  check,  and  this  appeal  is  from  a  denial 
of  defendant's  motion,  in  the  alternative,  for  judgment  notwithstand- 
ing the  verdict,  or  for  a  new  trial. 

The  first  question  to  which  attention  should  be  given  is  the  agree- 
ment made  between  the  five  persons,  and,  as  before  stated,  bearing 
date  and  actually  executed  in  Chicago  on  March  18th.  If  that  was 
nothing  but  an  executory  agreement  to  enter  into  a  partnership  upon 
the  1st  day  of  December  follwing  (an  inchoate  partnership  contract), 
the  case  must  be  disposed  of  upon  the  ground  that  the  plaintifif  was  not 
and  could  not  be  a  bona  fide  holder  (a  purchaser  of  the  check  free 
from  all  equities  and  defenses),  because  it  was  never  properly  indorsed 
or  put  in  circulation  by  the  payee.  If  the  partnership  had  been  form- 
ed as  stipulated,  then  the  right  of  the  firm  to  indorse  the  check  and 
convert  the  proceeds  into  capital  funds  would  have  been  undoubted. 
If  Jensen  had  lived,  but  had  refused  to  proceed,  the  right  of  his  pro- 
posed associates  to  indorse  and  put  the  check  in  circulation  would 
have  been  implied.  Under  the  agreement  the  check  would  have  been 
forfeited  to  such  of  the  other  parties  as  stood  ready  to  perform.  But 
we  are  clearly  of  the  opinion  that  Exhibit  A  was  an  executory  con- 
tract entered  into  on  the  basis  of  the  continuance  of  the  life  of  each 
of  the  parties  thereto.  In  itself  it  did  not  create  a  partnership,  and 
the  persons  signing  it  never  became  partners,  because  performance 
became  impossible  when  Jensen  died.  Such  an  event  was  not  provided 
for  in  the  agreement,  and  when  ,it  occurred  the  agreement  was  at  once 
annulled  as  to  all  parties.  The  clause  we  have  quoted,  relating  to  the 
decease  of  one  of  the  partners,  was  not  applicable  to  a  death  occur- 
tng  before  a  partnership  had  actually  commenced.     It  is  elementary 


90  WHAT   CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

that  partnership  relations  must  always  be  assumed  by  mutual  con- 
sent and  unanimously,  and  not  otherwise,  for  they  are  strictly  volun- 
tary and  personal.  A  third  person  cannot  be  introduced  into  a  firm 
as  a  partner  without  or  against  the  consent  of  a  single  member.  Jen- 
sen's legal  representatives  or  his  heirs  at  law  could  not  take  his  place, 
and  force  themselves  upon  the  other  parties  to  the  agreement.  Either 
one  of  the  survivors  could  refuse  to  proceed  or  to  furnish  his  share 
of  the  capital,  and  could  demand  a  return  of  the  deposit,  because  Jen- 
sen had  deceased  and  could  not  become  a  partner;  nor  could  any  one 
else,  except  by  unanimous  consent.  His  estate  could  not  be  compelled 
to  pay  the  amount  agreed  by  him  to  be  paid  toward  the  capital  funds. 
It  is  plain  that  the  other  parties  to  the  contract  could  not  and  should 
not  be  obliged  to  go  into  the  business  with  a  capital  of  $-15,000,  when 
it  had  been  agreed  that  it  should  be  $25,000,  of  which  two-fifths 
($10,000)  was  to  be  contributed  by  Jensen.  And  it  is  obvious  from 
some  of  the  provisions  of  the  agreement  that  there  was  no  intention 
to  form  a  present  partnership.  But  if.  we  should  hold  that  a  partner- 
ship was  actually  entered  into  in  March,  when  the  contract  was  signed,, 
every  person  named  therein  could  be  compelled  to  contribute  the 
amount  of  capital  subscribed  by  him.  And  Jensen's  estate  would  not 
be  relieved  of  pecuniary  obligation  when  the  check  was  paid,  for 
there  was  no  agreement  that  if  the  check  was  paid,  or  if  damages 
were  recovered  in  case  of  nonfulfillment,  Jensen  was  to  be  relieved 
from  his  written  obligation  to  contribute  to  the  capital.  The  agree- 
ment was  executory,  and  there  was  no  partnership  in  praesenti.  Per- 
sons who  have  entered  into  a  contract  to  become  partners  at  some 
future  time,  or  upon  the  happening  of  some  future  contingency,  do 
not  become  partners  until  the  agreed  tim.e  has  arrived,  or  the  contin- 
gency has  happened.  An  executory  contract  does  not  create  a  part- 
nership. The  contract  must  be  executed,  and  the  partnership  actu- 
ally "launched,"  before  the  relation  will  arise.  Even  after  the  arrival 
of  the  stipulated  time  the  parties  are  not  necessarily  partners,  and 
in  fact  they  are  not  partners  unless  the  partnership  is  launched.  Any 
act,  the  performance  of  which  is  made  a  condition  precedent  to  the 
formation  of  the  partnership,  must  be  performed,  before  a  partner- 
ship will  be  held  to  exist.  The  test  is  to  ascertain  from  the  terms 
of  the  agreement  itself  whether  any  time  has  to  elapse  or  any  act 
remains  to  be  done  before  the  right  to  share  profits  accrues,  for,  if 
there  is,  the  parties  will  not  be  partners  until  such  time  has  elapsed 
or  the  act  has  been  performed.  Shumaker,  Partn.  p.  78  et  seq. 
These  rules  are  laid  down  in  every  text-book  and  in  all  cases  where 
the  subject  has  been  discussed.  We  have  found  none  in  which  it 
has  been  held  that  an  agreement  for  a  partnership  to  commence  at 
a  specified  future  day  created,  alone-  and  of  itself,  a  present  partnership, 
even  as  to  third  parties.  More  than  this,  not  one  of  the  provisions 
of  this  agreement  indicates  an  intent  to  create  a  partnership  in  prae- 
senti, and  all  are  opposed  to  that  idea.     For  illustration,  the  clause  which 


Sec. -1)         RELATIONS    DISTINGITISnABLE    FROM    PARTNERSHIP.  01 

provided  that  in  case  of  default  by  one  or  more  of  the  parties  the 
amount  deposited  by  him  or  them  should  be  divided  among  tho^ge  who 
stood  ready  to  fulfill.  The  amount  was  not  to  become  an  asset  of 
the  firm.  Also  the  clause  that  gave  to  each  of  the  parties  whatever 
interest  his  deposit  might  earn  Ijefore  December  1st,  and  the  clause 
that  gave  to  each  of  the  general  partners  full  liberty  to  engage  in 
other  business  until  that  day.  It  is  obvious  that  goods  could  not  have 
been  purchased,  nor  could  any  other  form  of  obligation  have  been  in- 
curred, in  the  firm  name,  and  a  recovery  had,  as  against  the  part- 
nership, by  any  person  who  knew  the  contents  of,  and  was  obliged 
to  rely  upon.  Agreement  A.       *     *     * 

As  the  firm  of  Whiteside,  Farrell  &  Co.,  provided  for  in  the  agree- 
ment, and  the  payee  of  the  check,  never  came  into  existence,  the 
paper  was  never  properly  indorsed.  The  partnership  was  never 
launched,  and  the  legal  title  to  the  check  did  not  pass  to  his  proposed 
associates  when  Jensen  died.  It  follows  that  plaintiff  did  not  derive 
title,  and  could  not  have  been  a  bona  fide  purchaser,  through  the  in- 
dorsements made.       *     *     * 

Order  reversed.  The  verdict  will  be  set  aside,  and  judgment  entered 
for  defendant. 


In  re  GIBBS'  ESTATE. 

Appeal-  of  HALSTEAD. 

(Supreme  Court  of  Pennsylvania,  1S93.    157  Pa.  .59,  27  Atl.  383,  22  L.  R.  A.  276.) 

Proceedings  for  settlement  of  the  accounts  of  E.  B.  Gibbs,  admin- 
istrator of  Henry  Gibbs,  deceased.  From  a  decree  dismissing  excep- 
tions to  the  report  of  the  auditor  disallowing  the  claims  of  W.  F.  Hal- 
stead,  guai^dian  of  ]\Iary  E.  Clapp  and  Henry  Clapp,  he  appeals. 

Williams,  J.  The  appellant  seeks  to  charge  the  estate  of  Henry 
Gibbs  with  money  deposited  by  him,  as  guardian,  in  the  Home  Savings 
Bar^k,  located  at  South  Waverly,  on  the  theory  that  the  bank  was  a 
general  partnership,  and  that  the  decedent  was  one  of  the  partners. 
The  appellees  deny  that  the  Home  Savings  Bank  was  a  partnership, 
and  assert  that  the  decedent  purchased  shares  of  stock  in  the  bank  as 
and  for  the  shares  of  stock  in  an  incorporated  bank,  and  not  otherwise. 
At  this  point  it  seems  desirable  to  define  the  words  over  which  the  con- 
test extends. 

First.  What  is  a  corporation?  The  several  answers  given  by  text 
writers  may  be  reduced  to  the  following  formula:  A  corporation  is 
an  artificial  person  created  by  law  as  the  representative  of  those  per- 
sons, natural  or  artificial,  who  contribute  to,  or  beconfie  holders  of 
shares  in,  the  property  intrusted  to  it  for  a  common  purpose.  As  it 
is  the  creature  of  positive  law,  its  rights,  powers,  and  duties  are  pre- 
scribed by  the  law.     Beyond  the  legitimate  purposes  which  it  was  ere- 


92  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Ch.  1 

ated  to  serve,  and  the  lines  of  limitation  the  law  has  drawn  around  it, 
it  is  without  power  to  act  or  capacity  to  take.  Thus  a  banking  cor- 
poration, while  fully  competent  to  do  what  is  usual  and  necessary  in 
its  own  business,  may  not  own  and  operate  a  railroad,  or  engage  per- 
manently in  any  other  business  than  that  for  which  it  was  created.  It 
has  neither  the  legal  capacit}^  nor  the  right  to  do  so ;  and  if  it  under- 
takes to  go  in  any  direction  beyond  its  corporate  powers  its  acts  are 
ultra  vires.  The  creation  of  a  corporation  is  not  within  the  power  of 
the  individuals  who  subscribe  to  its  stock.  It  is  exclusively  the  work 
of  the  laW;  and  the  best  evidence  of  the  existence  of  a  corporation  is 
the  grant  of  corporate  powers  by  the  commonwealth. 

Second.  What  is  a  corporation  de  facto?  It  is  an  apparent  corpo- 
rate organization,  asserted  to  be  a, corporation  by  its  members,  and 
actually  acting  as  such,  but  lacking  the  creative  fiat  of  the  law.  In 
Tayl.  Priv.  Corp.  145,  it  is  said  that  a  de  facto  corporation  may  ex- 
ist "when  a  body  of  men  are  acting  as  a  corporation  under  color  of 
apparent  organization,  in  pursuance  of  some  charter  or  enabling  act." 
Their  organization  may  be  imperfect,  so  that  upon  a  quo  warranto 
they  could  not  show  a  sufficient  compliance  with  the  law  to  justify  the 
exercise  of  corporate  powers,  but  as  to  parties  dealing  with  them,  and 
as  to  each  other,  they  are  estopped  to  deny  that  they  are  what  they 
hold  themselves  out  to  be.  In  a  recent  case  in  Minnesota — Finnegan 
v.  Knights  of  Labor,  s52  Minn.  239,  53  N.  W.  1150,  18  L.  R.  A.  778, 
38  Am.  St.  Rep.  553 — it  was  held  that  a  de  facto  corporation  exists 
when  these  three  things  concur,  viz.,  a  law  under  which  the  alleged 
corporation  might  be  created,  an  attempt  to  organize  under  the  law, 
an  assumption  and  exercise  of  corporate  powers  under  such  attempted 
organization.  In  Methodist  Church  v.  Pickett,  19  N.  Y.  482,  only  two 
things  were  held  necessary,  viz.,  "the  existence  of  a  charter  or  law  under 
which  a  corporation  with  the  powers  assumed  might  be  lawfully  cre- 
ated, and  a  user  by  the  party  to  the  suit  of  the  rights  claimed  to  be 
conferred  by  such  a  charter  or  law."  Where  there  has  been  a  sub- 
stantial compliance  with  the  law,  the  corporation  is,  of  course,  de  jure. 
Where  there  has  been  no  substantial  compliance,  but  there  has  been 
nevertheless  an  assumption  and  exercise  of  corporate  powers  in  pur- 
suance of  an  attempted  organization,  the  alleged  corporation  is  such 
de  facto  only.  The  Minnesota  courts  hold  the  correct  rule,  and  three 
things  are  necessary  to  create  the  liability :  A  law  or  charter  under 
which  an  organization  de  jure  might  be  affected ;  an  attempt  to  or- 
ganize, which  falls  so  far  short  of  the  requirements  of  the  law  or  char- 
ter as  to  be  ineffectual ;  an  assumption  and  exercise  of  Corporate 
powers  notwithstanding  the  failure  to  comply  with  the  law  or  charter. 

Third.  What  is  a  partnership?  Perhaps  the  best  definition  is  that 
given  by  Stdry:  A  relation  created  by  a  "contract  between  two  or 
more  persons  to  place  their  money,  effects,  labor,  or  skill,  or  some  or 
all  of  them,  in  lawful  commerce,  and  divide  the  profits  between  them." 
Its  foundation  is  a  contract,  express  or  implied.     It  results  from  the 


Sec.  4)        EBLATION8   DISTINGUISHABLE    PROM    PARTNERSHIP.  03 

act  of  the  parties,  not  from  the  act  of  the  law.  Hedge's  Appeal,  63 
Pa.  273;  17  Amer.  &  Eng.  Enc.  Law,  829.  See,  also,  Modde- 
well  V.  Keever,  8  Watts  &  S.  03 ;  Channel  v.  Fassitt,  IG  Ohio,  IGG ; 
Murray  v.  Bogert,  14  Johns.  (N.  Y.)  318,  7  Am.  Dec.  466;  Phillips 
V.  Phillips,  49  111.  437.  But  as  to  third  parties  one  may  be  held  liable 
as  a  partner  by  implication  of  law  arising  upon  his  own  acts,  contrary 
even  to  his  own  intention.  Thus  the  officers  and  acting  members  of 
a  corporation  de  facto  may  be  liable  as  partners  if  their  conduct  has 
led  others  to  trust  the  concern  upon  that  basis.  Stafford  National 
Bank  v.  Palmer,  47  Conn.  443.  But  without  a  contract  of  partner- 
ship, or  such  acts  and  declarations  as  lead  others  to  infer  its  exist- 
ence, and  to  extend  credit  on  that  basis,  there  is  no  foundation  on 
which  liability  as  a  partner  can  rest.  The  best  evidence  of  the  exist- 
ence of  a  partnership  is  the  contract  creating  it.  If  proof  of  the  con- 
tract is  not  within  reach,  its  existence  may  be  inferred  from  proof  of 
contribution  to  the  partnership  stock.  If  direct  proof  of  contribution 
cannot  be  had,  it  may  be  inferred  from  participation  in  profits.  In  the 
absence  of  all  this,  the  acts  and  declarations  of  the  parties  sought  to  be 
charged  may  be  resorted  to.  Participation  in  profits  is  not  conclusive 
proof  of  the  existence  of  the  partnership  relation  (Edwards  v.  Tracy, 
62  Pa,  374)  ;  but  both  in  England  and  in  this  country  it  is  cogent  ev- 
idence upon  the  question.  It  puts  the  defendant  upon  his  proofs 
explanatory  of  the  fact.  If  he  is  able  to  show  that  such  participation 
was  referable  to  some  other  reason  such  as  compensation  for  services 
rendered  by  him  as  agent,  broker,  salesman,  or  otherwise,  the  prima 
facies  is  overcome.  So,  if  the  participation  in  the  profits  is  referable 
to  some  other  relation  than  that  of  partnership'  between  the  partici- 
pants, such  as  membership  in  a  joint-stock  association  or  a  corpora- 
tion, the    eflfect  of  proof  of  participation  will  be  overcome. 

In  the  light  of  these  well-settled  rules,  let  us  consider  briefly  the 
position  of  the  parties,  and  the  important  findings  of  fact  made  by 
the  learned  auditor  in  this  case.  The  claimant's  right  to  share  in 
the  fund  in  court  rested  on  the  theory  that  the  Home  Savings  Bank 
in  which  the  money  of  his  wards  had  been  deposited,  was  a  part- 
nership, and  that  the  decedent  was  a  partner.  The  burden  of  prov- 
ing the  fact  that  the  bank  was  a  partnership  was  on  him;  and,  as 
was  said  in  Hallstead  v.  Coleman,  143  Pa.  354,  22  Atl.  977,  13  L.  R. 
A.  370,  "until  that  proof  was  given,  the  defendants  were  not  called 
upon  to  enter  upon  their  defense."  The  proof  made  upon  this  subject 
showed  the  organization  of  a  bank  under  the  name  of  the  Plome  Sav- 
ings Bank,  with  a  president,  cashier,  and  a  board  of  directors.  This, 
is  the  mode  of  organization  usually  adopted  by  corporations,  and  did 
not  tend  to  prove  a  partnership.  It  was  then  shown  that  the  decedent 
.bought  and  held  certificates  of  stock  in  the  bank,  after  its  organiza- 
tion, which  recited  not  the  formation  of  a  partnership,  but  the  organi- 
zation of  a  bank  under  the  laws  of  the  state,  and  the.  division  of  its 
capital  into  shares  of  $100  each.     This  is  not  the  usual  way  in  which 


94  WHAT   CONSTITUTES  A   rARTNERSIIIP.  (Ch.  1 

partnerships  are  created  and  partners  admitted.  It  is  the  usual  way 
in  which  stocks  are  issued  and  transferred  in  corporations.  Proof 
was  then  made  of  the  receipt  by  the  decedent  of  several  dividends 
upon  his  stock.  These  did  not  purport  to  be  shares  in  the  profits  of 
firm  business,  but  dividends,  declared  in  the  manner  usual  among 
corporations,  upon  the  stock  of  the  bank;  and  were  paid  by  dividend 
checks  drawn  under  the  authority  of  a  board  of  directors.  The  only 
other  evidence  was  the  returns  made  by  the  officers  of  the  bank  under 
the  tax  law  of  1879,  which  threw  very  little  light  upon  the  character 
of  the  organization  of  the  bank.  Upon  this  proof  the  questions  for 
the  auditor  were  whether  the  bank  was  shown  to  be  a  partnership, 
and'  the  decedent  a  partner.  The  bank  did  business  for  a  number 
of  years,  and  then  failed.  Its  books  and  papers  were  in  the  hands, 
or  subject  to  the  control  of,  the  receiver.  The  manner  of  its  organiza- 
tion was  not  shown.  The  partnership  agreement,  if  any  such  existed, 
was  not  produced.  No  proof  was  given  that  the  officers  or  stock- 
holders claimed  or  held  out  to  the  public  that  the  stockholders  were 
partners,  or  the  bank  a  partnership  enterprise.  It  was  not  alleged  that 
the  decedent  participated  in  any  manner  in  the  business,  or  exercised 
any  control  over  it.  The  whole  case  against  him  rested  on  the  fact 
that  he  had  purchased  shares  in  a  bank,  then  organized  and  doing 
business,  and  received  dividends  declared  by  the  directors,  and  paid 
to  him  in  a  cashier's  check.  We  are  not  surprised  that  the  learned 
auditor  was  led  to  ask,  "What  is  there  in  all  this  evidence,  from  the 
beginning  of  the  business  to  the  failure,  tending  to  prove  a  partner- 
ship?" nor  that  he  answered  his  own  question  by  holding  that  this 
proof  was  insufficient  to  establish  prima  facie  the  existence  of  the 
partnership  relation.  On  the  other  hand,  there  was  much  tending  to 
show  that  Henry  Gibbs  understood  that  he  was  the  holder  of  stock 
in  an  incorporated  bank,  and  that  the  bank  assumed  and  exercised 
corporate  powers,  and  was  dealt  with  by  the  public  as  a  corporation. 
The  form  of  its  certificates,  the  manner  of  their  transfer,  the  election 
of  directors  by  the  stockholders,  the  management  of  the  business  of 
the  bank  by  the  directors  and  the  officers  elected  by  them,  the  mode 
of  declaring  and  paying  dividends,  were  all  suggestive  of  a  corpora- 
tion. They  were  not  suggestive  of  a  partnership.  We  are  unable, 
therefore,  to  say  that  the  auditor  erred  in  finding  that  the  bank  was 
not  shown  to  be  a  partnership.  The  learned  judge  who  heard  the 
exceptions  to  this  report  seems  to  have  concurred  with  the  auditor, 
and  we  require,  under  such  circumstances,  to  be  satisfied  that  a  mis- 
take was  made  before  interfering  with  the  findings.  We  are  not  so 
satisfied;  but  are  of  opinion  that  the  state  of  the  evidence  justified 
the  auditor's  conclusion.  This  disposes  of  the  whole  case.  *  *  * 
Decree  affirmed. 


Sec.  l>)  PARTNERSHIP   BY    ESTOPPEL.  95 

SECTION  5.— PARTNERSHIP  BY  ESTOPPEL. 


DE  BERKOM  v.  SMITH  et  al. 

(At  Nisi  Prius,  before  Lord  Kenyou,  1793.     1  Esp.  20.) 

Assumpsit  to  recover  the  value  of  a  quantity  of  foreign  lace  against 
the  defendants,  charging  them  as  partners. 

-  It  was  admitted  that  Smith,  one  of  the  defendants,  was  liable;  but 
the  other  defendant,  Lewis,  denied  that  he  was  a  partner.  This 
was  the  only  question  in  the  case. 

The  evidence  on  the  part  of  the  plaintiff  was:  That  he  was  a 
foreigner,  living  at  Lisle,  in  Flanders;  that,  having  been  applied  to 
by  the  defendants  for  a  quantity  of  lace  on  credit,  before  he  would 
furnish  it,  he  wrote  over  to  his  correspondent  in  London,  to  inquire 
concerning  their  circumstances  and  situation ;  that  his  correspondent 
had  inquired  from  a  Mr,  Eotham,  a  merchant  in  London,  who  informed 
him  that  they  were  in  partnership  in  trade,  which  information  the 
correspondent  communicated  to  the  plaintiff,  who  in  consequence  there- 
of gave  them  the  goods  on  the  terms  they  asked. 

Mr.  Botham's  clerk  was  called,  and  proved  that  the  only  connection 
in  trade  between  Mr.  Botham  and  the  defendants  was  in  discounting 
bills,  which  Mr.  Botham  had  been  in  the  Kabit  of  doing  for  Smith,  one 
of  the  defendants;  but  that,  on  discounting  a  bill  at  one  time  for 
Smith,  he  had  introduced  Lewis  to  him  as  his  partner. 

Lord  Kenyon,  upon  this  evidence,  ruled  that  it  was  not  sufiBcient 
to  charge  Lewis  as  his  partner.  His  Lordship  said  that  persons  might 
be  partners  in  a  particular  concern  or  business,  but  that  notwithstand- 
ing, if  they  did  not  appear  to  the  w6rld  as  partners,  that  it  should  not 
be  sufricient  to  constitute  a  general  partnership  and  make  them  liable 
in  other  cases  not  connected  with  such  particular  business ;  that  the 
circumstance  in  evidence  of  the  introduction  of  Lewis  to  Mr.  Botham 
should  be  taken  secundum  subjectam  materiam — that  is,  as  applying 
to  the  transaction  in  which  Smith  was  concerned  with  Mr.  .Botham, 
the  discounting  of  bills — to  which  transaction  only  it  should  be  confin- 
ed ;  and  that  he  was  therefore  of  opinion  that  without  further  evi- 
dence a  general  partnership  could  not  be  established,  in  order  to 
charge  Lewis,  the  other  defendant,  in  this  action. 

It  afterwards,  however,  appearing  in  evidence  that  in  fact  Lewis  had 
represented  himself  to  tlie  plaintiflf  as  partner  in  trade  with  Smith, 
his  Lordship  in  his  charge  to  the  jury  added  that,  though  in  point  of 
fact  parties  are  not  partners  in  trade,  yet  if  one  so  represents  himself, 
and  by  that  means  gets  credit  for  goods  for  the  other,  that  both  shall 
be  liable. 

The  plaintiff  recovered. 


96  WHAT  CONSTITUTES  A  PARTNERSHIP.  (Cll.  1 


THOMPSON  et  al.  v.  FIRST  NAT.  BANK  OF  TOLEDO,  OHIO. 

(Supreme  Court  of  the  United  States.  1SS4.     Ill  U.  S.,  529,  4  Sup.  Ct.  689,  28 

L.  Ed.  507.) 

•  Gray,  J.  This  action  was  brought  by  the  First  National  Bank  of 
Toledo,  Ohio,  a  national  banking  association  established  at  Toledo, 
against  William  H.  Standley,  William  H.  Whiteside,  Josephus  At- 
kinson, Edward  R.  Thompson,  and  Joseph  Uhl,  as  partners  in  the 
business  of  private  bankers  at  Logansport,  Ind.,  under  the  name  of 
the  People's  Bank,  upon  a  draft  for  $5,000,  drawn  and  accepted  by 
the  partnership  on  August  25,  1877,  payable  in  90  days  after  date  to 
the  order  of  the  plaintiff's  cashier,  and  taken  by  the  plaintiff  in  re- 
newal of  a  like  draft  discounted  by  it  for  the  partnership  on  May  5,' 
1877.  Thompson  filed  a  separate  answer,  denying  that  he  was  a  mem- 
ber of  the  partnership,  or  liable  to  the  plaintiff  on  the  draft  sued  on. 
He  died  pending  the  suit,  and  it  was  revived  against  his  administra- 
tors.    *     *     * 

The  jury  returned  a  general  verdict  for  the  plaintiff,  upon  which 
judgment  was  rendered.     The  defendants  sued  out  this  writ  of  error. 

The  plaintiff  at  the  trial  sought  to  charge  Thompson  with  liability 
as  a  partnei*  upon  two  grounds:  First,  that  he  was  actually  a  partner; 
second,  that,  if  not  actually  a  partner,  he  had  held  himself  out  to  the 
world  as  such.  And  the  case  was  submitted  to  the  jury  upon  both 
grounds. 

The  first  and  second  assignments  of  error,  relate  to  the  exclusion 
of  evidence  offered  by  the  defendants  bearing  upon  the  first  ground 
of  action.  The  third  and  fourth  assignments  of  error  relate  to  the 
instructions  given   and  refused  as  to  the   second  ground  of   action. 

[The  first  and  second  assignments  of  error  were  sustained.]     *    *    * 

The  remaining  and  the  principal  question  in  the  case  is  whether  the 
liability  of  Thompson,  by  reason  of  having  held  himself  out  as  a  part- 
ner, was  submitted  to  the  jury  under  proper  instructions. 

The  court  was  requested  to  instruct  the  jury  that  if  Thompson  was 
not  in  fact  a  member  of  the  partnership,  the  plaintiff  could  not  recover 
against  him,  unless  it  appeared  from  the  testimony  that  he  had  know- 
ingly permitted  himself  to  be  held  out  as  a  partner,  and  that  the  plain- 
tiff had  knowledge  thereof  during  its  transaction  with  the  partner- 
ship. The  court  declined  to  give  this  instruction,  and  instead  thereof 
instructed  the  jury,  in  substance,  that  if  Thompson  permitted  himself 
to  be  held  out  to  the  world  as  a  partner,  by  advertisements  and  other- 
wise, as  shown  by  the  evidence,  and  to  be  introduced  to  other  persons 
as  a  partner,  the  plaintiff  was  entitled  to  the  benefit  of  the  fact  that 
he  was  so  held  out;  and  he  was  estopped  to  deny  his  liability  as  a 
partner,  although  the  plaintiff  did  not  know  that  he  was  so  held  out, 
and  did  not  rely  on  him  for  the  payment  of  the  plaintiff's  debt,  or 
give  credit  to  him,  in  whole  or  in  part.     This  court  is  of  opinion  that 


Sec.  5)  PARTNERSHIP    BY    ESTOPPEL.  97 

the  circuit  court  erred  in  the  instructions  to  the  jury,  and  in  the  refusal 
to  give  the  instruction  requested. 

A  person  who  is  not  in  fact  a  partner,  who  has  no  interest  in  the 
business  of  the  partnership  and  does  not  share  in  its  profits,  and  is 
sought  to  be  charged  for  its  debts  because  of  having  held  himself 
out,  or  permitted  himself  to  be  held  out,  as  a  partner,  cannot  be  made 
liable  upon  contracts  of  the  partnership  except  with  those  who  have 
contracted  with  the  partnership  upon  the  faith  of  such  holding  out. 
In  such  a  case,  the  only  ground  of  charging  him  as  a  partner  is  that, 
by  his  conduct  in  holding  himself  out  as  a  partner,  he  has  induced  per- 
sons dealing  with  the  partnership  to  believe  him  to  be  a  partner,  and, 
by  reason  of  such  belief,  to  give  credit  to  the  partnership.  As  his  lia- 
bility rests  solely  upon  the  ground  that  he  cannot  be  permitted  to 
deny  a  participation  which,  though  not  existing  in  fact,  he  has  assert- 
ed, or  permitted  to  appear  to  exist,  there  is  no  reason  why  a  creditor 
of  the  partnership,  who  has  neither  known  of  nor  acted  upon  the  as- 
sertion or  permission,  should  hold  as  a  partner  one  who  never  was  in 
fact,  and  whom  he  never  understood  or  supposed  to  be,  a  partner,  at 
the  time  of  dealing  with  and  giving  credit  to  the  partnership.  There 
may  be  cases  in  which  the  holding  out  has  been  so  public  and  so  long 
continued  that  the  jury  may  infer  that  one  dealing  with  the  partner- 
ship knew  it  and  relied  upon  it,  without  direct  testimony  to  that  ef- 
fect. But  the  question  whether  the  plaintiff  was  induced  to  change 
his  position  by  acts  done  by  the  defendant  or  by  his  authority  is,  as 
in  other  cases  of  estoppel  in  pais,  a  question  of  fact  for  the  jury,  and 
not  of  law  for  the  court.  The  nature  and  amount  of  evidence  requisite 
to  satisfy  the  jury  may  vary  according  to  circumstances.  But  the  rule 
of  law  is  always  the  same :  that  one  who  had  no  knowledge  or  belief 
that  the  defendant  was  held  out  as  a  partner,  and  did  nothing  on  the 
faith  of  such  a  knowledge  or  belief,  cannot  charge  him  with  liability 
as  a  partner  if  he  was  not  a  partner  in  fact. 

The  whole  foundation  of  the  theory  that  a  person  who,  not  being 
in  fact  a  partner,  has  held  himself  out  as  a  partner,  may  be  held  liable 
as  such  to  a  creditor  of  the  partnership  who  had  no  knowledge  of  the 
holding  out,  and  who  never  gave  credit  to  him  or  to  the  partnership 
by  reason  of  supposing  him  to  be  a  member  of  it,  is  a  statement  at- 
tributed to  Lord  Mansfield  in  a  note  of  a  trial  before  him  at  nisi  prius, 
in  1784,  as  cited  by  counsel  in  a  case  in  which  it  was  sought  to  charge 
as  a  partner  one  who  had  shared  in  the  profits  of  a  partnership.  By 
so  much  of  that  note  as  was  thus  cited,  which  is  the  only  report  of 
the  case  that  has  come  down  to  us,  it  would  appear  that  in  an  action 
by  Young,  a  coal  merchant,  against  Mrs.  Axtell  and  another  person, 
to  recover  for  coals  sold  and  delivered,  the  plaintiff  introduced  evi- 
dence that  ^Irs.  Axtell  had  lately  carried  on  the  coal  trade,  and  that 
the  other  defendant  did  the  same  under  an  agreement  between  them, 
bv  which  she  was  to  bring  what  customers  she  could  into  the  busi- 
ness, and  "the  other  defendant  was  to  pay  her  an  annuity,  and  also  two 
Gii-.Taut. — 7 


98  WHAT  CONSTITUTES  A   PARTNERSHIP.  (Ch.  1 

shillings  for  every  chaldron  that  should  be  sold  to  those  persons  who 
had  been  her  customers  or  were  of  her  recommending;  and  that  bills 
were  made  out  in  their  joint  names  for  goods  sold  to  her  customers; 
and  that  the  jury  found  a  verdict  against  Mrs.  Axtell,  after  being  in- 
structed by  Lord  jMansfield  that  "he  should  have  rather  thought,  on 
the  agreement  only,  that  Airs.  Axtell  would  be  liable,  not  on  account 
of  the  annuity,  but  the  other  payment,  as  that  would  be  increased  in 
proportion  as  she  increased  the  business.  However,  as  she  suffered 
her  name  to  be  used  in  the  business,  and  held  herself  out  as  a  partner, 
she  w^as  certainly  liable,  though  the  plaintiff  did  not,  at  the  time  of 
dealing,  know  that  she  was  a  partner,  or  that  her  narne  was  used."' 
Young  v.  Axtell,  at  Guildhall  Sittings  after  Hilary  Term,  24  Geo.  HI., 
cited  in  Waugh  v.  Carver,  2  H.  Bl.  235,  242.  But  as  the  case  was  not 
there  cited  upon  the  question  of  liability  by  being  held  out  as  a  part- 
ner, it  is  by  no  means  certain  that  we  have  a  full  and  accurate  report 
of  what  was  said  by  Lord  Mansfield  upon  that  question ;  still  less  that 
he  intended  to  lay  down  a  general  rule,  including  cases  in  which  one, 
who  in  fact  had  never  taken  any  part  in  or  received  any  profits  from 
the  business,  held  himself  out  as  a  partner. 

In  delivering  the  judgment  of  the  Common  Bench  in  Waugh  v. 
Carver,  Chief  Justice  Eyre  said :  "Now  a  case  may  be  stated  in  which 
it  is  the  clear  sense  of  the  parties  to  the  contract  that  they  shall  not 
be  partners ;  that  A.  is  to  contribute  neither  labor  nor  money ;  and,  to  go, 
still  further,  not  to  receive  any  profits.  But,  if  he  will  lend  his  name  as 
a  partner,  he  becomes,  as  against  all  the  rest  of  the  world,  a  partner,  not 
upon  the  ground  of  the  real  transaction  between  them,  but  upon  prin- 
ciples of  general  policy,  to  prevent  the  frauds  to  which  creditors  would 
be  liable  if  they  were  to  suppose  that  they  lent  their  money  upon  the 
apparent  credit  of  three  or  four  persons,  when  in  fact  they  lent  it  only 
to  two  of  them,  to  whom,  without  the  others,  they  would  have  lent 
nothing."  2  H.  Bl.  246.  This  statement  clearly  shows  that  the  reason 
and  object  of  tlie  rule  by  which  one,  who,  having  no  interest  in  the  part- 
nership, holds  himself  out  as  a  partner,  is  held  liable  as  such,  are  to  pre- 
vent frauds  upon  those  who  lend  their  money  upon  the  apparent  credit 
of  all  who  are  held  out  as  partners;  and  the  later  English  authorities 
uniformly  restrict,  accordingly,  the  effect  of  such  holding  out. 

In  Mclver  v.  Humble,  in  the  King's  Bench  in  1812,  Lord  Ellen- 
borough  said:  "A  person  may  make  himself  liable  as  a  partner  with 
others  in  two  ways :  Either  by  a  participation  in  the  loss  or  profits,  or 
in  respect  of  his  holding  himself  out  to  the  world  as  such,  so  as  to 
induce  others  to  give  a  credit  on  that  assurance."  And  Mr.  Justice 
Bayley  said:  "To  make  Humble  liable,  he  must  either  have  been  a 
partner  in  fact  in  the  loss  and  profit  of  the  ship,  or  he  must  have  held 
himself  out  to  be  such.  Now  here  he  was  not  in  fact  a  partner,  and 
the  goods  were  not  furnished  upon  his  credit,  but  upon  the  credit  of 
Holland  and  Williams."  16  East,  169,  174,  176.  In  Dickinson  v. 
Valpy,  in  the   same  court,  in   1829,   Mr.  Justice  Parke    (afterwards 


Sec.  5)  PARTNERSHIP   BY    ESTOPPEL.  99 

Baron  Parke  and  Lord  Wensleydale)  said:  "If  it  could  have  been 
proved  that  the  defendant  had  held  himself  out  to  be  a  partner,  not 
'to  the  world,'  for  that  is  a  loose  expression,  but  to  the  plaintiff  him- 
self, or  under  such  circumstances  of  publicity  as  to  satisfy  a  jury 
that  the  plaintiff  knew  of  it  and  believed  him  to  be  a  partner,  he  would 
be  liable  to  the  plaintiff  in  all  transactions  in  which  he  engaged  and 
gave  credit  to  the  defendant  upon  the  faith  of 'his  being  such  partner. 
The  defendant  would  be  bound  by  an  indirect  representation  to  the 
plaintiff  arising  from  his  conduct,  as  much  as  if  he  had  stated  to  him 
directly  and  in  express  terms  that  he  was  a  partner,  and  the  plaintiff 
had  acted  upon  that  statement."  10  Barn.  &  C.  128,  140.  See,  also, 
Carter  v.  Whalley,  1  Barn.  &  Adol.  11. 

In  Ford  v.  Whitmarsh,  in  the  Court  of  Exchequer  in  18-10,  a  direc- 
tion given  by  Baron  Parke  to  the  jury  in  substantially  the  same  terms 
was  held  by  Lord  Abinger,  Baron  Parke,  Baron  Gurney,  and  Baron 
Rolfe  (afterwards  Lord  Cranworth)  to  be  a  sound  and  proper  direc- 
tion; and  Baron  Parke,  in  explaining  his  ruling  at  the  trial,  said: 
"I  told  the  jury  that  the  defendant  would  be  liable  if  the  debt  was  con- 
tracted while  he  was  actually  a  partner,  or  upon  a  representation  of 
himself  as  a  partner  to  the  plaintiff,  or  upon  such  a  public  representation 
of  himself  in  that  character  as  to  lead  the  jury  to  conclude  that  the  plain- 
tiff, knowing  of  that  representation,  and  believing  the  defendant  to  be  a 
partner,  gave  him  credit  under  that  belief."    Hurl.  &  W.  53,  55. 

In  Pott  V.  Eyton,  in  the  Common  Bench  in  1846,  which  was  an  ac- 
tion by  bankers  to  recover  a  balance  of  account  against  Eyton  and 
Jones,  on  the  ground  that  either  they  were  actual  partners  in  the  busi- 
ness carried  on  by  Jones,  or  Eyton  had  by  his  own  permission  been 
held  out  as  a  partner,  Chief  Justice  Tindal,  delivering  the  judgment 
of  the  court,  said:  "There  was  no  evidence  to  show  that  credit  was 
in  fact  given  to  Eyton,  or  that  the  bankers  knew  that  his  name  was 
over  the  door  of  the  shop  at  Mostyn  quay,  or  that  they  supposed  him 
to  be  a  partner.  One  person  who  had  been  manager,  and  another  who 
had  been  a  clerk,  in  the  bank,  were  in  court ;  and  if  they  could  have 
given  such  evidence,  they  would  no  doubt  have  been  called  as  witness- 
es. We  must  assume,  therefore,  that  credit  was  given  to  Jones  alone ; 
and,  if  Eyton  is  to  be  made  liable,  that  must  be  on  the  ground  of  an 
actual  partnership  between  himself  and  Jones."  3  C.  B.  32,  39.  In 
Martyn  v.  Gray,  in  the  same  court,  in  1863,  Chief  Justice  Erie  and 
Mr.  justice  Willes  expressed  similar  opinions.  14  C.  B.  (N.  S.)  824, 
839,  813.  The  decision  of  the  Court  of  Exchequer  in  Edmundson  v. 
Thompson,  1861,  is  to  the  like  effect.  31  Law  J.  (N.  S.)  Exch.  207, 
8  Jur.  (N.  S.)  235. 

Mr.  Justice  Lindley,  in  liis  treatise  on  the  Law  of  Partnership,  siyns 
up  the  law  on  this  point  as  follows :  "The  doctrine  that  a  person  hold- 
ing himself  out  as  a  partner,  and  thereby  inducing  others  to  act  on 
the  faith  of  his  representations,  is  liable  to  them  as  if  he  were  in  fact 
a  partner,  is  nothing  more  than  an  illustration  of  the  general  principle 


100  WHAT  CO>.STITDTES  A  PARTNERSHIP.  (Ch.  1 

of  estoppel  by  conduct."  "The  expression  in  Waugh  v.  Carver,  'if 
he  will  lend  his  name  as  a  partner,  he  becomes  as  against  all  the  rest 
of  the  world  a  partner,'  requires  qualification ;  for  the  real  ground 
on  which  liability  is  incurred  by  holding  one's  self  out  as  a  partner 
is  that  credit  has  been  thereby  obtained.  This  was  put  with  great 
clearness  by  Mr.  Justice  Parke  in  Dickinson  v.  Valpy."  "No  person 
can  be  fixed  with  liability  on  the  ground  that  he  has  been  held  out  as 
a  partner,  unless  two  things  concur,  viz. :  First,  the  alleged  act  of 
holding  out  must  have  been  done  either  by  him  or  by  his  consent ;  and, 
secondly,  it  must  have  been  known  to  the  person  seeking  to  avail  him- 
self of  it.  In  the  absence  of  the  first  of  these  requisites,  whatever  may 
have  been  done  cannot  be  imputed  to  the  person  sought  to  be  made 
liable;  and,  in  the  absence  of  the  second,  the  person  seeking  to  make 
him  liable  has  not  in  any  way  been  mislead."  Lindl.  Partn.  (1st  Ed.) 
45-47,  (4th  Ed.)  48-50. 

The  current  of  authority  in  this  country  is  in  the  same  direc- 
tion. Benedict  v.  Davis,  2  AlcLean,  347,  Fed.  Cas.  No.  1,293;  Hicks 
v.  Cram,  17  Vt.  449;  Fitch  v.  Harrington,  13  Gray  (Mass.)  469,  74 
Am.  Dec.  641;  Wood  v.  Pennell,  51  Me.  52;  Sherrod  v.  Langdon, 
21  Iowa,  518;'  Kirk  v.  Hartman,  63  Pa.  97;  Hefner  v.  Palmer,  67 
111.  161;  Cook  V.  Penrhyn  Slate  Co.,  36  Ohio  St.  135,  38  Am.  Rep. 
568;  Uhl  v.  Harvey,  78  Ind.  26.  The  only  American  case,  cited  at 
the  bar,  which  tends  to  support  the  ruling  below,  is  the  decision  of  the 
Commission  of  Appeals  in  Poillon  v.  Secor,  61  N.  Y.  456.  And  the 
judgment  of  the  Court  of  Appeals  in  the  later  case  of  Central  City 
Savings  Bank  v.  Walker,  66  N.  Y.  424,  clearly  implies  that  in  the  opin- 
ion of  that  court  a  person  not  in  fact  a  partner  cannot  be  made  liable 
to  third  persons  on  the  ground  of  having  been  held  out  as  a  partner, 
except  upon  the  principle  of  equitable  estoppel,  that  he  authorized 
himself  to  be  so  held  out,  and  that  the  plaintiffs  gave  credit  to  him. 

The  result  is  that  both,  upon  principle  and  upon  authority,  the  third 
and  fourth  assignments  of  error,  as  well  as  the  first,  must  be  sustain- 
ed, the  judgment  of  the  circuit  court  reversed,  and  the  case  remanded 
to  that  court  with  directions  to  order  a  new  trial. 


FLETCHER  v.  PULLEN  et  al. 

(CJourt  of  Appeals  of  Maryland,  1889.    70  Md.  205,  16  Atl.  887,  14  Am.  St.  Rep. 

355.) 

Miller,  J.  The  plaintiffs,  who  are  nurserymen  in  Milford,  Del., 
sued  Bramble  &  Fletcher,  as  partners  in  the  same  business  at  Cam- 
bridge, in  this  state,  for  ffuit  trees  sold  and  delivered  to  them  in  the 
autumn  of  1886.  Bramble  died  before  the  trial,  and  Fletcher  defended 
upon  the  ground  that  he  was  not  a  partner.  The  exceptions  relate 
mainly  to  the  admissibility  of  evidence  upon  the  question,  not  whether 
Fletcher  &  Bramble  were  actually  partners  inter  sese,  but  whether 
Fletcher  had  held  himself  out,  or  had  permitted  himself  to  be  held  out, 


Sec.  5)  PAKTXEKSHIP    BY    ESTOPPEL.  101 

as  a  partner,  so  as  to  become  responsible  to  third  parties.  The  law  on 
this  subject,  well  established  by  authority,  may  be  stated  thus:  "The 
ground  of  liability  of  a  person  as  partner  who  is  not  so  in  fact  is  that 
he  has  held  himself  out  to  the  world  as  such,  or  has  permitted  others 
to  do  so,  and  by  reason  thereof  is  estopped  from  denying  that  he  is 
one  as  against  those  who  have  in  good  faith  dealt  with  the  firm  or 
with  him  as  a  member  of  it.  But  it  must  appear  that  the  person  dealing 
with  the  firm  believed,  and  had  a  reasonable  right  to  believe,  that  the 
party  he  seeks  to  hold  as  a  partner  was  a  member  of  the  firm,  and  that 
the  credit  was  to  some  extent  induced  by  this  belief.  It  must  also  ap- 
pear that  the  holding  out  was  by  the  party  sought  to  be  charged,  or  by 
his  authority,  or  with  his  knowledge  or  assent.  This,  where  it  is  not 
the  direct  act  of  the  party,  may  be  inferred  from  circumstances,  such 
as  from  advertisements,  shop  bills,  signs,  or  cards,  and  from  various 
other  acts  from  which  it  is  reasonable  to  infer  that  the  holding  out 
was  with  his  authority,  knowledge,  or  assent;  and  whether  a  defend- 
ant has  so  held  himself  out,  or  permitted  it  to  be  done,  is  in  every 
case  a  question  of  fact,  and  not  of  law."  Thomas  v.  Green,  30  Md. 
1;  1  Lindl.  Partn.  45;  Thompson  v.  Bank,  111  U.  S.  536,  537,  4  Sup. 
Ct.  689,  28  L.  Ed.  507;  5  Wait,  Act.  &  Def.  113,  114.  These  general 
rules  apply  to  the  present  case.  _  ; 

The  evidence  shows  that  there  was,  in  or  near  Cambridge,  a  fruit 
farm  and  nursery  on  about  15  acres  of  Fletcher's  lapd,  which  Bramble 
had  occupied  and  managed  from  the  year  1881  to  1887.  The  plain- 
tiffs then  proved  that  in  October  and  November,  1886,  they  received 
several  letters,  postal  cards,  telegrams,  and  circulars  from  Cambridge, 
signed,  "Fletcher  &  Bramble,"  representing  them  to  be  partners,  and 
the  envelopes  in  which  the  letters  were  inclosed  were  stamped  with 
the  same  firm  name.  These  letters  contained  orders  for  fruit  trees, 
and  the  first  of  them  gave  a  reference  to  a  Mr.  Van  Horst,  formerly 
of  Milford,  but  then  residing  in  Cambridge.  The  plaintiffs  not  know- 
ing the  firm,  nor  by  whom  the  letters  were  written,  wrote  to  Van 
Horst  and  others,  inquiring  as  to  its  credit  and  standing,  and  in  reply 
received  information  to  the  effect  that  Fletcher  was  entirely  responsible, 
but  that  Bramble  was  worth  nothing.  Upon  this  information,  and  re- 
ceiving no  intimation  that  Fletcher  was  not  a  partner,  they  filled  the 
orders  and  delivered  the  trees,  relying  upon  his  credit.  Each  item 
of  this  testimony  was  excepted  to  as  it  was  offered,  upon  the  ground 
that  these  letters,  circulars,  and  envelopes  were  written  and  gotten  up 
by  Bramble  without  Fletcher's  knowledge  or  consent.  We  think,  how- 
ever, they  were  all  admissible,  not  because  the  acts  and  declarations 
of  Bramble  would  bind  Fletcher,  as  of  course  they  would  not.  unless 
he  was  an  actual  partner,  but  for  the  purpose  of  showing  that  the 
plaintiffs  believed,  and  had  good  reason  to  believe,  that  he  was  a  part- 
ner, and  that  they  trusted  the  supposed  firm  upon  the  faith  of  his 
responsibility.  To  prove  this  was  an  important  link  in  the  plaintiffs' 
case,  and  evidence  tending  to  prove  it  was.  in  our  opinion,  admissible. 


102  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

The  plaintiffs  then  proved  that  an  advertisement  signed,  "Fletcher  & 
Bramble,"  calHng  attention  to  their  nursery,  offering  their  trees  for 
sale,  and  soliciting  from  the  public  continuance  of  confidence  and  or- 
ders, was  published  in  two  weekly  newspapers  of  Cambridge,  where 
Fletcher  lived,  for  three  months  during  the  year  1884.  In  one  of 
these  papers  there  was  also  a  local  notice  of  the  advertisement.  These 
were  also  prepared,  inserted,  and  paid  for  by  Bramble,  without  Fletch- 
er's knowledge;  biit  it  was  proved  that  during  the  time  of  their  pub- 
lication he  was  a  subscriber  to  both  papers,  and  they  were  regularly 
sent  him.  Tliere  is  also  clear  proof  that  he  actually  knew  of  them 
while  they  were  being  published,  and  never  inserted  in  either  of  the 
papers  any  denial  of  the  partnership.  From  all  this  it  was  competent 
for  a  jury  to  infer  that  he  was  held  out  to  the  public  by  Bramble  as 
a  partner,  with  his  knowledge  and  assent ;  and  we'  are  of  opinion  the 
plaintiffs  were  entitled  to  prove  this,  though  they  never  saw  the  ad- 
vertisements, and  were  not  influenced  by  them  in  trusting  the  firm. 
They  had  already  proved  they  had  so  trusted  it  in  good  faith,  and  upon 
good  grounds,  and  we  think  they  had  the  right  to  resort  to  these  an- 
tecedent advertisements,  and  to  this  proof,  for  the  purpose  of  showing 
that  Fletcher  had  been  so  held  out  to  the  public  with  his  knowledge 
and  assent.  It  was  evidence  to  go  to  the  jury  upon  that  subject,"  and, 
if  uncontradicted,  would  have  made  him  a  partner,  at  least  as  to  all 
third  parties  who  had  trusted  the  firm  in  good  faith  upon  that  supposi- 
tion. Having  knowledge  of  these  advertisements,  it  was  his  duty  to 
deny  the  partnership,  if  he  wished  to  escape  liability.  But  what  was 
he  to  do,  and  how  much?  We  do  not  say  he  was  under  a  legal  ob- 
ligation to  publish  a  repudiation  of  the  partnership  in  the  same  news- 
papers, or  in  any  other,  though  this  would  seem  to  be  a  very  obvious 
and  the  most  efificient  mode  of  proclaiming  such  denial,  and  the  fact 
that  he  failed  so  to  do  was  a  circumstance  to  go  to  the  jury.  But  we 
take  it  that  the  rule  upon  this  subject,  stated  by  a  very  eminent  jurist, 
is  reasonable  and  just:  'Tf  one  is  held  out  as  a  partner,  and  he  knows 
it,  he  is  chargeable  as  one,  unless  he  does  all  that  a  reasonable  and 
honest  man  should  do,  under  similar  circumstances,  to  assert  and  mani- 
fest his  refusal,  and  thereby  prevent  innocent  parties  from  being  mis- 
led." Pars.  Partn.  *134.  It  follows  that  the  court  below  was  right 
in  admitting  all  the  evidence  offered  by  the  plaintiffs,  and  in  reject- 
ing the  defendant's  first  prayers.  In  regard  to  his  second,  third,  and 
fourth  prayers,  all  that  need  be  said  is  that  the  propositions  they  con- 
tain are  all  embraced  in  his  fifth  prayer,  which  the  court  granted  with 
a  single  modification,  to  which  we  see  no  valid  objection. 

We  come  now  to  the  rulings  excluding  certain  evidence  offered  by 
the  defendant  to  show  and  sustain  his  denial  and  repudiation  of  the 
partnership.  His  own  testimony  was  to  the  effect  that  Bramble  was 
simply  his  tenant  of  the  land  for  the  term  of  six  years  from  1881 ; 
that  Bramble  had  a  fruit-tree  nursery  on  the  land,  but  he  himself  had 
nothing  to  do  with  it,  and  never  entered  into  a  contract  of  partnership 


Sec.  5)  PAKTXEKSHIP    BY    ESTOTPEL.  103 

with  Bramble,  either. written  or  vei^bal,  in  the  nursery  business,  or  any 
other;  that  he  never  held  himself  out  as  such  partner,  and  never  lent 
his  name,  or  authorized  the  use  of  it  by  Bramble,  with  reference  to 
this  business,  or  any  other,  that  he  never  knew  of  the  letters,  circulars, 
and  envelopes  written  and  used  by  Bramble  until  they  were  produced 
in  court  at  the  trial;  that  the  advertisements  and  local  notice  were 
inserted  without  his  knowledge  or  consent,  and  he  never  knew  any- 
thing about  them  until  they  appeared  in  the  papers;  that  he  never 
put  himself  to  the  trouble  and  expense  of  publishing  in  these  papers, 
or  in  any  others,  a  contradiction  of  the  advertisements,  but  had  on 
all  occasions,  to  town  people  and  country  people,  when  the  subject  was 
mentioned  to  him,  and  often  when  it  was  not,  denied  the  existence  of 
any  partnership,  and  repudiated  the  advertisements  as  unauthorized 
by  him.  All  this  was  allow'ed  to  go  in  without  objection,  but  it  is 
to  be  observed  that  he  admits  he  knew  of  the  advertisements  which 
clearly  and  pul")licly  proclaimed  the  partnership,  and  never  published 
in  any  newspaper  any  denial  of  it.  We  have  said  he  was  ^nder  no 
legal  obligation  to  make  publication,  but  that  it  was  his  duty  to  do 
all  that  a  reasonable  and  honest  man  should  do,  un;:ler  similar  circum- 
stances, to  manifest  his  denial.  This  is  the  important  question  in  the 
case,  and  it  was  one  solely  for  the  jury  to  determine.  On  this  issue 
of  fact  he  was  entitled  to  adduce  all  the  evidence  he  could,  leaving  it  for 
the  jury  to  decide  wdiether,  upon  the  whole  of  it,  they  thought  he  had 
done  all  that  a  reasonable  and  honest  man  ought  to  have  done.  Under 
this  rule,  he  was  entitled  to  the  benefit  of  any  evidence  in  corroboration 
of  his  own  testimony  which  tended  to  prove  the  publicity  of  his  de- 
nial. Now,  in  addition  to  his  own  general  evidence  on  this  subject 
h^  ofTered  to  prove :  (1)  By  the  editor  of  one  of  the  papers  in  which  the 
advertisement  and  notice  appeared,  that,  when  the  witness  called  upon 
him  to  pay  for  the  same,  he  refused  to  do  so,  repudiated  all  partner- 
ship with  Bramble,  declared  he  had  nothing  to  do  with  Bramble's 
business,  and  would  have  nothing  to  do  with  his  bills.  (2)  By  the 
postmaster  of  Cambridge,  that  soon  after  the  publication  of  the  ad- 
vertisements witness  delivered  to  Fletcher  certain  mail-matter  ad- 
dressed to  "Fletcher  &  Bramble,"  but  he  returned  it  unopened,  and  re- 
fused to  accept  the  same,  telling  witness  he  had  nothing  to  do  with 
Bramble's  business,  and  was  no  partner  of  his.  (3)  That  in  July,  1885, 
he  and  Bramble  were  sued  as  partners  by  the  steamboat  company  be- 
fore a  magistrate  in  Cambridge,  on  a  bill  for  freight :  that  there  was 
a  crowd  at  the  trial,  and  he  resisted  the  suit,  and  refused  to  pay  the 
account,  on  the  ground  that  he  had  nothing  to  do  with  Bramble's 
business;  that  the  magistrate  gave  judgment  in  his  favor,  and  the 
case  was  much  discussed  in  the  community,  especially  by  the  steamboat 
agent,  who  made  great  complaint  because  the  magistrate  had  decided 
in  his  favor. 

In  our  opinion,  these  items  of  evidence   should  have  been  admit 
ted.    It  is  not  for  this  court  to  pass  upon  their  weight  or  effect,  no  mat- 


104  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

ter  how  slight  or  inadequate,  as  a  denial  of  the  partnership  publicly 
proclaimed  in  the  newspapers,  we  may  deem  them  to  be.  This  is  a 
matter  solely  for  the  jury.  Our  duty  is  simply  to  determine  the  ques- 
tion of  their  admissibilit}i  as  evidence,  and  we  think  the  court  erred 
in  rejecting-  them.  We  are  also  of  opinion  that  the  agreement,  or 
"lease,"  as  it  is  called,  between  Fletcher  and  Bramble,  for  the  land 
upon  which  the  nursery  was  carried  on,  should  have  been  admittqd. 
It  was  part  of  the  defendant's  case,  to  prove  that  he  was  not  an  actual 
partner  with  Bramble.  This  agreement  was  admissible  for  that  pur- 
pose, if  he  could  show  that  by  its  true  construction  it  merely  created 
the  relation  of  landlord  and  tenant  between  them.  The  errors  in  re- 
jecting the  items  of  evidence  referred  to  requires  us  to  reverse  the 
judgment,  and  award  a  new  trial.  But,  in  view  of  the  fact  that  the 
court  below  acting  as  a  jury  found  for  the  plaintiffs,  notwithstanding 
they  had  granted  the  defendant's  fifth  prayer,  in  which  all  his  own 
testimony  in  denial  of  the  partnership  was  expressly  submitted  to 
the  consideration  of  the  judges,  we  think  each  party  should  be  requir- 
ed to  pay  his  own  costs,  both  in  this  court  and  in  the  court,  below. 
Judgment  reversed,  each  party  to  pay  his  own  costs  in  this  court  and 
in  the  court  below,  and  new  trial  awarded. 


SECTION    6.— DEFECTIVE    CORPORATIONS. 


BIGELOW  V.  GREGORY  et  al. 

(Supreme  Court  of  Illinois,  1874.     73  111.  197.) 

This  was  an  action  of  assumpsit,  brought  by  Bigelow,  appellant, 
against  Charles  A.  Gregory,  Franklin  H.  Watriss,  Oramel  S.  Hougl), 
and  Reuben  Hatch,  as  copartners,  doing  business  under  the  name  and 
style  of  the  Warfield  Cold  Water  Soap  Company,  to  recover  for  goods 
sold  and  delivered.  The  defendants  in  the-  court  below  pleaded  the 
general  issue,  and  also  interposed  a  further  plea  denying  the  partner- 
ship, verifying  the  same  by  affidavit.  The  cause  was  tried  by  the  court 
without  a  jury,  and  the  issues  found  and  judgment  rendered  for  the 
defendants.  The  plaintii?  brings  the  record  here  by  appeal  to  re- 
verse the  judgment. 

From  the  testimony  it  appears  that  in  November,  1870,  the  de- 
fendants, with  one  Isaac  N.  Gregory,  signed  a  certain  paper,  com- 
mencing: "Articles  of  Association  of  Warfield's  Cold  Water  Soap 
Company,  of  Milwaukee.  We,  the  undersigned,  being  desirous  of 
forming  a  company  for  the  purpose  of  carrying  on  a  manufacturing 
business,  as  hereinafter  stated,  under  authority  of  the  act  of  the 
Legislature  of  the  state  of  Wisconsin  relating  to  joint-stock  companies, 


Sec.  G)  DEFECTIVE    CORPOHATION8.  105 

approved  April  2,  1858,  and  acts  amendatory  thereof,  do  hereby 
agree  and  certify  that  the  name  of  the  company  is  and  shall  be  'War- 
field's  Cold  Water  Soap  Company,  of  Milwaukee'  " — proceeding  to 
state  at  length  the  objects  of  the  company,  the  amount  of  capital  stock, 
its  number  of  shares,  the  term  of  existence  of  the  company,  the  number 
and  names  of  the  directors  for  the  first  year,  they  being  the  subscribers 
themselves,  how  the  capital  stock  should  be  paid,  the  signers  sub- 
scribing for  all  the  stock  and  agreeing  to  pay  it  as  required  by  the 
directors,  and  concluding:  "We  hereby  adopt  the  foregoing  as  the 
articles  of  association  of  said  Warfield's  Cold  Water  Soap  Company, 
of  Milwaukee,  for  the  purpose  of  becoming  a  body  politic  and  cor- 
porate under  said  name.  Witness  our  .hands,  at  Chicago,  Illinois, 
this  twenty-third  day  of  November,  A.  D.  1870.  Charles  A.  Gregory. 
Franklin  H.  Watriss.  Oramel  S.  Hough.  Reuben  Hatch.  Isaac  N. 
Gregory." 

This  paper  was  filed  in  the  office  of  the  Secretary  of  State  of  Wis- 
consin on  the  8th  day  of  July,  1871,  and  in  the  office  of  the. city  clerk 
of  Milwaukee  August  23,  1871.  It  was  also  published  in  two  news- 
papers in  Milwaukee,  the  Guide  and  the  Herald,  September  13  and  15, 
1871. 

The  only  question  here  arising  is  whether  the  defendants  were  ex- 
empt from  individual  liability  by  reason  of  having  become  a  cor- 
poration. We  are  of  opinion  that  in  this  case,  as  the  question  here 
comes  up,  the  right  of  the  defendants  to  be  considered  a  corporation 
depends  upon  their  having  complied  with  the  requirements  of  their 
articles  of  association  and  the  filing  of  the  certificate.  These  are 
important  acts  as  aflfects  the  public  interest,  as  affording  means  of 
notice  respecting  the  corporation  to  such  as  deal  with  it,  so  that  they 
may  regulate  their  action  and  give  or  withhold  credit  accordingly, 
and  we  think  they  are  to  be  regarded  as  statutory  prerequisites,  es- 
sential to  corporate  existence^ 

The  defendants  are  seeking  escape  from  individual  liability.  Let 
them  show  that  they  have  complied  with  the  statute  which  enables 
them  to  do  so,  at  least  substantially,  as  respects  the  above-named  acts. 
Such  we  regard  to  be  the  doctrine  of  the  authorities.  Unity  Insur- 
ance Co.  V.  Cram,  43  N.  H.  641 ;  Mokelumne  Mining  Co.  v.  Wood- 
bury, 14  Cal.  425,  73  Am.  Dec.  658;  Harris  v.  McGregor,  29  Cal. 
124;  Field  v.  Cooks,  16  La.  Ann.  153;  Angell  &  Ames  on  Corp.  §  83. 

This  court  has  never  held  that  individuals  could  make  themselves 
a  corporation  by  the  mere  signing  of  articles  of  agreement.  And 
in  the  language  of  Parsons  on  Partnership,  p.  544,  "we  do  not  be- 
lieve that  a  joint-stock  company,  or  any  other  partnership,  can  limit 
its  own  liabilities  and  become  a  corporation  or  limited  partnership 
by  its  own  act  and  WMthout  any  regard  to  the  formalities  or  require- 
ments of  the  law."    And  see  Stowe  v.  Flagg  et  al.,  72  111.  397. 

Nothing  had  been  done  toward  incorporation,  except  the  signing 
of  the  articles   of  association,   until   July  8,   1871,  when   the   articles 


106  WHAT   CONSTITUTES   A   PARTNERSHIP.  .  (Ch.  1 

were  filed  with  the  Secretary  of  State  of  Wisconsin.  They  may  be  re- 
garded, perhaps,  as  substantially  embracing  the  particulars  required 
in  the  certificate.  The  greater  portion  of  the  indebtedness  sued  for 
had  been  contracted  prior  to  that  time.  The  filing  of  the  articles  in 
the  ofiice  of  the  city  clerk  of  Milwaukee,  in  which  place  the  business 
of  the  corporation  was  to  be  transacted,  and  the  publication  in  the 
newspapers,  did  not  take  place  until  after  August  I'J,  1S71,  when  the 
whole  indebtedness  had  been  contracted. 

We  are  of  opinion  the  defendants  were  liable  as  partners,  and  had 
not  absolved  themselves  from  responsibility  as  such  by  having  be- 
come a  corporation. 

Judgment  reversed. 


RUTHERFORD  v.   HILL   et   al. 

('supreme  Court  of  Oregou,  1892.  22  Or.  218.  29  Tac.  546,  17  L.  R.  A.  ~A0,  29 

Am.  St.  Rep.  596.) 

Action  by  James  A.  Rutherford  and  Stephen  G.  Smith  against  J. 
W.  Hill,  R.  P.  Earhart,  and  Sherman  Martin,  as  partners  under  the 
name  and  style  of  the  Himes  Printing  Company.  From  a  judgment 
on  a  verdict  against  them,  defendants  Hill  and  Earhart  appeal. 

The  defendants  are  sued  as  partners  under  the  firm  name  and  style 
of  the  Himes  Printing  Company.  The  complaint  does  not  anywhere 
allege  that  the  defendants  entered  into  an  agreement  of  copartnership, 
but  in  lieu  thereof  the  following  facts  are  alleged:  "That  the  de- 
fendants, on  or  about  the  3d  day  of  September,  1890,  executed, 
acknowledged,  and  filed  in  the  office  of  the  clerk  of  the  county  court 
of  Multnomah  county  and  in  the  office  of  the  secretary  of  state  at 
Salem,  Oregon,  certain  articles  of  incorporation  as  the  Himes  Print- 
ing Company;  that  the  defendants,  in  violation  of  the  laws  for  the 
formation  of  corporations  subsisting  in  the  state  of  Oregon,  negli- 
gently failed  to  provide  a  stockbook  and  to  secure  stock  subscrip- 
tions to  said  corporations ;  that,  in  spite  of  their  said  violation  of  the 
law,  the  defendants  undertook  to  carry  on  the  business  provided  for 
in  said  articles  of  incorporation,  appointed  one  George  H.  Himes 
superintendent  of  their  said  business,  and  authorized  him  and  the  de- 
fendant Sherman  Martin  to  represent  them  in  all  the  transactions  of 
said  business;  that  said  business  was  carried  on  under  the  firm  name 
and  title  of  the  Himes  Printing  Company;  that  between  May  1  and 
September  1,  1891,  the  plaintiff,  at  the  instance  and  request  of  the 
defenddnts,  through  their  agents,  the  aforesaid  Himes  and  the  de- 
fendant Martin,  performed  certain  labor  and  services  for  the  defend- 
ants, of  the  reasonable  and  agreed  value  of  $213.14,  which  sum  the 
defendants  promised  to  pay ;  that  the  plaintiffs  performed  the  afore- 
said work  relying  on  the  credit  and  representations  of  the  defendants 
for  their  payment."     Earhart  and  Hill  answered  separately,  'and  each 


Sec.  6)  DEFECTIVE    CORPORATIONS.  107 

of  them  denied  every  material  allegation  of  the  complaint,  except  they 
did  not  deny  executing  and  filing  the  articles  of  incorporation  of  the 
Himes  Printing  Company.  The  jury  returned  a  verdict  against  the 
defendants  Earhart  and  Hill  for  the  amount  claimed,  upon  which 
judgment  was  entered,  from  which  this  appeal  was  taken. 

Str.\han,  C.  J.  *  *  *  The  sole  question,  therefore,  seems  to 
be  whether  or  not,  where  three  or  more  persons  sign,  acknowledge, 
and  file  articles  of  incorporation  under  the  laws  of  this  state,  and  do 
nothing  further  towards  effecting  an  organization  or  carrying  on  the 
proposed  business,  and  one  of  them  assumes  to  do  business  under  the 
proposed  corporate  name,  and  incurs  liabilities,  the  other  persons  who 
signed  said  articles  are  liable.  Appellants  maintain  that  in  such  case 
there  is  no  liability  on  the  part  of  those  who  do  not  participate  in  the 
business  either  directly  or  indirectly,  while  the  respondents  seek  to 
maintain  the  reverse  of  this  proposition;  and  this  contention  presents 
the  only  question  we  need  consider  on  this  appeal. 

The  respondents  contend  that  the  executing  and  filing  of  the  arti- 
cles of  incorporation,  and  the  assumption  of  the  corporate  name  by 
one  of  the  parties,  under  which  he  does  business,  create  a  partnership 
between  all  the  persons  signing  said  articles,  and  to  sustain  this  view 
they  rely  upon  these  authorities:  Whipple  v.  Parker,  29  Mich.  380; 
Jessup  v.  Carnegie,  44  N.  Y,  Super.  Ct.  260 ;  Coleman  v.  Coleman, 
78  Ind.  346 ;  Pettis  v.  Atkins,  60  111.  454 ;  Smith  v.  Warden,  Sd  Mo. 
382;  Garnett  v.  Richardson,  35  Ark.  144;  Lindl.  Partn.  5;  Abbott 
V.  Smelting  Co.,  4  Neb.  416 ;  Johnson  v.  Corser,  34  Minn.  355,  25 
N.  W.  799.  Some  other  authorities,  similar  in  principle  to  these, 
might  be  cited,  but  they  add  nothing  to  this  side  of  the  question.  With- 
out stopping  to  distinguish  these  cases  from  the  one  now  before  us, 
we  think  the  decided  weight  of  authority,  as  well  as  the  better  rea- 
son, is  the  other  way.  Fay  v.  Noble,  7  Cush.  (Mass.)  188,  is  an  early 
case,  in  which  it  was  held  that  the  subscribers  for  and  holders  of  stock 
in  a  manufacturing  corporation  which  has  been  defectively  organized, 
and  transacted  business  under  such  defective  organization,  do  not 
thereby  become  partners,  general  or  special,  in  such  business.  In 
Trowbridge  v.  Scudder,  11  Cush.  (Mass.)  83,  it  was  held  that  the 
stockholders  of  a  corporation  do  not  become  liable  as  partners  on 
notes  given  by  the  treasurer  of  the  corporation  merely  because  after 
organizing  they  transacted  no  business.  In  First  Nat.  Bank  of  Almy 
V.  Almy,  117  Mass.  574,  it  was  held  that  the  members  of  a  corpora- 
tion were  not  liable  as  partners  by  reason  of  having  transacted  busi- 
ness before  the  whole  capital  stock  was  paid  in,  as  required  by  stat- 
ute. In  Humphreys  v.  Mooney,  5  Colo.  282,  in  considering  the  ques- 
tion now  before  the  court  it  was  said :  "The  doctrine  of  a  partnership 
liability  in  such  case  is  not  found  in  law  or  reason,  and  is  repugnant 
to  the  very  purposes  of  the  statute  authorizing  a  corporation,  one 
object  of  which  is  to  limit  individual  liability."  Substantially  the  saine 
doctrine  is  announced  in  Gartside  Coal   Co.  v.   Maxwell   (C.  C.)    22 


108  WHAT  CONSTITUTES   A   TARTNERSHIP.  (Ch.  1 

Fed.  197;  Planters'  &  Miners'  Bank  v.  Padgett,  GO  Ga.  159;  Stafford 
Nat.  Bank  v.  Palmer,  47  Conn.  443 ;  Ward  v.  Brigham,  127  :>Iass. 
24;  Central  City  Savings  Bank  v.  Walker,  66  N.  Y.  424;  Jessup 
V.  Carnegie,  80  N.  Y.  441,  36  Am.  Rep.  643;  Blanchard  v.  Kaull, 
44  Cal.  440;  Mor.  Corp.  §  748.  And  17  Amer.  &  Eng.  Enc.  .Law. 
866,  after  stating  that  the  rule  contended  for  by  respondents  had 
been  adopted  by  quite  a  large  number  of  cases,  remarks:  "But  the 
weight  of  authority  perhaps  sustains  the  contrary  rule  that,  if  they 
were  acting  under  the  supposition  that  they  were  incorporated,  and 
were  assuming  only  the  liability  of  stockholders,  and  not  that  of  part- 
ners, they  will  not  be  held  liable  as  such."  And  a  long'  list  of  cases 
is  cited  to  sustain  this  proposition. 

It  is  not  doubted  that  cases  might  arise,  and  can  readily  be  im- 
agined, where  the  incorporators  sought  to  be  charged  might  take  such 
part  in  conducting  the  business,  or  hold  themselves  out  to  the  world  as 
partners  or  as  principals  in  the  business,  that  they  would  be  held  liable ; 
but  this  would  grow  out  of  their  conduct  in  carrying  on  the  business, 
and  not  out  of  the-  mere  fact  of  signing  and  filing  the  articles.  If  the 
appellants  could"  be  held  liable  in  this  case,  such  liability  would  rest 
on  the  mere  act  of  signing  and  filing -the  articles,  and  not  upon  any 
participation  in  the  business,  either  directly  or  indirectly.  It  would 
have  to  rest  upon,  the  theory  that,  by  the  mere  signing  the  articles  with 
Martin,  they  constituted  him  their  general  agent,  to  proceed  to  con- 
duct the  business  contemplated  by  the  proposed  corporation,  thus 
creating  a  liability  for  any  act  of  his  done  within  the  scope  of  the 
powers  of  the  proposed  corporation.  No  authority  to  which  our  at- 
tention has  been  directed  has  gone  so  far,  and  we  feel  safe  in  saying 
that  none  can  be  found  to  support  that  doctrine.  We  therefore  re- 
verse the  judgment,  and  remand  the  cause  for  such  further  proceed- 
ings as  are  not  inconsistent  with  this  opinion. 


SECTION   7.— JOINT-STOCK   COMPANIES. 


CARTER  et  al.  v.  McCLURE  et  al. 

(Supreme  Court  of  Tennessee,  18!)7.    98  Tenn.  109,  38  S.  W.  585,  36  L.  R.  A- 

282,  GO  Am.  St.  Rep.  842.) 

• 

Beard,  J.  The  bill  in  this  cause  was  filed  by  complainants,  as  credit- 
ors of  McClure,  Lucas  &  Co.,  seeking  to  hold  the  defendants  liable  for 
the  debts  of  that  concern,  upon  the  theory  that  it  was  a  commercial 
firm,  of  which  defendants  were  members,  at  the  time  of  the  creation 
of  these  debts.  The  facts,  so  far  as  they  are  important  in  the  de- 
cision of  this  case,  and  as  they  have  been  found  by  the  Court  of  Chan- 


Sec.  7)  JOINT-^TOCK    COMPANIES.  109 

eery  Appeals,  are:  That  these  defendants,  with  others  who  are  not 
sued,  all  members  of  an  alliance  lodge  in  the  town  of  Huntland,  in  this 
state,  entered  into  an  agreement  among  themselves  to  raise  a  sum  of 
money  which,  it  was  assumed,  would  be  sufficient  to  establish  a  co- 
operative store  in  that  place.  This  agreement  was  reduced  to  writ- 
ing, and  the  names  of  the  parties  in  interest  were  by  them'  affixed  to 
it,  and  over  against  his  signature  was  placed  the  amount  which  each 
subscriber  obligated  himself  to  contribute  to  this  joint  enterprise.  This 
agreement  is  in  words  and  figures  following,  to  wit:  "Huntland, 
Tenn.,  Dec.  21,  1888.  We,  the  undersigned,  agree  to  pay  to  the  di- 
rectors, to  be  elected,  the  sum  annexed  to  our  respective  names,  by 
the  first  of  January,  1889,  for  the  purpose  of  establishing  a  co-opera- 
tive store  at  Iluntland,  Tennessee.  We  further  agree  that  the  said 
money  remain  in  the  business  for  at  least  five  years  from  beginning, 
unless  two-thirds  of  the  stockholders  agree  to  discontinue  the  "busi- 
ness in  a  shorter  time.  We  further  agree  that  three  of  the  stock- 
holders be  elected  annually  as  directors,  to  have  full  control  of  the 
stock  hereunto  subscribed.  It  is  further  agreed  that  the  directors 
act  in  conjunctipn  with  R.  W.  McClure,  who  is  a  stockholder  to  the 
amount  of  $2,050,  and  who  is  to  be  the  principal  salesman,  and  in 
the  transaction  of  all  business  between  the  said  McClure  and  directors, 
the  directors  are  to  be  regarded  collectively  or  as  a  unit,  and  the  said 
McClure  as  a  unit."  After  the  execution  of  this  paper,  the  three  di- 
rectors provided  for  in  it  were  duly  chosen,  and  into  their  hands  the 
subscribers  paid  the  several  sums  they  had  agreed  to  contribute. 
These  sums,  aggregating  $590,  were  turned  over  by  the  directors  to 
Mr.  McClure,  who,  adding  the  amount  of  $2,050,  which  he  had  agreed 
to  place  in  the  venture,  purchased  a  stock  of  goods,  and  opened  up  a 
co-operative  store  in  the  name  of  R.  W.  McClure  &  Co.,  this  being 
the  business  name  agreed  upon  by  McClure  and  the  three  directors. 
No  incorporation  ever  took  place,  nor  was  such  ever  intended  by  these 
parties.  The  main  purpose  of  the  defendants,  in  entering  into  this 
business,  was  to  avoid  what  they  deemed  to  be  the  extortion  there- 
tofore practiced  upon  them  in  the  sale  of  goods  by  the  merchants 
of  the  country.  While  not  embodied  in  their  writing,  yet  one  of  the 
terms  of  the  contract,  and  the  one  which  chiefly,  if  not  altogether,  in- 
duced all  the  subscribers  (save,  no  doubt,  McClure)  to  become  in- 
terested in  this  enterprise,  was  that  they  were  to  purchase  such  goods 
as  they  might  require  from  the  stock  in  this  store  at  a  profit  not  ex- 
.  ceeding  10  per  cent,  above  cost;  and  these  directors  were  chosen  as 
their  representatives,  especially,  to  look  after  McClure,  who  was  the 
largest  shareholder,  as  well  as  manager,  and  see  that  he  kept  faith 
with  the  subscribers  in  this  matter.  While  the  defendants,  styling 
themselves  in  their  written  agreement  as  "stockholders,"  took  no 
active  personal  control  of  the  concern,  yet  they  manifested  a  lively 
interest  in  its  success.  In  addition  to  giving  it  the  benefit  of  their 
own  patronage,  they  were  zealous  in  commending  it  to  their  neighbors. 


110  WHAT   CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

At  the  end  of  the  first  year  one  Mosely  desired  to  purchase  an  inter- 
est in  the  business.  He,  however,  was  not  a  member  of  the  "alliance," 
and,  organized  as  this  enterprise  was,  in  line  with  or  under  the  in- 
spiration of  that  movement,  it  was  necessary  that  he  become  such 
before  he  could  be  allowed  to  make  such  purchase.  In  order  to  qual- 
ify him  to  this  end,  the  rules  of  the  "lodge"  to  which  these  defendants 
belonged  were  suspended,  and  at  one  meeting  he  was  admitted  to 
the  privilege  of  full  fellowship  with  them.  He  contributed  !$2,000  to 
the  capital  of  the  concern,  and  its  name  was  changed  to  McClure, 
Mosely  &  Co.  At  the  end  of  another  term  of  12  months  Mosely  sold 
out  his  interest  to  one  Lucas  and  thereafter  the  enterprise  was  con- 
ducted in  the  name  of  McClure,  Lucas  &  Co.,  until  insolvency  over- 
whelmed it  with  disaster.  Xhe  claims  of  complainants  accrued  during 
the  existence  of  and  against  this  latter  concern.  In  addition  to  these 
changes  in  the  organization  of  and  style  of  the  business,  two  deaths 
occurred  among  the  original  subscribers — one  of  them  before,  and 
the  other  after,  the  creation  of  these  debts.  This  latter  death,  how- 
ever, can  in  no  way  affect  this  controversy,  and  will,  therefore,  not 
be  further  noticed.  Upon  this  state  of  facts,  it  is  insisted  for  the  de- 
fendants— First,  that  this  undertalcing  was  in  no  sense  a  partnership, 
and  that  they  did  not  sustain  the  relation  of  partners  to  either  R. 
W.  McClure  &  Co.,  Mosely,  McClure  &  Co.,  or  McClure,  Lucas  & 
Co. ;  secondly,  if  however,  they  are  mistaken  in  this  broad  proposi- 
tion, then  that  they  were  only  partners  in  the  firm  of  R.  W.  Ad^cClure 
&  Co.,  and  that  all  partnership  relation  and  liability,  on-  their  part, 
were  terminated  or  dissolved  by  the  various  changes  already  adverted 
to,  and  long  prior  to  the  creation  of  complainants'  debts.  The  chan- 
cellor and  the  Court  of  Chancery  Appeals  held  both  these  contentions 
against  the  defendants,  and  the  case  is  now  before  us  on  an  appeal 
from  the  decree  of  this  last-named  court. 

1.  Were  those  parties  engaged  in  a  partnership  enterprise?  All  of 
the  defendants  earnestly  disclaim  any  purpose  of  entering  upon  such 
an  undertaking.  While,  as  has  been  stated,  the  prime  motive  of  these 
parties  was  to  organize  a  mercantile  establishment  where  their  various 
needs  would  be  supplied  at  reasonable  figures,  yet  they  confess  that, 
outside  of  this,  they  expected  to  share  in  any  profits  earned  by  it  in 
proportion  to  the  respective  amounts  contributed  by  them.  These 
amounts  were  small,  yet  they  were  to  serve  as  a  basis  for  such  distri- 
bution of  profits.  It  is  no  doubt  true  that  the  defendants  did  not  con- 
template a  partnership,  and  each  supposed  that  he  was  simply  taking  a 
share  in  a  joint-stock  enterprise,  in  which  all  he  risked  was  the  small 
sum  paid  for  such  share ;  yet  it  is  for  the  law  to  determine,  on  the 
facts  already  given,  whether  a  partnership  was  created,  with  all  its 
attending  liabihties.  In  Mallory  v.  Oil  Works,  86  Tenn.  598,  8  S. 
W.  396,  is  quoted  approvingly  the  definition  of  a  partnership  as  giv- 
en by  Judge  Story.  "A  partnership,"  says  the  former  writer,  "is  usu- 
ally defined  to  be  a  voluntary  contract  between  two  or  more  competent 


Sec.  7)  JOINT-STOCK    COMPANIES.  Ill 

persons  to  place  their  money,  effects,  labor,  and  skill,  or  some  or  all  of 
them,  in  lawful  commerce  or  business,  with  the  understanding  that 
there  shall  be  a  communion  of  the  profits  thereof  between  them."  Story, 
Partn.  §  2.  The  facts  found  by  the  Court  of  Chancery  Appeals,  a  gen- 
eral outline  of  which  is  given  above,  disclose  the  constituent  elements 
of  a  partnership  as  required  by  this  definition.  It  is  a  case  where 
these  parties  have  embarked  their  money  "in  lawful  commerce, 
*  *  *  with  the  understanding  that  there"  should  be  a  division 
of  profits  earned.  In  addition  to  this,  they  have  taken  a  firm  name, 
and  thus  have  advertised  themselves  to  the  world  as  a  commercial 
partnership.  Calling  their  contributions  to  the  capital  of  this  busi- 
ness a  "subscription  for  stock,"  and  taking  certificates  for  their  pay- 
ments from  the  company  as  a  joint-stock  company,  it  not  being  incorpo- 
rated, cannot  alter  their  liability.  "There  is  no  intermediate  associa- 
tion, or  form  of  organization,  between  a  corporation  and  a  partner- 
ship, known  to  the  common  law,  and,  unless  otherwise  provided  by 
statute,  as  is  the  case  in  England  and  New  York,  a  joint-stock  compa- 
ny is  treated  and  has  the  attributes  of  a  common  partnership."  1  Bates. 
Partn.  §  72.  And  Judge  Story  says  that,  "in  joint-stock  and  other 
large  companies,  which  are  not  incorporated,  but  are  a  simple,  although 
an  extensive,  partnership,  their  liabilities  to  third  persons  are  gener- 
ally governed  by  the  same  rules  and  principles  which  regulate  com- 
mercial partnerships."  And  such  has  been  the  conclusion  of  the  courts 
wherever  the  character  of  joint-stock  companies  similar  to  the  one  in 
question  has  been  passed  upon,  so  far  as  our  examination  has  dis- 
closed. At  least  such  was  the  holding  in  Hodgson  v.  Baldwin,  65 
111.  532;  Kenyon  v.  Williams,  19  Ind.  44;  Manning  v.  Gasharie,  27 
Ind.  399;  Beaman  v.  Whitney,  20  Me.  413;  Farnum  v.  Patch,  60 
N.  H.  294,  49  Am.  Rep.  313.  the  Supreme  Court  of  New  Hampshire, 
in  this  last-cited  case,  have  delivered  an  able,  exhaustive  opinion  upon 
the  law  of  partnership  as  it  applies  to  an  association  like  the  one  in 
question,  and  we  content  otirselves  with  what  we  have  already  said 
and  by  making  special  reference  to  that  opinion.  In  the  light  of  these 
authorities,  we  think  there  can  be  no  doubt  that  these  parties  were 
partners  in  the  firm  of  R.  W.  McClure  &  Co. 

2.  We  think  it  equally  clear,  on  the  facts  of  this  case,  and  in  view 
of  the  legal  principles  applicable  to  them,  that  there  was  no  termina- 
tion of  the  partnership  enterprise,  resulting  from  the  changes  oc- 
curring during  its  progress,  by  the  introduction  and  subsequent  with- 
drawal of  Mosely,  and  the  accession  of  Lucas  or  his  capital  to  it,  or 
the  death  of  one  qf  the  original  subscribers  intermediate  between  the 
start  of  this  business  and  the  final  insolvency  of  McClure,  Lucas  & 
Co.;  that,  through  all  these  changes,,  the  defendants'  relations  re- 
mained as  fixed  by  themselves  in  the  beginning;  and  that  they  are 
liable  as  partners  for  the  debts  sought  to  be  enforced  in  this  cause. 
This  conclusion  we  rest  on  two  grounds : '  First.  It  is  found  by  the 
Court  of  Chancery  Appeals  i  to  be  a  fact  that  these  defendants  were 


112  WHAT  CONSTITUTES   A   PARTNERSHIP.  (Ch.  1 

members  of  the  alliance  lodge  that,  by  a  suspension  of  its  rules,  hur- 
riedly qualified  jMosely,  so  that  he  might  bring  his  capital  and  his 
name  to  tlie  aid  of  this  joint  undertaking.  They  do  not  claim  to  have 
been  ignorant  of  this  proceeding,  or  to  have  offered  any  opposition  to 
it,  either  in  or  out  of  their  lodge,  or  that  they  made  any  protest  against 
his  accession  to  the  business.  On  the  contrary,  their  zeal  for  the  suc- 
cess of  the  movement  continued  undiminished.  And  so  with  regard 
to  the  withdrawal  of  Mosely  and  the  introduction  of  Lucas  in  his 
room  and  stead.  The  record  shows  consultation  with  quite  a  num- 
ber of  these  defendants  as  to  the  advisability  of  this  change,  and  an 
agreement  with  them  in  regard  thereto,  and  acquiescence,  at  least 
by  silence,  on  the  part  of  the  remainder.  All  these  parties,  through 
the  various  changes  in  the  personnel  of  the  organization,  by  death  and 
purchase,  and  in  the  firm  name  under  which  the  business  was  carried 
on,  not  only  stood  by  and  watched  the  movements  of  the  concern,  as 
one  in  which  they  had  a  part,  but  they  made  no  claim  of  dissolution 
by  reason  thereof  until  confronted  by  the  claims  of  these  complain- 
ants. It  was  then  too  late.  For,  conceding  that  either  one  of  these  acts 
might  have  been  availed  of  by  the  defendants  as  working  a  dissolution 
of  their  partnership,  yet,  at  their  election,  tliey  might  waive  this  effect. 
Second.  The  nature  of  this  enterprise  repels  the  idea  that  it  was  in 
the  contemplation  of  the  parties  that  either  deatli  or  any  transfer  of 
shares  should  work  a  dissolution  of  the  business.  Not  only  was  it  to 
continue  for  five  years,  ".unless  two-thirds  of  the  stockholders  'agreed' 
to  discontinue  the  business  in  a  shorter  time,"  but  the  shares  of  the 
stockholders  were  transferable.  Says  Mr.  Bates,  in  his  work  on  Part- 
nership (volume  1,  §  72)  :  .  "The  fact  of  transferable  shares  makes 
such  an  association  different,  not  merely  in  magnitnde,  but  in  kind, 
from  ordinary  partnerships,  because  not  based  upon  mutual  trust 
and  confidence  in  the  skill,  knowledge,  and  integrity  of  every  other 
partner.  Hence  a  sale  of  his  shares  by  a  member,  the  shares  being 
transferable,  is  not  a  dissolution.  Death  of  a  member  is  not  a  dis- 
solution, if  such  was  the  intent  and  the  character  of  the  association,  in 
that  the  shares  are  transferable,  and  it  is  governed  by  officers,  and  is 
in  the  form  of  a  corporation,  is  evidence  of  such  intent."  What  the 
text-writers  and  the  opinions  of  many  courts  call  the  "delectus  per- 
sonarum,"  an  element  in  an  ordinary  commercial  partnership,  is  lack- 
ing when  a  partnership  assumes  the  character  of  a  joint-stock  company 
with  transferable  shares.  2  Bates,  Partn.  §  581;  Machinists'  Nat. 
Bank  v.  Dean,  124  Mass.  81;  Walker  v.  Wait,  50  Vt.  668;  McNeish 
v.  Oat  Co.,  57  Vt.  316. 

It  follows  that  the  assignments  of  error  upon  the  decree  of  the 
Court  of  Chancery  Appeals,  in  the  particulars  above  indicated,  must 
be  overruled.  The  assignments  of  error  upon  the  court's  decree  as  to 
the  Lipscomb  claim  are  disposed  of  only.  The  decree  of  that  court 
is  in  all  things  affirmed. 


Sec  1)  THE   OEEATION   OF  A   PARTNERSHIP.  113 

CHAPTER  II. 
THE  CREATION  OF  A  PARTNERSHIP. 


SECTION  1.— ARISES  OUT  OF  CONTR.\CT. 


Societie  is  a  contract  by  consent  about  a  thing-  to  be  had  or  used 
in  common  on  both  sides.  *  *  *  But  that  only  is  properly  called 
Societie,  which  by  mutual  consent  is  applied  to  that  end,  that  there 
may  be  partnership  'or  fellowship  among  the  persons  contracting; 
wherein  so  soon  as  they  are  fully  agreed,  the  one  is  properly  called 
the  other's  fellow.     West's  Symboleography,  §  26. 


PHILLIPS- V.  PHILLIPS. 

(Supreme  Court  of  Illiuois,  1863.    49  111.   437.) 

Caton,  C.  T.  The  only  question  in  this  case  is  one  of  fact.  Was 
there  a  copartnership  between  John  Phillips  and  his  four  sons,  or 
was  he  the  sole  proprietor  of  the  business  about  which  the  contro- 
versy has  arisen?  It  must  be  remembered  in  the  outset  that  this  is  a 
controversy  inter  sese,  and  is  not  between  third  parties  and  the  alleged 
members  of  the  firm.  Parties  may  so  conduct  themselves  as  to  be 
liable  to  third  persons  as  partners  when  in  fact  no  partnership  exists 
as  between  themselves.  The  public  are  authorized  to  judge  from  ap- 
pearances and  professions,  and  are  not  absolutely  bound  to  know  the 
real  facts,  while  the  certain  truth  is  positively  known  to  the  alleged 
parties  of  a  firm.  A  partnership  can  only  exist  in  pursuance  of  an 
express  or  implied  agreement  to  which  the  minds  of  the  parties  have 
assented.  The  intention  or  even  belief  of  one  party  alone  cannot  create 
a  partnership  without  the  assent  of  the  others.  If  John  S.  Phillips 
designed  and  really  believed  that  there  was  a  partnership,  but  to 
which  his  father  and  brothers  never  assented,  and  in  the  existence 
of  which  they  did  not  believe,  then  there  was  no  partnership,  unless, 
indeed,  a  copartnership  could  be  formed  and  conducted  without  fheir 
knowledge  or  consent.  This  would  be  simply  absurd.  We  cannot 
in  this  way  surprise  them  into  a  partnership  of  which  they  never 
dreamed. 

Over  20  years  ago  John  Phillips  emigrated  from  Scotland  and  set- 
tled in  Chicago  with  his  family,  consisting  of  a  wife  and  four  sons 
Gil.Fart.— 8 


114  THE  CREATION  OF  A   PARTNERSHIP.  (Ch.  2 

and  two  daughters.  He  was  then  very  poor.  He  was  a  wood  turner 
by  trade,  and  commenced  that  business  in  a  very  small  way  with  a 
foot  lathe.  He  was  frugal,  industrious,  and  honest,  and  prospered  as 
but  few  men,  even  in  this  country,  prosper.  He  labored  hard  with  his 
own  hands,  and  as  his  sons  grew  up  they  joined  their  work  to  his, 
all  except  John  S.,  who  at  a  proper  age  was  put  as  an  apprentice  to 
learn  the  chair  maker's  trade ;  but,  his  health  proving  delicate,  his 
father  made  an  arrangement  with  his  master  by  which  his  time  was 
released  when  he  had  but  partially  learned  his  trade,  when  John  S. 
returned  home  and  took  a  more  or  less  active  part  in  the  business  of 
his  father.  His  health  was,  however,  for  many  years  very  delicate, 
and  he  was  enabled^  to  do  but  little  physical  labor.  He,  however,  most' 
ly  took  charge  of  the  office  and  books,  for  which  the  testimony  shows 
he  was  very  well  qualified,  and  where  he  rendered  efficient  service. 
In  the  meantime  the  business  had  grown  from  the  smallest  beginning, 
with  a  single  foot  lathe,  to  a,  large  manufactory,  with  extensive  ma- 
chinery propelled  by  steam ;  and  chair  making,  which  was  introduced 
at  an  early  day,  had  become  the  principal  or  largest  branch  of  the 
business.  Thus  this  business  was  begun  and  continued  and  prospered 
till  1860,  when  the  complainant  left  his  father  and  the  business,  and 
filed  this  bill  for  an  account  as  among  partners. 

The  business  had  always  been  conducted,  as  it  was  begun,  in  the 
name  of  John  Phillips,  the  father,  although  in  a  few  instances  bills 
were  made  out  to  John  Phillips  &  Sons  by  persons  with  but  a  super- 
ficial acquaintance  with  them,  which  were  paid  without  eliciting  re- 
mark or  particular  attention.  The  books  were  all  kept  in  the  name  of 
John  Phillips,  with  the  exception  of  a  few  entries  made  by  a  book- 
keeper in  the  name  of  John  Phillips  &  Sons.  Indeed,  there  is,  and  can 
be,  no  question  that,  if  there  was  a  copartnership  embracing  the 
father  and  sons,  the  firm  name  adopted  was  John  Phillips. 

The  complainant,  to  show  a  copartnership,  proves  that  the  sons  all 
devoted  their  time  and  attention  to  the  business  after  they  attained 
their  majority,  without  regular  salaries  as  laborers  or  servants;-  that 
funds  which  they  drew  from  the  concern  for  their  support  were  charged 
to  each  one  separately,  while  neither  received  a  credit  for.  labor  or  serv- 
ices; that  the  father,  upon  one  or  two  occasions,  stated  to  third  per- 
sons that  his  sons  were  interested  in  the  business ;  and  he  also  relies 
upon^the  appearances  to  the  outside  public  and  the  interest  which  all 
took  in  the  success  of  the  business. 

For  the  defense  it  is  claimed  that,  following  the  habits  and  customs 
of  their  forefathers  in  Scotland,  the  sons  continued  to  serve  the  father 
in  the  same  relation  and  with  the  same  fidelity  after  attaining  their 
majority  as  before,  under  the  distinct  and  often  declared  understand- 
ing that  all  should  belong  to  the  father  during  his  life,  and  at  his  death 
the  business  and  property  should  be  left  by  him  to  his  children,  as 
he  should  think  proper.  If  such  was  the  understanding  and  purpose 
of  the  parties,  then  there  was  no  partnership.     Originally,  undoubt- 


Sec.  1)  ARISES   OUT   OF    CONTIIACT.  115 

edly,  the  entire  concern  belonged  to  the  father,  and  it  so  continued, 
unless  by  the  agreement  of  the  father  the  sons  were  admitted  into  the 
concern  as  partners;  for,  as  before  intimated,  we  know  of  no  means 
by  which  the  sons  could  become  partners  with  the  father,  and  thus  ac- 
quire a  title  to  his  property,  without  his  knowledge  or  consent.  Did 
the  father  ever  consent  that  his  sons,  or  either  of  them,  should  be  ad- 
mitted as  partners  with  him?  Did  he  ever  agree  that  they  should  be 
part  owners  of  this  property?  On  repeated  occasions  the  subject  of 
a  copartnership  .with  his  sons  was  presented  to  him,  both  in  the  pres- 
ence of  the  complainant  and  his  brothers,  and  he  ever  repudiated  the 
suggestion  in  the  most  emphatic  terms.  The  very  suggestion,  even, 
seemed  to  excite  his  indignation.  Upon  one  occasion  he  expressed 
himself  in  this  characteristic  phrase:  "Na,  na!  I  will  ha'  nae  sons 
for  partners  as  long  as  I  live.  Damn  them!  they  would  put  me  out 
of  the  door."  On  none  of  these  occasions  do  we  find  the  -complainant, 
or  anv  of  his  brothers,  claiming  the  existence  of  a  copartnership ;  but, 
on  the  contrary,  they  silently  acquiesced  in  the  assertions  of  the 
father.  Had  there  been  ever  any  agreement,  expressed  or  implied, 
that  there  should  be  a  partnership,  they,  as  parties  to  it,  must  have 
been  aware  of  it.  If  not  expressed  in  words,  there  must  have  been 
at  least  the  mental  intention  and  tacit  understanding  on  the  part  of 
the  father  that  they  should  be  admitted  as  partners,  and  on  their  part 
to  assume  the  benefits  and  liabilities  of  partners,  and  this  could  not  be 
without  their  knowledge.  Others  might  be  deceived  by  appearances. 
Others,  ignorant  of  the  customs  and  traditions  of  their  forefathers, 
which  are  so  fondly  cherished  by  emigrants  from  the  old  country,  and 
particularly  from  Scotland,  might  draw  erroneous  conclusions  as  to 
the  true  relation  existing  between  them  as  a  family,  by  seeing  men  in 
middle  life  zealously  bending  their  energies  under  the  guidance  of  their 
father  to  the  promotion  of  the  success  of  the  business.  Whoever 
should  apply  customs  prevalent  among  native  Americans  to  this  state 
of  facts  would  unhesitatingly  conclude  that  all  were  in  partnership. 
And  so,  no  doubt,  many  were  deceived;  nor  was  it  deemed  neces- 
sary by  any  of  the  parties,  on  all  occasions,  to  undeceive  them  by  a 
full  explanation  of  this  family  arrangement. 

But  the  question  here  is,  what  was  the  actual  fact?  and  not  what 
observers  supposed  was  the  fact  from  appearances.  It  is  the  internal 
truth  we  are  seeking,  and  these  external  appearances  are  only  im- 
portant as  they  may  enable  us  to  arrive  at  this  truth;  and  when  we 
so  find  the  truth  by  indubitable  proof  in  a  different  direction  than  that 
indicated  by  these  external  appearances,  then  these  must  go  for 
naught.  Here  we  have  the  positive  testimony  of  every  living  man  who 
has  the  absolute  knowledge  of  the  facts,  including  the  complainant 
himself,  all  testifying  most  unqualifiedly  that  there  was  no  partner- 
ship. 

Decree  is  reversed,  and  the  bill  dismissed. 


116  THE   CREATION   OF  A  PARTNERSHIP.  (Ch.  2 

SABEL  et  al.  v.  SAVANNAH  RAIL  &  EQUIPMENT  CO. 

(Supreme  Court  of  Alabama,  1903.    135  Ala.   380,  33  South.  6G3.) 

Tyson,  J.  The  important  question  presented  is  whether  the  agree- 
ment shown  by  the  bill  constituted  complainants  and  respondents  part- 
ners. It  is  made  to  appear  that  respondents  called  the  complainants' 
attention  to  the  possibility  of  purchasing  on  very  favorable  terms  17 
secondhand  narrow-gauge  locomotives  from  the  Plant  System;  and 
thereupon  an  agreement  was  made  to  purchase  the  engines,  and  which- 
ever party  (complainants  or  respondents)  should  have  the  opportunity 
to  buy  would  do  so  "upon  the  best  terms  possible,"  and  when  pur- 
chased the  engines  should  be  sold  on  joint  account.  It  further  appears 
that  respondents  did  buy,  but  it  does  not  appear  that  the  purchase 
was  made  on  joint  account.  After  the  purchase,  complainants,  with- 
out knowing  the  terms  of  the  contract  of  purchase,  wrote  the  respond- 
ents, saying:  "We  had  an  agreement  with  you  to  purchase  these  loco- 
motives on  joint  'account.  Please  let  us  know  what  you  have  done  in 
the  matter."  To  this  the  respondents  replied:  "We  have  bought  the 
seventeen  narrow-gauge  locomotives  from  the  Plant  System  for  $18,- 
000,  as  they  are.  As  we  stated  to  you  that  we  would  consider  you  in 
the  deal,  if  you  desire  to  be  half  partners  of  this  material,  send  us 
your  check  for  $9,000,  and  we  will  consider  you  in  on  joint  account." 
It  does  not  appear  what,  if  any,  reply  was  made  to  this  letter.  It 
must  be  inferred  that  complainants  made  no  reply,  or  declined  the 
offer.  Complainants  allege  that  they  afterwards  discovered  that  re- 
spondents bought  the  engines  for  $17,000,  without  paying  any  cash 
except  as  the  engines  were  sold  by  them,  and  that  they  received  $10,- 
000  profit  out  of  the  transaction.  The  purpose  of  the  bill  is  to  make 
the  respondents,  as  partners,  account  to  complainants  for  these  profits. 
It  would  seem  that,  from  complainants'  refusal  to  reply  to  the  re- 
spondents' letter,  although  the  latter  may  have  stated  the  trade  with 
the  Plant  System  differently  from  that  actually  made,  the  complain- 
ants did  not  consider  themselves  bound  by  the  dealing  of  their  alleg- 
ed partners — conceding  that  there  may  be  a  valid  partnership  be- 
tween the  two  concerns — unless  the  terms  of  the  trade  were  favorable. 
This  is  not  the  way  partners  deal.  When  a  partnership  transaction 
is  made,  partners  are  absolutely  bound  thereby.  There  is  no  discre- 
tion about  participating.  The  respondents'  letter  also  plainly  indicat- 
ed that  they  did  not  consider  the  complainants  concerned  in  the  pur- 
chase until  they  consented  to  be  bound.  Here,  then,  we  have  the  in- 
terpretation of  the  contract  by  both  parties  concerned,  each  indicating 
to  the  other  and  each  acquiescing  in  the  view  that  there  was  a  mere 
agreement  relating  to  the  future,  and  not  an  actual  partnership.  And 
when  we  look  at  the  nature  of  the  agreement  as  detailed  in  the  bill, 
we  see  it  could  mean  nothing  else.  There  was  nothing  contributed ; 
nothing  done  at  the  making  of  the  agreement,  except  to  stipulate  that 


Sec.  1)  ARISES    OUT    OF    CONTRACT.  117 

the  parties,  acting  separately,  as  occasion  might  offer,  would  buy  (if 
possible)  the  engines  on  "the  best  terms  possible,"  and  that  when  pur- 
chased on  those  terms,  as  the  complainants  insist,  and  not  otherwise, 
they  would  be  partnership  property,  and  be  sold  as  such.  Who  was 
to  say,  and  when,  that  "the  best  terms  possible"  had  been  made?  The 
agreement  was  not  that  the  purchase  should  be  made  at  all  events, 
or  at  the  discretion  of  either  party,  or  by  their  joint  action.  But,  as 
we  have  said,  each  of  the  partners  was  to  act  separately,  and  thus  on 
individual  account,  until  the  other  party  acceded  to  the  transaction. 
Thus  it  is  made  evident  from  the  conduct  of  the  parties,  and  the  agree- 
ment itself,  that  there  was  no  actual  partnership.  To  constitute  a 
partnership,  there  must  be  a  "valid  agreement  to  enter  into  partner- 
ship, and  this  contract  must  be  executed."  Parsons  on  Part.  p.  6. 
Unless  something  is  done,  or  unless  the  agreement,  from  its  nature, 
operates  in  prsesenti,  the  contract  is  executory,  and  either  party  may 
decline  to  carry  it  out,  though  liable,  it  may  be,  to  a  bill  for  specific 
performance  or  for  damages  at  law  in  proper  cases.  22  Am.  &  Eng. 
Enc.  Law  (2d  Ed.)  52,  and  note  2;  Meagher  v.  Reed,  14  Colo.  335, 
24  Pac.  G81,  9  L.  R.  A.  455,  460;  Latta  v.  Kilbourn,  150  U.  S.  546, 
14  Sup.  Ct.  201,  37  L.  Ed.  ,1169. 

We  feel  constrained  to  hold  that  the  facts  alleged  in  the  bill  do,  not 
show  a  partnership,  and  that  the  motion  to  dismiss  the  bill  for  want  of 
equity  should  have  been  granted.  In  conformity  with  this  conclu- 
sion, a  decree  will  be  here  entered  reversing  the  decree  below  and  dis- 
missing the  bill. 


BURNETT  v.  SNYDER. 

(Court  of  Appeals  of  New  York,  1879.     76  N.  Y.  344.) 

This  action  was  brought  to  recover  an  indebtedness  of  the  firm  of 
Strang,  Piatt  &  Co.,  of  which  firm  defendants  were  alleged  to  be 
members.  Defendant  Snyder,  who  alone  appeared  and  answered, 
denied  that  he  was  a  partner.  Appeal  from  a  judgment  in  favor  of 
defendant   Snyder. 

Danforth,  J.  The  question  upon  this  appeal  is  whether  the  legal 
effect  of  the  agreement  entered  into  between  the  defendant  Snyd^?r, 
Peter  O.  Strang,  and  Amnion  Piatt  is  such  that  Snyder  thereby  be- 
came a  member  of  the  firm  of  Strang,  Piatt  &  Co.  There  is  nothing 
else  to  be  considered,  for  the  referee  has  found,  not  only  that  Snyder 
was  not  a  partner,  but  that  he  was  not  held  out  as  being  a  partner, 
either  by  himself  or  by  members  of  the  firm,  and,  further,  that  the 
plaintiff  had  no  behef  prior  to  the  year  1875  (several  years  after, the 
debt  in  suit  was  contracted)  that  Snyder  was  a  member  of  the  firm. 

These  propositions  were  all  fairly  open  to  debate,  by  exceptions  tak- 
en to  the  findings ;  but  it  is  not  now  claimed  by  the  appellant  that 
there  is  anv  reason   for  impeaching  the  last  two  conclusions,  or  any 


118  THE  CREATION   OF  A   PARTNERSHIP.  (Cll.  2 

ground  upon  which  the  first  can  be  assailed,  unless  it  is  found  in  the 
agreement  above  referred  to.  The  provisions  of  this  instrument  are 
not  all  as  clear  and  coherent  as  might  have  been  expected,  but  it  has 
certain  unmistakable  features  which  leave  no  doubt  as  to  its  proper 
construction. 

First.  It  purports  to  be  an  agreement  by  Peter  O.  Strang  and 
Ammon  Piatt,  in  their  individual  capacity,  with  C.  Brown  Snyder. 
It  is  dated  December  31,  1869,  and  recites  that  a  copartnership  was 
on  that  day  formed  between  Strang,  Piatt,  Phillip  C.  Lockwood, 
Amasa  Clark, 'and  Ammon  B.  Piatt,  under  the  name  of  Strang,  Piatt 
&  Co.,  that  it  is  deemed  expedient  and  for  the  interest  of  said  firm 
that  Snyder  should  have  an  interest  and  become  a  copartner  there- 
in, and  therefore  it  is  agreed  between  the  parties  to  that  pap^r  "that 
C.  B.  Snyder  is  a  copartner  in  the  firm,"  and  in  consideration  of  the 
agreement  and  other  considerations  Snyder  shall,  and  he  is  hereby 
entitled  to,  receive  from  Strang  and  Piatt  one-third  of  the  profits 
earned  and  received  by  each  of  them  from  their  interest  in  said  firm ; 
and  Snyder  agrees  that  he  will  pay  Strang  and  Piatt  an  amount  equal 
to  one-third  of  any  losses  which  they,  or  either  of  them,  may  sustain 
or  be  chargeable  with  by  reason  of  their  connection,  as  copartners 
or  otherwise,  with  the  firm  of  Strang,  Piatt  &  Co.  The  parties  agree 
to  do  all  they  can  to  further  the  interest  of  the  firm  of  Strang,  Piatt 
&  Co.,  and  "at  all  proper  times,  during  the  continuance  of  this  co- 
partnership, give  each  other  true  and  exact  statements  of  the  afifairs 
and  accounts  of  the  firm."  The  agreement  was  to  commence  with 
the  copartnership  of  Strang,  Piatt  &  Co.,  and  to  continue  until  the 
same  was  dissolved,  as  provided  for  in  the  articles  of  agreement. 

It  is,  then,  as  the  appellant  contends,  an  agreement  that  "Snyder 
shall  have  an  interest  and  become  a  copartner" ;  indeed,  "that  he  is 
a  copartner  in  the  firm."  Such  is  its  language;  and  doubtless,  if 
the  firm  of  Strang,  Piatt  &  Co.  had  been  composed  of  Strang  and 
Piatt  alone,  it  would  be  sufficient  to  introduce  Snyder  into  that  firm, 
and  clothe  him  with  the  privilege  and  subject  him  to  the  liability  of 
a  copartner.  But  that  partnership  itself  was  formed  by  a  contract 
entered  into,  not  only  by  Strang  and  Ammon  Piatt,  but  by  Lockwood, 
Clark,  and  Ammon  B.  Piatt;  so  that  the  firm  was  composed  of  five 
persons,  of  whom  only  two  signed  the  instrument  in  question.  It  re- 
quired the  voluntary  consent  of  all  these  persons  to  create  the  firm ; 
and  it  seems  very  clear  that  the  declarations  of  any  number  less  than 
the  whole,  however  emphatic,  that  another  person  was  also  a  mem- 
ber, could  have  no  effect,  either  upon  the  firm  or  upon  that  person, 
for  the  simple  reason  that  it  would  be  untrue.  It  is  also  clear  that 
the  declaration  of  Snyder  could  not  affect  the  firm  or  himself,  unless 
(as  is  not  the  case  here)  he  or  the  firm  had  been  trusted  on  account 
of  or  by  reason  of  that  declaration.  This  is  but  reiterating  a  princi- 
ple of  law,  well  established,  that  as  a  partnership  can  commence  only 
by  voluntary  contract  of  the  parties,  so,  when  it  is  once  formed,  no 


Sec.  1)  ARISES    OUT    OF    CONTRACT.  119 

third  person  can  be  introduced  into  the  firm  as  a  partner  without  the 
concurrence  of  all  the  persons  who  compose  the  original  firm.  The 
consent  of  one  or  more  to  his  introduction  is  not  sufficient  (Kingman 
V.  Spurr,  7  Pick.  [Mass.]  235;  Murray  v.  Kneeland,  14  Johns. 
318,  7  Am.  D^c.  466;  Marquand  v.  Manufacturing  Co.,  17  Johns. 
534)  ;  for  otherwise,  says  Story,  "it  would,  in  elt'ect,  amount  to  a 
right  of  one  or  more  of  the  partners  to  change  the  nature  and  terms 
and  obligations  of  the  original  contract,  and  to  take  away  the  delectus 
personam,  which  is-  essential  to  the  constitution  of  a  partnership." 
Story  on  Partnership,  §  5. 

Second.  It  is,  however,  strenuously  contended  by  the  appellant's 
counsel  that  there  is  in  this  instrument  an  agreement  that  Snyder 
shall  share  the  profits  of  the  firm,  and  that,  therefore,  he  became 
liable  as  copartner  to  pay  its  debts. 

We  cannot  find  that  the  instrument  contains  such  an  agreement. 
It  is  not  there  in  words,  nor  can  it  be  implied  from  the  language  used. 
He  is  "to  receive,"  not  from  the  firm,  but  "from  Peter  O.  Strang  and 
Amnion  Piatt,"  not  any  part  or  share  of  the  profits  made  by  the  firm, 
but  "one-third  of  the  profits  earned  and  received  by  each"  of  them 
from  their  interest  in  said  firm;  and  in  this  connection  we  may  con- 
sider that  by  the  terms  of  the  same  agreement  Snyder  becomes  liable 
for,  and  agrees  to  pay  to  Strang  and  Piatt,  "an  amount  equal  to  one- 
third  of  all  losses,"  not  of  the  firm,  but  "that  they  may  sustain  or  be 
chargeable  with  by  reason  of  their  connection,"  not  "as  copartners" 
simply,  but  "as  copartners  or  otherwise,  with  the  firm  of  Strang,  Piatt 
&  Co."  We  have  examined  all  the  cases  referred  to  by  the  learned 
counsel  for  the  appellant,  and  can  find  none  which  sustains  his  posi- 
tion that  by  such  an  agreement  Snyder  became  liable  for  the  debts  of 
the  firm.  It  has  been  seen  that,  in  the  case  before  us,  the  agreement 
is  in  terms  with  Strang  and  Piatt.  They  are  to  pay  the  .defendant 
one-third  of  the  profits  which  they  receive  from  their  interest  in  the 
firm,  and  he  is  to  pay  to  them  an-  amount  equal  to  one-third  of  the 
losses  which  they  sustain.  The  cases  referred  to  rest  on  contracts  with 
a  firm  or  an  indiyidual  trader  (Leggett  v.  Hyde,  58  N.  Y.  272,  17 
Am.  Rep.  244),  or  are  between  persons  engaged  in  a  joint  enterprise 
(Manhattan  Brass  &  Mfg.  Co.  v.  Sears,  45  N.  Y.  797,  6  Am.  Rep.  177; 
Walden  v.  Sherburne,  15  Johns.  409 ;  Ontario  Bank  v.  Hennessey,  48 
N.  Y.  545 ;  Chase  v.  Barrett,  4  Paige,  148 ;  Champion  v.  Bostwick, 
18  Wend.  175,  31  Am.  Dec.  376;  Cushman  v.  Bailey,  1  Hill,  5'36 ; 
Catskill  Bank  v.  Gray,  14  Barb.  471;  Hodgman  v.  Smith,  13  Barb. 
302)  ;  and  all  rest  upon  the  rule,  stated  in  Grace  v.  Smith,  2  Wm.  Bl. 
997,  that  he  who  takes  a  moiety  of  all  the  profits  indefinitely  shall  by 
operation  of  law  be  made  lial)le  to  losses,  if  losses  arise,  upon  the 
principle  that,  by  taking  a  part  of  the  profits,  he  takes  from  the  cred- 
itors a  part  of  that  fund  whicii  is  the  proper  security  to  them  for  the 
payment  of  their  debts.  "This,"  says  Eyre,  C.  J.,  in  Waugh  v.  Car- 
ver, 2   H.   Bl.  2.T.').  "was  the  foundation  of  the  decision   in   Grace  v 


120  THE   CREATION   OF   A   PARTNERSHIP.  (Ch.  Z 

Smith,  and  I  think  stands  upon  the  fair  ground  of  reason."  This 
covers  the  case  of  one  taking  profits,  as  such,  from  the  partnership 
property  or  the  firm,  but  has  no  relation  to  a  case  where  the  profits 
are  first  to  be  earned  and  received  by  one  person  before  the  other  can 
have  any  claim  upon  any  part  thereof. 

No  action  would  lie  against  the  firm  in  favor  of  Snyder.  If  the 
firm  earned  profits,  Snyder  could  not  compel  a  division ;  for  in  the 
general  profits  of  the  firm  he  has  no  interest.  There  is  no  privity  be- 
tween himself  and  the  firm;  and,  if  he  sued  Strang  and  Piatt,  he 
could  recover  only  on  showing  that  they  had  received  profits.  That 
they  were  earned  would  not  be  sufficient.  He  has  no  claim  against  the 
firm,  or  cause  of  action  as  principal.  He  must  make  out  his  case 
through  Strang  and  Piatt,  and  this  consideration  alone  would  seem 
to  be  a  decisive  answer  to  the  plaintiff's  demand;  for  the  plaintiff 
claims  by  virtue  of  the  agreement,  and  not  because  Snyder  has  done 
anything  to  induce  the  plaintiff  to  deposit  his  money  with  the  firm, 
relying  on  his  responsibility  or  his  relation  to  the  firm. 

We  are  of  opinion  that  the  plaintiff,  on  the  facts  found  by  the 
referee,  has  no  cause  of  action  against  the  defendant  Snyder,  and  that 
the  judgment  should  be  affirmed. 

Judgment  affirmed.^ 

1  "Mining  partnersliips  as  distinct  associations,  with  different  rights  and 
liabilities  attacliing  to  tlieir  members  from  tliose  attacliLng  to  members  of 
ordinary  trading  partnerships,  exist  in  all  mining  communities.  In  Skillman 
V.  Lachman,  23  Cal.  39S,  83  Am.  Dec.  96,  *  *  *  the  Supreme  Court  of 
California  *  *  *  said  that,  'whatever  may  be  the  rights  and  liabilities 
of  tenants  in  common  of  a  mine,  not  being  worked,  it  is  clear  that,  where 
several  owners  unite  and  co-operate  in  working  the  mine,  then  a  new  relation 
exists  between  them,  and  to  a  certain  extent  they  are  governed  by  the  rules 
relating  to  partnerships.  They  form  what  is  termed  a  •'mining  partnership," 
which  is  governed  by  many  of  the  rules  relating  to  ordinary  partnerships,  but 
also  by  some  rules  peculiar  to  itself,  one  of  which  is  that  one  person  may  con- 
vey his  interest  in  the  mine  and  business  without  dissolving  the  partnership.' 
Associations  for  working  mines  are  generally  composed  of  a  greater  number 
of  persons  than  ordinary  partnerships;  and  it  was  early  seen  that  the  con- 
tinuous working  of  a  mine,  which  is  essential  to  its  successful  development, 
would  be  impossible,  or  at  least  attended  with  great  difTiculties,  if  an  associa- 
tion was  to  be  dissolved  by  the  death  or  bankruptcy  of  one  of  its  members, 
or  the  assignment  of  his  interest.  A  different  rule  from  that  which  governs 
the  relations  of  members  of  a  trading  partnership  to  each  other  was  therefore 
recognized  as  applicable  to<the  relations  to  each  other  of  members  of  a  mining 
association.  The  delectus  personae,  which  is  essential  to  constitute  an  ordinary 
partnership,  has  no  place  in  this  mining  association."  Per  Field,  J.,  in  Kahn 
V.  Smelting  Co.,  102  U.  S.  641,  645,  26  L.  Ed.  266  (1880). 


Sec.  2)  COMPETENCY    OF    PARTIES.  121 

SECTION  2.— COMPETENCY  OF  PARTIES. 


HOAGLIN  V.  C.  M.  HENDERSON  &  CO. 

<Supreme  Court  of  Iowa,  VMi.    119  Iowa,  720,  94  N.  W.  247,  Gl  L.  R.  A.  75G, 

97  Am.  St.  Rop.  335.) 

McClain,  J.  The  nature  of  the  controversy  involved  in  this  case, 
and  the  questions  of  law  arishig  therein,  will  be  better  understood 
from  a  brief  narrative  of  the  facts  as  shown  in  the  evidence:  H.  A. 
Ploaglin  had  been  engaged  in  business  at  Mt.  Pleasant,  and  in  January, 
1900,  sold  out  his  business;  receiving  therefor  a  sum  in  cash  entirely 
insufficient  to  pay  the  indebtedness  contracted  by  him  in  conducting 
his  business.  Being  without  other  property  or  resource's,  he  proceed- 
ed to  settle  with  his  creditors,  who  were  pressing  for  payment  of  their 
respective  claims,  by  paying  to  each  a  portion  of  the  indebtedness; 
taking  receipts  in  full  for  the  respective  claims.  It  does  not  appear 
that  these  settlements  we<e  made  on  any  uniform  basis,  or  in  pur- 
suance of  any  agreement  for  compensation  with  creditors.  In  some 
instances  about  one-third  of  the  claims  were  paid ;  in  other  instances, 
more.  One  of  these  creditors  was  the  defendant  firm,  and  through 
their  attorney  they  accepted  one-third  of  their  claim,  and  receipted 
in  full  for  the  entire  amount.  Thereupon  H.  A.  Hoaglin,  with  his  wife, 
who  had  previously  been  conducting  a  millinery  business  in  her  own 
name  in  connection  with  the  business  carried  on  by  H.  A.  Hoaglin. 
removed  to  Ottumwa,  and,  as  it  is  contended,  entered  into  a  contract 
to  carry  on  a  partnership  business  under  the  name  of  H.  A.  Hoaglin. 
This  alleged  firm  was  without  other  assets  than  $250  of  the  wife's 
money,  and  $500  borrowed  by  husband  and  wife  on  their  joint  note 
from  the  wife's  sister.  With  this  sum  of  money  in  hand,  H.  A.  Hoag- 
lin, without  disclosing  the  fact  that  he  was  'acting  as  member  of  the 
alleged  firm,  or  that  his  acts  were  done  otherwise  than  in  his  individual 
capacity,  ordered  through  one  Meades,  the  traveling  agent  for  de- 
fendant firm,  a  bill  of  goods  amounting  to  $1,000;  paying  $575  by 
draft  delivered  to  said  Meades,  and  proposing  to  pay  the  balance  on 
time.  The  order  contemplated  the  immediate  shipment  of  the  goods 
from  defendants'  place  of  business,  in  Chicago,  to  H.  A.  Hoaglin,  at 
Ottumwa.  Meades,  having  no  authority  to  accept  an  order  forwarded 
the  order  to  defendants  for  acceptance  and  approval,  accompanied  by 
the  draft,  whereupon  defendants  refused  to  accept  the  order,  and 
notified  Hoaglin  that  they  would  retain  so  much  of  the  money  as  was 
necessary  to  satisfy  the  balance  of  their  previous  indebtedness  against 
him,  and  would  pay  over  to  him,  or  furnish  him  goods  for,  the  surplus. 
Thereupon  Ploaglin  and  wife,  suing  as  partners,  brought  this  ac- 
tion to  recover  from  defendants  the  amount  of  money  represented  by 
the  draft  delivered  bv  Hoaglin   to   Meades   for  defendants,   and   ap- 


122  THE   CREATION   OF   A   PARTNERSHIP.  (Ch.  2 

propriated  by  defendants  to  their  own  use.  The  suit,  as  originally 
brought,  was  by  attachment,  and  notice  was  by  publication,  but. de- 
fendants entered  an  appearance  and  secured  the  dismissal  of  the  at- 
tachment by  giving  bond  to  pay  the  amount  of  any  judgment  rendered. 

The  case  was  presented  to  the  jury  in  the  lower  court  on  the  theory 
that  if  the  evidence  showed  Hoaglin  and  wife  to  have  been  partners^ 
and  the  money  paid  by  Hoaglin  to  Meades  to  have  been  partnership 
funds,  then  the  attempted  application  by  defendants  of  the  money  re- 
ceived through  Meades  to  the  satisfaction  of  the  individual  debt  of 
Hoaglin  was  improper,  and  plaintiffs,  as  partners,  were  entitled  to 
recover  the  entire  amount  so  paid ;  and  counsel  for  appellants  pre- 
sent the  question  whether  husband  and  wife  can  be  partners,  con- 
cending  that  there  was  no  lawful  partnership,  and  that  the  money  ^ 
paid  by  Hoaglin  was  his  own  money,  out  of  which  defendants  had 
a  right  to  recoup  themselves  to  the  extent  of  Hoaglin's  previous  in- 
debtedness to  them.  We  shall  not  stop  to  consider  the  qviestion  whether 
the  acceptance  by  defendants  from  Hoaglin  of  a  part  of  his  previous 
indebtedness,  under  the  agreement  that  the  entire  indebtedness  should 
thereby  be  discharged,  constituted  an  accord  and  satisfaction,  but 
shall  proceed  at  once  to  determine  whether  a  legal  partnership  between 
husoand  and  wife  can  exist  in  this  state. 

The  common-lav/  rule  that  married  women  cannot  enter  into  a 
contract  of.partnership  seems  to  be  based  on  their  incapacity  at  common 
law  to  contract  for  any  purpose.  Collyer  on  Partnership  (5th  Am. 
Ed.)  §  15 ;  Parsons  on  Part.  §  19 ;  Weisiger  v.  Wood,  36  S.  C.  424, 
15  S.  E.  597;  De  Graum  v.  Jones,  23  Fla.  83,  6  South.  925.  The  power 
of  a  married  woman  to  enter  into  a  contract  of  partnership,  if  it  ex- 
ists at  all  in  any  of  the  states  in  which  the  common-law  system  pre- 
vails, must  depend  upon  statutory  authority ;  and  in  several  cases  the 
question  has  been  considered  as  to  whether  particular  statutory  en- 
largements of  the  powers  of  married  women  as  to  contracting  and 
managing  their  separate  property  have  rendered  them  competent  to 
enter  into  partnership  relations.  Thus  it  has  been  held  that  authority 
to  acquire,  hold,  and  dispose  of  property  as  a  separate  estate  will  sus- 
tain a  contract  of  partnership  made  by  a  married  woman  with  a  per- 
son other  than  her  husband.  Abbott  v.  Jackson,  43  Ark.  212.  And 
undoubtedly  the  general  power  to  contract  which  is  conferred  upon 
married  women  in  some  states  would  support  a  contract  of  partner- 
ship. But  on  the  question  whether  the  statutes  extending  the  powers 
of  married  women  with  reference  to  the  making  of  contracts  and  the 
ownership  and  disposition  of  separate  property  confer  the  power  to 
enter  into  the  relation  of  a  business  partnership  with  the  husband,  the 
courts  seem  to  be  somewhat  at  variance,  not  only  on  account  of  differ- 
ences in  terms  of  the  statutes  in  which  the  power  is  conferred,  but  al- 
so on  account  of  differences  of  opinion  as  to  the  bearing  of  rules  of 
public  policy.  In  Massachusetts  it  is  said  that  authority  to  buy  and 
sell  and  enter  into  contract  with  reference  to  her  personal  p'-operty. 


Sec.  2)  coMPETENcr  OF  FAiiiiEa.  123 

to  carry  on  trade,  and  to  sue  and  be  sued,  does  not  involve  power  to 
enter  into  a  partnership  with  tlie  husband.  Lord  v.  Parker,  3  Allen, 
127.  To  same  effect  in  states  where  the  statutes  give  a  married  woman 
the  right  to  control  and  contract  with  reference  to  her  property,  see 
Payne  v.  Thompson,  44  Ohio  St.  192,  5  N.  E.  654;  Fuller  v.  Mc- 
Henry,  83  Wis.  573,  53  N.  W.  896,  18  L.  R.  A.  512;  Haas  v.  Shaw, 
91  Ind.  384,  4G  Am.  Rep.  607;  Artman  v.  Ferguson,  73  Mich.  146, 
40  N.  W.  907,  2  L.  R.  A.  343,  16  Am.  St.  Rep.  572;  Gwynn  v. 
Gwynn,  27  S.  C.  525,  4  S.  E.  229;  Gilkerson-Sloss  Commission  Co. 
v.  Salinger,  56  Ark.  29!,  19  S.  W.  747,  16  L.  R.  A.  526,  35  Am. 
St.  Rep.  105.  In  other  states,  statutes  to  substantially  the  same  elTect 
have  been  held  to  so  far  enlarge  the  legal  capacity  of  a  married  woman 
as  to  authorize  her  not  only  to  enter  into  a  partnership  contract  in 
general,  but  specifically  to  enter  into  such  contract  with  her  husband. 
Toof  v.  Brewer  (Miss.)  3  South.  571;  Suau  v.  Caffe,  122  N.  Y. 
308,  25  N.  E.  488,  9  L.  R.  A.  593.  It  has  been  held,  however,  that 
where  the  statutes  not  only  confer  the  right  to  own  and  contract  with 
reference  to  her  separate  property,  but  also  the  genera>  power  to  con- 
tract, the  wife  may  not  only  enter  into  business  partnership  relations 
in  general,  but  also  specifically  with  her  own  husband,  and  this  is 
said  not  to  be  contrary  to  any  dictate  of  public  policy.  Burney  v. 
Grocery  Co.,  98  Ga.  711,  25  S.  E.  915,  58  Am.  St.  Rep.  342;  Lane 
v.  Bishop,  65  Vt.  575,  27  Atl.  499.  And  see  Bernard  &  Leas  Mfg. 
Co.  V.  Calvin,  12  C.  C.  A.  123,  64  Fed.  309. 

The  question  of  public  policy  involved  in  these  statutory  enlarge- 
ments of  the  powers  and  liabilities  of  married  women  must  be  deter- 
mined with  reference  to  the  general  tenor  of  the  statutory  provisions 
on  the  subject  as  they  have  been  found  in  the  different  states.  In 
this  state,  under  the  provisions  of  Code,  §§  3153,  3164,  which  give  to 
married  women  the  right  to  acquire,  own,  and  dispose  of  property  in  the 
same  manner  and  to  the  same  extent  as  their  husbands  may  do,  and 
to  make  contracts  and  incur  liabilities  which  may  be  enforced  by  or 
against  them  to  the  same  extent  and  in  the  same  manner  as  if  they 
were  unmarried,  it  is  not  open  to  question  that  a  wife  may  become 
surety  for  her  husband,  and  be  liable  generally  on  such  contract  of 
suretyship,  may  become  the  general  creditor  of  her  husband,  may  i be 
joint  owner  of  property  with  him,  and  may  be  his  agent,  or  may 
make  him  her  agent,  in  the  transaction  of  business.  Citation  of  au- 
thorities to  support  these  propositions  would  be  wholly  unnecessary. 
These  unquestioned  powers  of  a  married  woman  in  this  state  to  deal 
with  her  husband  would  seem  to  cover  all  the  powers  and  liabilities 
involved  in  entering  into  or  continuing  the  relation  of  partner  with 
her  husband.  The  essential  characteristics  of  a  partnership  seem  to  be 
joint  ownership  of  property,  and  authority  of  each  partner  to  bind  the 
other  partners  by  his  acts  with  reference  to  the  partnership  property, 
and  also  to  impose  upon  the  other  partnership  liability.  As  these  re- 
lations may  be  separately   sustained  between   husband  and  wife,   we 


124  THE   CREATION   OF  A  PARTNERSHIP.  (Ql.  Z 

see  no  reason  why  they  may  not  be  collectively  created  by  entering 
into  and  carrying  on  the  relation  involved  in  the  formation  of  the  en- 
tity known  as  a  partnership.  The  only  objection  which  occurs  to  us 
is  that  involved  in  the  denial  of  the  capacity  of  husband  or  wife  to 
maintain  a  suit  in  a  court  of  law  or  equity  against  the  other,  except 
as  such  power  is  expressly  conferred,  as  decided  in  Heacock  v.  Hea- 
cock,  108  Iowa,  540,  79  N.  W.  353,  75  Am.  St.  Rep.  273,  in  which  we 
have  held  that  the  relations  of  husband  and  wife  to  each  other  are 
such  as  to  preclude  a  suit  by  the  one  against  the  other  for  breach  of 
contract  or  for  tort,  unless  it  be  for  the  preservation  or  protection 
of  the  separate  property ;  and  it  is  argued  that  this  inability  of  the  wife 
to  sue  the  husband  would  preclude  the  existence  of  a  business  part- 
nership arrangement  between  them.  But  we  do  not  think  that  the 
conclusion  follows.  The  same  argument  would  lead  to  the  result  that 
a  valid  contract  cannot  be  made  between  them,  such  as  a  contract  for 
the  repayjnent  of  money  advanced  by  one  to  the  other;  and  yet,  as 
we  have  suggested,  that  is  not  the  law  of  this  state,  and  there  is  no 
intimation  in  the  Heacock  Case  that  it  was  intended  by  that  decision 
to  declare  that  such  contracts  are  necessarily  invalid.  It,  no  doubt, 
might  at  one  time  have  been  reasonably  argued  that,  inasmuch  as 
a  right  of  action  by  the  wife  against  the  husband  was  denied  to  her, 
she  was  not  competent  to  voluntarily  enter  into  contract  or  joint 
property  relations  with  him,  such  as  would  inyolve  for  their  protec- 
tion a  general  right  to  sue.  But  the  time  for  that  argument  is  past. 
The  right  to  contract  with  the  husband  is  now  so  well  established 
that  it  would  be  inexcusable  to  say  that  its  existence  is  negatived  by 
a  holding  that  public  policy  forbids  a  suit  by  the  wife  against  the  hus- 
band on  account  thereof.  It  may  well  be  suggested,  also,  that  there 
is  express  authority  for  a  suit  by  the  wife  against  the  husband  to 
recover  her  property,  or  any  right  growing  out  of  the  same  (Code, 
§  3155),  and  therefore  that,  as  the  wife  may  at  any  time  terminate 
any  business  partnership  relation  which  may  exist  with  her  husband, 
and  thereby  become  practically  a  joint  owner  only  with  him  in 
the  partnership  property,  there  would  seem  to  be  no  impossibility  of 
sustaining  an  action  by  her  against  him  for  any  right  growing  out  of 
their  joint  ownership.  In  short,  we  think  that,  in  view  of  the  statutory 
provisions  extending  the  legal  powers  and  rights  of  married  women, 
we  cannot  say  that  there  is  any  public  policy  recognized  in  this  state 
which  precludes  the  existence  of  a  business  partnership  relation  be- 
tween husband  and  wife.  None  of  the  cases  holding  that  such  relation 
cannot  exist  are  applicable  to  a  condition  of  affairs  as  to  the  wife's 
capacity  to  make  general  contracts,  and  own  and  control  her  own  prop- 
erty, such  as  exists  in  this  state,  except  that  of  Seattle  Board  of  Trade 
V.  Hayden,  4' Wash.  2G3,  30  Pac.  87,  32  Pac.  224,  16  L.  R.  A.  530,  31 
Am.  St.  Rep.  919,  and  Haggett  v.  Hurley,  91  Me.  542,  40  Atl.  561,  41 
L.  R.  A.  362,  and  we  find  ourselves  unable  to  indorse  the  views  ex- 
pressed in  these  cases.     Our  conclusions  find  support  not  only  in  the 


Sec.  2)  COMPETENCT    OF    PARTIES,  125 

cases  already  cited,  but  also  in  Belser  v.  Banking  Co.,  105  Ala.  514, 
17  South.  40;  Schlapback  v.  Long,  90  Ala.  525,  8  South.  113;  Fuller 
V.  Ferguson,  2G  Cal.  540 ;  In  re  Kinkead,  3  Diss.  (U.  S.)  405,  Fed.  Cas. 
No.  7,824;  Clark  v.  Hezekiah  (D.  C.)  24  Fed.  GG3 ;  Snell  v.  Stone,  23 
Or.  327,  31  Pac.   663.     *     *     * 

After  considering  all  the  questions  raised  in  behalf  of  appellaTits, 
we  reach  the  conclusion  that  the  judgment  of  the  trial  court  should 
be  affirmed. 


SHIRK  V.   SHULTZ. 
(Supreme  Court  of  Indiana,  18S8.    113  Ind.   571,  15  N.  E.  12.) 

Suit  by  appellant,  Milton  H.  Shirk,  an  infant,  by  his  next  friend, 
Mary  Shirk,  for  appointment  of  a  receiver  to  take  charge  of  the^ as- 
sets of  the  firm  of  which  he  was  a  partner,  and  after  converting  them 
into  money  to  first  pay  him  the  amount  invested  by  him  therein,  and 
apply  the  balance  to  the  payment  of  the  firm  debts. 

ZoLLARS,  J.  Appellant  alleges  in  his  complaint  that  in  October, 
1884,  when  he  was  a  minor,  he  entered  into  partnership  with  appellee 
for  an  indefinite  time,  in  the  business  of  upholstering  and  dealing  in 
furniture,  under  the  firm  name  of  Shirk  &  Shultz;  that  he  still  is  a 
minor ;  that  he  invested  in  the  business,  $500 ;  that  the  firm  has  on 
hand  furniture  and  goods  of  the  value  of  $850,  and  is  in  debt  over  $600 ; 
that  "he  is  advised  by  his  guardian  to  renounce  such  partnership, 
and  withdraw  from  said  firm,  and  he  hereby  renounces  such  arrange- 
ment, and  asks  to  avoid,  annul,  and  undo  all  of  his  obligations  in  that 
behalf" ;  that  Shultz  is  insolvent,  and  that  the  firm  creditors  will  ex- 
haust the  assets  of  the  firm,  unless  a  receiver  shall  be  appointed  to 
take  charge  of  them,  etc.  The  prayer  is  for  the  appointment  of  a 
receiver  to  take  charge  of  the  assets  of  the  firm,  and  convert  them  into 
money,  and  pay,  first,  to  appellant  the  amount  invested  by  him,  and, 
second,  the  firm  debts.  The  court  made  a  special  finding  of  facts,  in 
substance,  that  in  October,  1884,  Shirk  &  Shultz  entered  into  partner- 
ship, and  continued  in  business  until  the  commencement  of  this  ac- 
tion, in  August,  1885.  Shirk  is  a  minor  and  has  a  guardian.  He  en- 
tered into  the  partnership,  and  put  into  the  business  $271.40,  with  the 
consent  of  his  guardian.  Of  that  amount,  $74.50  was  paid  to  Shultz, 
to  be  used  in  the  purchase  of  goods  for  the  firm,  and  it  was  so  used. 
The  balance  of  the  $271.40  was  paid  by  Shirk  on  the  debts  of  the  firm, 
for  goods,  and  labor  of  employes.  During  the  existence  of  the  firm, 
Shirk  drew  out  $100.  Shultz  put  into  the  business  $260,  and  drew 
out  nothing.  The  assets  of  the  firm,  at  the  time  this  suit  was  com- 
menced, amounted  in  value  to  $800,  and  its  debts  aggregated  $700, 
Shultz  is  insolvent.  Upon  the  facts  so  found,  the  court  below  conclud- 
ed, as  a  matter  of  law,  that  the  firm  should  be  dissolved,  and  that  a 
receiver  should  be  appointed  to  take  charge  of  the  firm  assets,  con- 


126  THE   CREATION  OP   A   PARTNERSHIP.  (Ch.  2 

vert  them  into  money  and  pay,  first,  the  costs  of  this  suit ;  second,  the 
firm  debts,  and  third,  divide  the  surplus,  if  any,  between  the  partners, 
A  receiver  was  accordingly  appointed.  Appellant  excepted  to  the 
conclusions  of  law,  and  contended,  and  still  contends,  that,  upon  the 
facts  found  by  the  court,  he  is  entitled  to  have  refunded  to  him,  from 
the  assets  of  the  firm,  the  amount  which  he  invested,  in  preference 
to  the  partnership  creditors  and  all  others.  Whether  or  not  he  is  so 
entitled  is  the  one  question  for  decision. 

The  facts  in  the  case  of  Dunton  v.  Brown,  31  Mich.  182,  were  these: 
Dunton,  a  minor,  entered  into  partnership  with  Brown,  and  put  about 
$100  into  the  business.  After  the  business  had  been  continued  for 
about  three  months,  Dunton  informed  Brown  that  he  would  no  longer 
continue  as  a  partner,  and  that  if  he  remained  any  longer,  he  must 
be  paid  for  his  services.  To  that,  Brown  would  not  consent.  Dun- 
ton went  aw^ay  for  a  while,  but  subsequently  returned  and  continued 
for  nine  months.  After  leaving  again,  he  brought  an  action  to  re- 
cover back  the  $100  with  interest,  and  for  his  services.  It  was  held  that 
he  could  not  maintain  the  action.  In  speaking  of  the  partnership 
agreement,  it  was  said :  "It  is  at  best  only  voidable ;  and  we  have 
found  no  authority  which  enables  the  infant  or  his  guardian  to  de- 
termine whether  a  voidable  contract  shall  be  affirmed  or  annulled 
while  the  infancy  continues.  It  appears  to  be  a  matter  for  his  own 
decision  when  he  arrives  at  mature  age.  *  *  *  Anc^  it  is  worthy 
of  consideration  whether,  inasmuch  as  the  partnership  business  contin- 
ued and  ended  before  suit,  and  before  majority,  it  does  not  come  with- 
in the  rule  which  protects  executed  contracts  in  many  cases.  Squier  v. 
Hydliff,  9  Mich.  274.  Without  deciding  what  may  happen  when  the  in- 
fant reaches  majority,  we  think  it  impossible  to  sustain  an  implied 
assumpsit  now,  against  the  terms  of  the  only  agreement  ever  made, 
which  was  certainly  not  a  nullity." 

In  the  case  of  Bush  v.  Linthicum,  59  Md.  344,^  one  partner  brought 
a  suit  for  the  dissolution  of  the  firm,  and  the  appointment  of  a  receiv- 
er to  take  charge  of  the  firm  assets,  and  pay  the  firm  debts,  etc.  In 
bar  of  the  suit,  the  other  partner  interposed  the  plea  of  his  infancy. 
In  the  decision  of  the  case,  after  citing  and  approving  the  Michigan 
case  above  and  the  case  of  Armitage  v.  Widoe,  36  Mich.  130,  which 
followed  it,  the  court  said:  "Having  formed  this  partnership,  he  can- 
not so  far  repudiate  it  during  his  minority  as  to  escape  such  conse- 
quences of  partnership  as  do  not  involve  personal  liability  for  claims 

1  In  disposing  of  this  case  In  the  circuit  court.  Miller,  J.,  said:  "All  the 
books  upon  partnership  lay  down  the  proposition  that  an  infant  may  become 
a  partner  with  an  adult.  It  is  a  contract  not  absolutely  void,  but  one  which 
the  infant  may  stand  to  or  repudiate,  at  his  election.  While  he  remains  a 
partner  he  has  the  rights  and  powers  of  a  partner.  He  has  equal  right  with 
his  copartner  to  the  possession  of  the  assets  of  the  firm,  to  collect  the  debts 
due  it,  and  he  has  also  the  power  to  contract  debts  in  the  name  of  the  firm, 
which,  though  he  may  himself  subsequently  repudiate,  and  get  rid  of  personal 
responsibility,  therefor,  are  still  binding  on  his  copartner." 


Sec.  2)  COMPETENCY    OF    PAKTIES.  127 

against  the  firm,  or  costs  incident  to  the  legal  settlement  of  its  affairs. 
Such  partnersiiip  must  be  dissolved  as  any  other;  and  the  partnership 
assets  must  be  assignable  to  partnership  creditors.  What  his  rights 
may  be  as  against  his  'adult  copartner,  when  he  reaches  majority,  we 
do  not  decide." 

The  case  of  Kitchen  v.  Lee,  11  Paige  (N.  Y.)  107,  42  Am.  Dec. 
101,  frequently  cited  by  text-writers,  was  this:  Kitchen  and  Lee 
were  partners.  During  the  existence  of  the  partnership,  they  con- 
tracted debts  as  partners.  Kitchen  retired  from  the  business,  and  re- 
linquished to  Lee  the  goods  of  the  firm,  upon  the  condition  that  he 
would  pay,  or  procure  to  be  paid,  the  debts  then  due  from  the  firm, 
and  indemnify  him,  Kitchen,  against  the  same.  Previous  to  the  re- 
tirement of  Kitchen  from  the  firm,  Lee  represented  to  him  that  he 
was  21  years  of  age.  Subsequent  to  the  dissolution  of  the  firm,  Lee 
refused  to  pay  the  firm  debts,  upon  the  ground  that  he  was  a  minor, 
and  not  legally  liable  to  pay  such  debts ;  and  made  a  pretended  sale 
of  the  goods  to  Price,  who  paid  no  consideration,  and  took  them  with 
knowledge  of  the  facts  that  the  firm  debts  were  not  paid,  and  that 
the  sale  to  him  was  fraudulent  as  against  Kitchen.  Stating  the  above 
facts  in  his  bill.  Kitchen  prayed  for  the  appointment  of  a  receiver  to 
take  charge  of  the  goods  and  apply  thern  to  the  payment  of  the  part- 
nership debts.  To  the  bill  Lee  pleaded  that  at  the  time  of  making 
the  agreement  to  pay  the  firm  debts  he  was  a  minor,  and  that  Kitchen 
had  notice  of  that  fact.  Walworth,  Chancellor,  held  that  the  contract 
on  the  part  of  Lee  to  pay  the  debts  was  one  which  he  might  affirm  or 
repudiate,  at  his  election ;  but  that  he  could  not  be  permitted  to  re- 
tain all  the  partnership  eflfects,  and  at  the  same  time  refuse  to  per- 
form the  condition  upon  which  Kitchen's  interest  in  the  effects  of  the 
firm  was  to  become  his  property ;  that  if  Lee  elected  to  rescind  the 
agreement  made,  upon  the  retiring  of  Kitchen  from  the  business,  the 
latter  had  a  right  to  insist  that  his  interest  in  the  copartnership  effects 
should  be  applied  to  the  payment  of  the  debts  in  the  same  manner  as 
if  the  dissolution  had  not  taken  place.  It  was  further  said :  "The  rule 
of  law  on  the  subject  is  that  an  infant  cannot  be  permitted  to  retain 
the  property  purchased  by  him,  and  at  the  same  time  repudiate  the 
contract  upon  which  he  received  it.  *  *  *  If  the  goods  in  this  case 
had  belonged  to  the  complainant  (Kitchen)  exclusively,  at  the  time  of 
the  agreement,  and  the  infant  had  repudiated  his  agreement  when  he 
became  of  age,  trover  or  replevin  would  have  been  the  proper  remedy 
for  the  goods,  if  they  remained  unchanged.  Badger  v.  Phinney,  15 
Mass.  359,  8  Am.  Dec.  105.  But,  this  being  copartnership  property, 
previous  to  the  agreement,  the  only  remedy  of  the  complainant  was 
in  this  court;  and  this  plea  of  infancy  is  not  a  full  defense  to  the  case 
•  made  by  the  bill." 

In  the  case  of  Moley  v.  Brine.  120  Mass.  324,  three  persons,  one  of 
whom  was  a  minor,  were  partners,  and  put  into  the  business  different 
amounts.     It  was   held   that,  upon   a   dissolution   of  the   partnership, 


128  THE  CREATION   OF  A   PARTNERSHIP.  (Cll.  2 

the  assets,  upon  a  settlement  of  its  business,  being  less  than  the 
amount  contributed  by  all  to  the  common  stock,  should  be  divided 
among  the  partners,  according  to  the  amount  of  their  contributions, 
and  that  the  deficiency  and  loss  should  be  borne  by  the  partners  in  the 
same  proportion  in  which  they  were  to  bear  profits  and  losses;  .in 
other  words,  that  the  minority  of  one  of  the  partners  gave  him  no 
advantage  in  the  particulars  named.  Of  him  it  was  said:  "He  actu- 
ally entered  into  the  partnership,  had  the  benefits  of  it  while  it  lasted, 
and  drew  out  the  greater  part  of  his  contribution.  The  assets  remain- 
ing at  the  time  of  the  dissolution  being  insufficient  to  pay  the  claims 
of  all  the  partners,  the  loss  of  capital  must  fall  upon  the  three  part- 
ners in  equal  proportions,  and  the  infant  cannot  throw  upon  his  co- 
partners the  obligation  of  making  up  the  deficiency." 

In  the  case  of  Furlong  v.  Bartlett,  21  Pick.  (Mass.)  401,  one  of 
the  partners  made  a  general  assignment  in  the  name  of  the  firm,  of 
all  the  partnership  property,  in  trust  for  the  payment  of  the  debts  of 
the  company,  and  delivered  the  property  to  the  assignee.  The  other 
partner,  who  was  a  minor,  ratified  the  assignment,  but,  on  coming  of 
age,  brought  an  action  against  the  assignee  for  the  alleged  unlaw-, 
ful  taking  and  asportation  of  the  propert}^  It  was  held  that  tres- 
pass would  not  lie.  In  the  decision  of  the  case,  it  was  said:  "The 
court  entertains  strong  doubts  whether,  under  the  peculiar  circum- 
stances of  this  case,  any  action  will  lie,  or  whether  the  plaintiff  has 
any  remedy,  unless  for  his  share  of  the  balance,  if  the  partnership 
should  be  ultimately  solvent;  but  of  this,  as  it  is  not  now  before  the 
court,  they  express  no  opinion." 

The  case  in  120  Mass.  324,  is  based  upon  the  proposition  that 
where  an  infant  has  enjoyed  the  benefits  of  that  for  which  he  paid  his 
money,  he  cannot  recover  back  the  money.  In  support  of  the  conclu- 
sion reached,  the  court  cited  Breed  v.  Judd,  1  Gray  (Mass.)  455; 
Holmes  v.  Blogg,  8  Taunt.  508 ;  Aldrich  v.  Abrahams,  Hill  &  D.  423 ; 
Medbury  v.  Watrous,  7  Hill  (N.  Y.)  110;  Heath  v.  Stevens,  48  N. 
H.  251.  The  case  of  Breed  v.  Judd  was  based,  really,  upon  two  prop- 
ositions:  First,  that,  in  order  to  rescind  a  contract,  an  infant  must 
place  the  other  party  in  statu  quo ;  and,  second,  that  an  infant  cannot 
rescind  an  executed  contract  where  he  has  enjoyed  the  benefits  of  it. 
The  ground  of  the  judgment  in  the  case  of  Holmes  v.  Blogg  was  that 
the  infant  had  received  something  of  value  for  the  money  he  had  paid, 
and  that  he  could  not  put  the  other  party  in  the  same  position  as  be- 
fore. For  those  reasons  it  was  held  that  the  infant  could  not  recover 
back  the  money  he  had  paid  on  a  lease.  In  Aldrich  v.  Abrahams  it 
was  said :  "It  has  been  holden  that  by  avoiding  an  executory  contract, 
the  infant  only  cancels  his  obligation  to  perform  it.  He  does  not  ac- 
quire th'e  right  to  recover  back  what  he  had  paid,  or  for  services  which 
he  had  rendered,  under  the  agreement  while  it  remained  in  force.  In 
the  case  of  Medbury  v.  Watrous,  the  court  indorsed  the  doctrine  that 
where  an  infant  pays  money  on  a  contract,  and  enjoys  the  benefit  of 


Sec.  2)  CO.MrETENCY    OF    PAIITIES.  129 

it,  and  then  avoids  it,  he  cannot  recover  back  the  consideration  paid; 
but  suggested  that  if  he  has  but  partially  enjoyed  the  benefits  of  the 
contract,  he  ought  to  be  allowed  to  recover  the  difference.  It  was  an- 
nounced as  the  law,  in  the, case  of  Heath  v.  Stevens,  that  an  infant, 
upon  rescinding  an  executed  contract,  may  recover  for  what  he  has 
done  or  paid  under  it,  provided  he,  restore  or  account  for  what  he 
has  received  under  the  contract. 

It  will  be  observed  that  the  decision  in  the  T^Iichigan  case  above 
cited,  is  based  upon  the  proposition  that  an  infant  cannot  disaffirm  a 
partnership  agreement  during  his  minority.  The  reasoning  in  that 
case  was  adopted  in  the  Maryland  case.  The  decision  in  the  case  in 
Paige  was  based  largely  upon  the  proposition  that  an  infant  cannot 
be  permitted  to  retain  the  property  purchased  by  him,  and  at  the  same 
time  repudiate  the  contract  upon  which  he  purchased  it.  It  may  be 
said  of  most,  if  not  of  all,  the  propositions  upon  which  the  decisions 
in  the  cases  cited  are  based,  that  they  have  not  been  regarded  as  the 
law  in  this  state.  We  have  stated  them  for  the  purpose  of  determining 
whether  or  not  the  conclusions  in  those  cases  may  be  regarded  as  cor- 
rect, notwithstanding  the  propositions  upon  which  they  rest  may  be 
regarded  as  incorrect.  The  holdings  by  this  court  have  been  that  all 
voidable  contracts  by  an  infant  in  relation  to  personal  property 
may  be  disaffirmed  by  him  during  minority.  Carpenter  v.  Carpenter, 
45  Ind.  142;  Indianapolis  Chair  Mfg.  Co.  v.  Wilcox,  59  Ind.  429,  and 
cases  there  cited;  Ayers  v.  Burns,  87  Ind.  245,  44  Am.  Rep.  759, 
and  cases  there  cited;  Rice  v.  Boyer,  108  Ind.  472,  9  N.  E.  420,  58 
Am.  Rep.  53,  and  cases  there  cited,  including  cases  by  the  Supreme 
Courts  of  Vermont,  Massachusetts,  and  New  York.  In  support  of 
the  right  of  infants  to  disaffirm  such  contracts  during  minority,  see, 
also,  Tyler,  Inf.  (2d  Ed.)  70,  72,  and  cases  there  cited;  Schouler, 
Dom.  Rel.  §  409 ;  1  Lindl.  Partn.  83.  The  Supreme  Court  of  Mary- 
land, since  the  case  above  cited  from  that  court,  has  held  that  an  in- 
fant may  thus  disaffirm  during  minority.  Adams  v.  Beall,  67  Md.  53, 
8  Atl.  664,  1  Am.  St.  Rep.  379.  And  so  it  has  been  the  holding  of 
this  court  that,  in  order  to  disaffirm  and  maintain  an  action  during 
minority  for  his  property  or  for  money  paid  on  a  voidable  contract, 
it  is  not  necessary  for.  the  infant  to  return  what  he  has  received,  or 
to  place  the  other  party  in  statu  quo.  Pitcher  v.  Laycock,  7  Ind. 
398,  and  cases  there  cited ;  Miles  v.  Lingerman,  24  Ind.  385 ;  Briggs 
V.  McCabe,  27  Ind.  327,  89  Am.  Dec.  503 ;  Towell  v.  Pence,  47  Ind. 
304;  Carpenter  v.  Carpenter,  supra;  White  v.  Branch,  51  Ind.  210. 
The  statute  of  1881  has  changed  the  rule  as  to  real  estate,  but  that 
change  is  not  material  here.  Section  2945,  Rev.  St.  1881.  And  so. 
upon  ample  authority,  this  court  has  repudiated  the  doctrine  that  "if 
an  infant  advances  money  on  a  voidable  contract,  which  he  afterwards 
rescinds,  he  cannot  recover  this  money  back,  because  it  is  Idst  to  him 
by  his  own  act;  and  the  privilege  of  infancy  does  not  extend  so  far 
as  to  restore  this  money,  unless  it  was  obtained  from  him  by  fraud." 
Gil.Part. — 9 


130  THE   CKEATIOX   OF  A    f'ARTXEUSHIP.  (Ch.  2 

House  V.  Alexander,  105  Ind.  109,  4  N.  E.  891,  55  Am.  Rep.  189,  and 
cases  there  cited. 

The  cases  thus  reviewed  lend  aid  to  the  proposition  that,  in  the  case 
before  us,  appellant  cannot,  through  the  instrumentality  of  the  court 
exercising  equitable  powers,  and  the  receiver  appointed  by  it,  have 
the  assets  of  the  firm  appropriated  in  the  way  of  refunding  to  him 
what  he  invested  in  the  business,  and  thus  leave  the  firm  creditors 
wholly  or  partially  unpaid.  And,  so  far  as  they  sustain  that  proposi- 
tion, we  approve  of  them,  although  disapproving,  in  the  main,  the 
reasoning  upon  which  they  rest.  Had  appellant  purchased  the  goods 
on  his  own  account,  and  paid  for  them,  he  might  have  disaffirmed  the 
contract,  and  recovered  the  amount  paid,  without  first  returning,  or 
offering  to  return,  them  to  the  person  from  whom  he  purqhased  them. 
It  does  not  follow  from  that,  however,  that,  after  having  thus  disaf- 
firmed the  contract,  he  could,  nevertheless,  hold  the  goods  as  against 
the  person  from  whom  the  purchase  was  made.  He  would  not  be  al- 
lowed to  retain  the  goods  after  having  thus  recovered  what  he  paid 
for  them.  When  an  infant  thus  repudiates  a  contract,  he  repudiates 
it  for  all  purposes.  He  cannot  repudiate  it  so  as  to  escape  payment 
for  an  article  purchased,  and  still  hold  the  article  as  against  the  per- 
son from  whom  the  purchase  was  made.  As  was  said  in  the  case  in 
Paige,  supra,  when  a  contract  is  thus  repudiated,  the  vendor  may 
have  his  action  to  recover  the  goods  from  the  infant,  if  they  remain 
in  his  hands  unchanged.  And  so,  if  appellant  had  purchased  the 
goods  on  his  own  account,  he  might  have  disaffirmed  the  contract,  and 
refused  to  pay  for  them,  without  retvirning  or  offering  to  return  them 
to  the  vendor.  But,  after  having  thus  disaffirmed" the  contijact,  and 
refused  to  pay,  he  could  not  hold  the  goods  as  against  the  vendor. 
See  Kitchen  v.  Lee,  supra;  Rice  v.  Boyer,  108  Ind.  472,  9  N.  E.  420, 
58  Am.  Rep.  53.  What  he  could  not  do  otherwise,  he  certainly  cannot 
accomplish  through  a  court  of  equity.  Having  gone  into  court,  and 
asked  that  the  assets  of  the  firm  should  be  taken  charge  of  by  it 
through  a  receiver,  he  must  be  held  to  have  consented  that  the  court 
shall  deal  with  them  and  the  rights  of  ^11  concerned  as  the  law  and 
equity  may  require.  Having  thus  invoked  the  interposition  of  the 
court,  he  must  be  held  to  have  consented  that  it  shall  close  out  the 
business,  so  as  to  settle  the  ultimate  rights  of  the  parties.  If  it  be 
said  that  his  disaffirmance  of  the  contract  is  such  as  would  otherwise 
have  relieved  him  from  the  obligation  to  pay  for  the  goods,  then  the 
court  having  charge  of  the  goods  has  the  right  to  see  to  it  that  they, 
or  the  money  that  may  be  realized  from  the  sale  of  them,  shall  be 
returned  to  vendor. 

In  our  judgment,  however,  appellant's  course  has  been  such  as  to 
ratify  the  purchase  of  the  goods,  and  all  that  has  been  done  by  the  firm. 
He  states  in  his  bill  that  he  "renounces  the  partnership  arrangement, 
and  asks  to  avoid  and  annul  all  of  his  obligations  in  that  behalf"; 
but,  at  the  same  time,  he  treats  the  goods  and  assets  on  hand  as  part- 


Sec.  2)  COMPETENCY  or  PAirriES.  131 

nership  assets,  and  asks  the  court  to  take  char.^e  of  and  deal  with 
them  as  such.  His  disaffirmance  puts  an  end  to  the  contract  by  wliich 
he  became  a  niemlier  of  the  firm;  but  by  asking  the  court  to  take 
charge  of  the  goods  as  assets  of  the  firm,  as  to  them,  he  not  only 
does  not  disaffirm,  but  ratifies  all  that  was  done  in  the  purchase  of 
them.  As  to  them,  he  cannot  disaffirm,  and,  at  the  same  time,  treat 
them  as  partnership  assets.  Having  treated  them  as  assets  of  the  hrm 
by  asking  the  court  to  deal  with  them  as  such,  the  court  will  deal 
with  theni  as  partnership  assets,  as  in  any  other  case,  and  apply  them 
first  to  the  payment  of  the  debts  of  the  firm.  2  Lindl.  Partn.  *1010. 
This  is  not  an  action  against  the  other  party  to  recover  a  personal 
judgment  against  him  for  the  amount  paid  into  the  business  by  appel- 
lant. What  might  be  the  rights  of  the  parties  in  such  an  action,  we 
do  not  decide.  It  is  sufficient  here  that,  in  our  judgment,  the  conclu- 
sions of  law  by  tlie  court  below  upon  the  facts  found  were  correct, 
and  the  proper  decree  was  entered. 
Judgment  affirmed. 


MERCHANTS'  NATIONAL  BANK  v.  WEHRMANN  et  al. 
(Supreme  Court  of  Ohio,  1903.    69  Ohio  St.   160,  68  N.  E.  1004.) 

This  was  an  action  by  William  F.  Wehrmann  against  the  Mer- 
chants' National  Bank  and  others  to  establish  a  partnership  liability 
on  the  part  of  the  bank  with  a  certain  Elsmere  Syndicate,  for  debts 
incurred  in  the  operations  of  such  syndicate.  The  court  below  found 
the  bank  liable.  A  petition  in  error  was  filed  by  the  bank  to  reverse 
this  judgment. 

BuRKET,  C.  J.  The  Merchants'  National  Bank  of  Cincinnati  is  a 
corporation  organized  under  the  national  banking  laws  of  the  United 
States,  and  the  Elsmere  Syndicate  was  a  partnership  consisting  of 
forty  shares,  each  partner  holding  one  or  more  shares,  and  each  share 
evidenced  by  a  certificate,  as  shown  in  the  foregoing  statement  of 
facts,  and  which  certificates  were  transferable  on  the  books  of  the 
syndic'ate;  and  such  transfers  were  intended  to  make  the  transferee 
a  partner  in  the  syndicate,  instead  of  the  transferror,  without  a  dis- 
solution of  the  partnership.  The  circuit  court  finds  that  the  bank  be- 
came owner  by  transfer  of  nine  shares  of  this  syndicate  or  partner- 
ship, which  shares  were  taken  by  the  bank  to  secure  the  payment  of 
a  large  indebtedness  owing  to  said  bank  for  loans  by  it  made  to  one 
of  its  customers  in  the  usual  course  of  business.  The  bank,  in  accept- 
ing said  transfer,  evidently  regarded  it  as  a  collateral;  but  it  so  treat- 
ed the  shares,  and  so  transacted  the  business  as  to  said  shares,  that  the 
circuit  court  found  that  the  bank  became  the  owner  of  the  shares, 
and  there  was  evidence  warranting  such  finding.  The  case  must  there- 
fore be  determined  upon  the  theory  that  the  bank  held  the  shares  as 
owner,  and  not  merely  as  collateral — the  purpose  of  such  ownership, 


L32  THE   CltEATIOX   OF   A   PARTNERSHIP.  (Cll.  2 

however,  being  to  secure  the  ultimate  payment  of  said  indebtedness 
out  of  the  proceeds  of  said  shares;  and,  to  that  end,  it  was  necessary 
that  the  property  of  said  syndicate  should  be  put  into  such  condition 
as  to  yield  the  most  money,  and  this  is  what  the  trustees  of  the  syndi- 
cate attempted  to  do ;  and,  in  so  doing,  debts  were  incurred,  which  the 
syndicate  was  unable  to  pay,  and,  after  all  its  property  had  been  con- 
sumed in  paying  said  debts,  a  large  debt  still  remained.     *     *     * 

But  conceding  that  a  national  bank  may  take  shares  in  another 
bank  as  collateral  security  for  a  new  loan,  or  to  secure  the  payment  of 
an  old  one,  and  that  it  may  become  the  owner  of  such  shares  in  at- 
tempting to  realize  on  such  collateral,  and  that  it  may  thereafter  be 
liable  to  creditors  on  its  individual  liability  as  such  shareholder,  yet 
that  falls  far  short  of  holding  a  national  bank  liable  as  a  partner  in 
a  partnership,  and  liable  as  such  partner  for  not  only  its  own  share 
of  the  debts  of  the  firm,  but  also  the  debts  of  its  copartners.  The  in- 
dividual inability  of  a  holder  of  shares  in  a  national  bank  is  in  its 
nature  several,  and  not  joint  (United  States  v.  Knox,  102  U.  S.  422, 
26  L.  Ed.  21G),  while  the  liability  of  a  partner  for  partnership  debts 
is,  as  to  creditors,  usually  held  to  be  joint;  but  some  cases  hold  it  to 
be  joint  and  several. 

The  individual  liability  is  an  inseparable  incident  to  national  bank 
shares,  for  which  the  lawful  holder  is  liable;  but  this  liability  is 
his  own  debt,  and  attaches  to  a  specific  several  article  of  his  property — 
the  share  of  stock — and  is  therefore  limited,  and  cannot  exceed  the 
face  value  of  the  stock.  But  in  the  case  of  shares  in  a  partnership,  the 
liability  of  a  partner  is  not  for  a  specific  amount  adhering  to  his  share 
as  an  incident,  and  limited  to  a  certain  amount ;  but  the  only  limitation 
is  the  whole  indebtedness  of  the  firm,  and  which  in  many  cases  would 
far  exceed  the  entire  resources  of  the  bank,  and  drive  it  into  insolven- 
cy. The  purpose  of  allowing  a  national  bank  to  take  collateral  secur- 
ity is  to  enhance  its  solvency,  and  not  to  permit  it  to  enter  into  wild 
speculations  as  a  partner  under  the  pretext  of  enforcing  its  rights  as 
a  pledgee  or  owner.  "It  is  settled  that  the  United  States  statutes  rel- 
ative to  national  banks  constitute  the  measure  of  the  authority  of  such 
corporations,  and  that  they  cannot  rightfully  exercise  any  powers  ex- 
cept those  expressly  granted,  or  which  are  incidental  to  carrying  on 
the  business  for  which  they  are  established.  Logan  County  Bank  v. 
Townsend,  139  U.  S.  67,  73,  11  Sup.  Ct.  496,  498,  35  L.  Ed.  107." 
Cahfornia  Bank  v.  Kennedy,  167  U.  S.  362,  366,  17  Sup.  Ct.  831, 
833,  42  L.  Ed.  198. 

To  become  a  member  of  a  partnership  in  any  manner  or  for  any 
purpose  is  not  incidental  to  carrying  on  the  business  for  which  national 
banks  are  established,  and  is  certainly  not  expressly  granted.  The 
power,  therefore,  does  not  exist.  The  liabilities  for  which  a  national 
bank  must  respond  are  such  only  as  are  created  or  incurred  by  its 
officers,  acting  in  the  capacity  of  officers  of  the  bank  alone,  and  not 
in  connection  with  other  trustees  or  officers  of  other  companies.    Were 


Sec.  3)  FORMALITIES.  l-'^-^ 

it  otherwise,  the  other  trustees  or  officers  might  outnumber  tjie  officers 
of  the  bank,  and  impose  a  burden  on  the  bank  which  would  ruin  it; 
and  thus  the  bank  would  be  controlled,  not  by  its  officers,  but  by  out- 
siders. The  officers  of  a  bank  cannot  delegate  their  powers  to  others. 
It  is  therefore  clear  that  a  national  bank  cannot  be  a  partner  in  a 
copartnership,  and  cannot  incur  a  partnership  liability.  The  same 
has  been  held  as  to  coporations  in  this  state.  Geurinck  v.  Alcott,  6G 
Ohio  St.  94,  63  N.  E.  714.  The  first  subdivision  of  the  syllabus  was 
omitted  by  mistake  of  printer,  but  is  found  in  the  Iwadnote,  and  al- 
so in  the  index,  and  is  as  follows :  "A  corporation  cannot  be  a  member 
of  a  partnership."  *  *  * 
Judgment  reversed. 


SECTION  3.— FORMALITIES. 


MARSH  V.  DAVIS  et  al. 

(Supreme  Court  of  Kansas,  1885.    33  Kan.  .326,  6  Pac.  612.) 

HoRTON,  C.  J.  This  was  an  action  for  the  dissolution  of  a  partner- 
ship, and  for  an  accounting.  The  evidence  conduced  to  show :  That 
prior  to  March  12,  1875,  there  existed  at  lola,  in  this  state,  a  firm,  com- 
posed of  W.  E.  Davis,  George  S.  Davis,  and  Elias  Bruner,  engaged  in 
the  milling  business  under  the  name  of  W.  E.  Davis  &  Co.  That  the 
firm  were  then  the  owners  of  a  grist  and  saw  mill,  and  certain  per- 
sonal property,  and  tracts  of  land,  all  used  for  partnership  purposes, 
and  in  connection  with  the  mill.  That  on  March  12,  1875,  it  was 
verbally  agreed  between  the  members  of  the  firm  that  the  plaintiff 
should  be  taken  into  the  partnership  as  a  member  thereof,  on  the  fol- 
lowing terms:  All  the  property  of  the  partnership  was  valued  at 
$12,000 ;  each  partner  was  to  have  an  equal  share  therein ;  the  plaintiff 
was  to  pay  $3,000,  but  it  was  understood  "that  he  was  to  have  his 
share  in  the  partnership  without  interest  on  this  sum  until  such  a 
time  as  the  proceeds  of  the  mill  or  business  made  it."  That  it  was 
further  agreed  among  all  the  members  that  the  partnership  should  be 
consummated  by  an  entry  in  the  journal  and  ledger  books,  setting 
forth  that  the  parties  had  associated  themselves  together  as  partners, 
and  the  amounts  invested  by  each  member  were  to  be  shown  by  his 
credits  on  the  ledger.  That  the  entries  upon  the  journal  and  ledger 
were  made  in  accordance  with  this  agreement.  That  on  March  13, 
1875,  the  plaintifif  was  permitted  to  go  in  possession  jointly  with  the 
other  parties.  That  all  the  parties  acted  on  the  agreement  until  about 
the  middle  of  November,  1882.  That  the  partnership  after  March  13, 
1875,  continued  to  do  business  under  the  firm  name  of  W.  E.  Davis 


134  THE   CllEATION   OP   A   PARTNERSHIP.  (Ch.  2 

&  Co.  That  it  was  the  particular  duty  of  plaintiff  to  keep  the  books 
of  the  firm,  and  look  after  such  other  business  as  'he  could.  That  at 
the  formation  of  the  new  partnership  on  March  12,  1875,  the  grist- 
mill was  somewhat  dilapidated,  and  was  not  making  good  flour.  That 
the  sawmill  was  very  old,  and  pretty  well  worn  out.'  That  W.  E. 
Davis  and  G.  S.  Davis  were  brothers.  That  the  wife  of  plaintiff 
was  the  sister  of  W.  E.  and  G.  S.  Davis,  and  also  the  sister  of  the  wife 
of  Elias  Bruner.  That  the  plaintiff  kept  the  books,  and  also  collected 
for  the  firm,  borrowed  money,  brought  suits  against  different  parties, 
and  did  almost  everything  that  was  to  be  done  to  further  the  interests 
of  the  firm.  That  the  defendants  allowed  him  to  hold  himself  out  to 
the  public  as  a  partner,  to  sign  the  firm  name  to  negotiable  paper, 
subscriptions  to  public  enterprises,  and  officials'  bonds,  to  bring  suits, 
and  defend  suits,  as  a  partner.  That  land  was  condemned  for  a  mill- 
dam.  That  plaintiff  paid  the  money  therefor  from  the  proceeds  of 
the  business.  That  a  dam  was  constructed  across  the  Neosho  river, 
where  the  mill  is  now  located.  That  the  old  mill  was  taken  down  and 
moved  to  the  new  location  in  the  spring  of  1880.  That  a  new  mill 
was  made  out  of  it;  that  is,  the  old  mill  was  rebuilt,  and  considerable 
new  machinery  put  in  it.  That  the  expense  of  doing  this  was  over 
$4,000.  That  about  $1,500  was  borrowed.  That  the  balance  of  the 
money  was  paid  from  the  proceeds  of  the  mill.  That  the  defendants 
accepted  $110  they  owed  him  prior  to  March  12,  1875,  as  part  pay- 
ment of  the  $3,000,  and  used  it  in  the  partnership  business.  That 
the  plaintiff  also  paid  between  $50  and  $60  upon  the  purchase  price 
of  his  interest  in  the  firni  after  he  became  a  member  thereof.  That 
during  the  partnership  he  drew  out  $1,900.  That  about,  the 
middle  of  Novemiber,  1882,  plaintiff  was  excluded  by  the  defend- 
ants, without  any  good  reason  or  excuse,  from  further  partic- 
ipation in  the  partnership,  and  was  forbidden  by  the  other  partners 
from  exercising  any  rights  or  control  over  the  partnership  business 
or  property.  That  at  the  time  of  such  exclusion  the  property  of  the 
fii-m  was  worth  about  $30,000,  having  increased  from  $12,000  in  1875 
to  $30,000  in  1882. 

After  the  introduction  of  all  the  evidence,  on  the  part  of  the  plain- 
tiff', that  the  court  would  admit,  the  defendants  interposed,  and  filed 
a  demurrer  thereto,  upon  the  grovmd  that  no  cause  of  action  was 
proved.  The  court  sustained  the  demurrer,  and  plaintiff  excepted. 
This  is  the  important  ruling  complained  of.  To  sustain  this  ruling, 
the  defendants  contend  that  the  contract  of  ]\Iarch  12,  1875,  being 
for  an  interest  in  real  estate,  is,  as  to  such  real  estate,  void,  under 
the  statute  of  frauds;  and  that,  being  void  as  to  the  real  estate,  it  is 
also  void  as  to  the  personal  property,  and  the  right  to  become  a  part- 
ner, which,  as  defendants  allege,  were  parts  of  an  entire  and  indivis- 
ible contract.  The  proposition  is  conceded  by  the  defendants,  that 
where  real  estate  is  purchased  with  partnership  funds,  for  partnership 
purposes,  after  the  partnership  has  been  formed,  such  real  estate  is 


Sec   3)  FORMALITIES.  135 

to  be  treated  as  part  of  llic  partnership  property,  and,  as  a  conse- 
quence, personal  estate.  It  is  also  well  settled  "that  parol  testimony 
is  admissible  to  prove  a  resulting  trust  in  relation  to  real  estate,  and 
that  land  purchased  in  the  name  of  one  partner,  for  the  use  and  benefit 
of  the  firm,  raises  a  resulting  trust  which  will  be  enforced."  Story, 
Eq.  Jur.  §§  120G,  1207  ;   Scruggs  v.  Russell,  1  McCahon,  30. 

These  principles  are  applicable  to  this  case  and  decisive  against  the 
defendants.  When  tlie  plaintiff  was  taken  into  the  partnership  of  W. 
E.  Davis  &  Co.,  on  March  12,  1875,  as  the  firm  was  then  in  existence, 
and  in  the  possession  of  real  estate  purchased  for  partnership  pur- 
poses, and  then  appropriated  to  those  purposes,  such  real  estate  was 
partnership  property,  and  the  plalntvfT,  by  acquiring  an  interest  in 
the  partnership  by  verbal  contract,  and  thereafter  having  acted  under 
the  contract  as  one  of  the  partners,  with  the  consent  of  all  the  mem- 
bers, is  not  to  be  deprived  of  his  interest  in  the  partnership,  either  as 
to  the  personal  property  or  real  estate,  on  account  of  the  statute  of 
frauds.  The  cases  establish  that  a  partnership  in  any  branch  of  trade 
or  business  may  be  shown  by  parol  as  an  existing  fact,  and  that  what- 
ever real  estate  is  held  for  the  purpose  of  such  business  is  regarded 
as  an  incident  thereto,  and  the  law  will  imply  a  trust  in  favor  of  the 
partnership,  however  the  lands  be  held  in  law.  For  an  illustration: 
If  a  mercantile  firm  carrying  on  the  business  of  buying  and  selling 
goods,  and  as  an  incident  to  the  business  owning  and  having  in  posses- 
sion the  building  in  which  the  business  is  transacted,  takes  into  the 
partnership  another  person,  who  purchases  an  interest  in  the  partner- 
ship, and,  as  a  partner,  is  let  in  possession  of  the  partnership  proper- 
ty, and  all  the  parlies  act  on  the  agreement,  such  person  is  not  to  be 
deprived  of  his  right  in  the  real  estate  held  by  the  firm  at  the  time  he 
became  a  member  thereof  because  his  agreement  wath  the  other  part- 
ners was  not  in  writing.  If  the  partnership  be  proved,  that  will  suf- 
fice to  establish  a  partnership  trust  in  the  land  intended  and  treated 
by  all  the  partners  as  partnership  property,  however  the  land  be  held ; 
and  this  will  not  be  incompatible  with  the  conditions  of  the  statute 
of  frauds.  Scruggs  v  Russell,  supra;  1  Lindl.  Partn.  87-90;  Bird 
V.  Morrison.  12  Wis.  138;  Borden  v.  WhaHng  Co.,  10  Cush.  (Mass.) 
458;    Browne,  Frauds.  §§  259-2G3. 

We  think  it  is  immaterial  whether  the  real  estate  in  this  case  was 
bought  with  partnership  funds,  for  partnership  purposes,  after  the 
formation  of  the  partnership,  or  whether  a  part  of  the  real  estate  w^as 
put  into  the  firm  as  partnership  property  at  the  formation  of  the  new 
firm  on  March  12,  1875,  if  the  parties  have  acted  on  the  agreement 
and  become  partners.  In  such  case,  the  statute  of  frauds  ceases  to 
be  applicable.  Smith  v.  Tarlton.  2  Barb.  Ch.  (N.  Y.)  336;  Bissell  v. 
Harrington,  18  Hun  (N.  Y.)  81. 

The  judgment  of  the  district  court  will  be  reversed,  and  the  cause 
remanded  for  further  proceedings  in  accordance  with  the  views  here- 
in expressed. 


136  THE   CREATION   OF   A   PARTNERSHIP.  (Cll.  2 

EARL,  C,  in  CHESTER  et  al.  v.  DICKERSON  et  al. 
(Commission  of  Appeals  of  New  York,  1873.     54  N.  Y.  1,  13  Am.  Rep.  550.) 

It  cannot  be  questioned  that  two  or  more  persons  may  become  part- 
ners in  buying  and  selling  land.  There  is  nothing  in  the  nature  or  es- 
sence of  a  partnership  which  requires  that  it  should  be  confined  to 
ordinary  trade  and  commerce,  or  to  dealings  in  personal  property. 
Story  on  Part.  §§  82,  S3;  Co^er  on  Part.  §§  3,  51,  and  note;  Dud- 
ley V.  Littlefield,  21  Me.  418 ;  Sage  v.  Sherman,  2  N.  Y.  417 ;  Mead 
V.  Shepard,  54  Barb.  474;  Pendleton  v.  Wambersie,  4  Cranch  (U.  S.) 
73,  2  L.  Ed.  554;  Thompson  v.  Bowman,  6  Wall.  (U.  S.)  316,  18  L.  Ed. 
736  ;  Hoxie  v.  Carr,  1  Sumn.  (U.  S.)  173,  Fed.  Cas.  No.  6,802,  Kent 
says :  "A  partnership  is  a  contract  of  two  or  more  persons  to  place 
their  money,  effects,  labor,  and  skill,  or  some  or  all  of  them,  in  law- 
ful commerce  or  business,  and  to  divide  the  profit  and  share  the  loss 
in  certain  proportions ;  and  it  is  not  essential  to  a  legal  partnership 
that  it  be  confined  to  a  commercial  business.  It  may  exist  between 
attorneys,  conveyancers,  mechanics,  owners  of  a  line  of  stagecoaches, 
artisans,  or  farmers,  as  well  as  between  merchants  and  bankers."  3 
Kent,  Com.  24,  28.  And  why  may  it  not  exist  between  dealers  and 
speculators  in   real  estate? 

But,  as  it  is  claimed  that  the  partnership  in  this  case  existed  by 
parol  before  the  execution  of  the  written  agreement  dated  November 
28,  1864,  it  is  necessary  to  inquire  whether  a  partnership,  in  refer- 
ence to  lands,  can  be  formed  and  proved  by  parol.  Upon  this  ques- 
tion there  is  considerable  conflict  in  the  authorities.  On  the  one  hand, 
it  is  claimed  that  a  parol  agreement  for  such  a  partnership  would  be 
within  the  statute  of  frauds,  which  provides  that  no  estate  or  inter- 
est in  lands  shall  be  created,  assigned,  or  declared,  unless  by  act  or 
operation  of  law,  or  by  a  deed  or  conveyance  in  writing  subscribed  by 
the  party  creating,  granting,  assigning  or  declaring  the  same;  and 
to  this  effect  is  the  case  of  Smith  v.  Burnham,  3  Slimn.  (U.  S.)  435, 
Fed.  Cas.  No.  13,019.  On  the  other  hand,  it  is  claimed  that  such  an 
agreement  is  not  afifected  by  the  statute  of  frauds,  for  the  reason  that 
the  real  estate  is  treated  and  administered  in  equity  as  personal  prop- 
erty for  all  the  purposes  of  the  partnership.  A  court  of  equity  having 
full  jurisdiction  of  all  cases  between  partners  touching  the  partner- 
ship property,  it  is  claimed  that  it  will  inquire  into,  take  an  account  of, 
and  administer  all  the  partnership  property,  whether  it  be  real  or  per- 
sonal, and  in  such  cases  will  not  allow  the  partner  to  commit  a  fraud 
or  a  breach  of  trust  upon  his  copartner  by  taking  advantage  of  the 
statute  of  frauds;  and  to  this  effect  are  the  following  authorities: 
Dale  V.  Hamilton,  5  Hare,  369  ;  Essex  v.  Essex;  20  Beaven,  449 ;  Bun- 
nell v.  Taintor,  4  Conn.  568.  A  full  discussion  of  the  question  is  found 
in  Dale  v.  Hamilton,  and  the  reasoning  and  review  of  the  cases  there 
by  Vice  Chancellor  Wagram  are  quite  satisfactory.    The  general  doc- 


Sec.  3}  FOIIMALITIKS.  137 

trine  is  there  laid  down  that  "a  partnership  agreement  between  A.  and 
B.  that  they  shall  be  jointly  interested  in  a  speculation  for  buying, 
improving  for  sale,  and  selling  lands  may  be  proved  without  being 
evidenced  by  any  writing,  signed  by  or  by  the  authority  of  the  party 
to  be  charged  therewith  within  the  statute  of  frauds;  and,  such  an 
agreement  being  proved,  A.  or  B.  may  establish  his  interest  in  land, 
the  subject  of  the  partnership,  without  such  interest  being  evidenced 
by  any  such  writing."  I  am  inclined  to  think  this  doctrine  to  be  found- 
ed upon  the  best  reason  and  the  most  authority.  But  whether  it  is 
or  not  it  is  not  very  important  to  decide  in  this  case.  Most  of  the 
conflict  in  the  authorities  has  arisen  in  controversies  about  the  title 
to  the  real  estate  after  the  dissolution  of  the  partnership  or  the  death 
of  one  of  the  partners.  But  suppose  two  persons,  by  parol  agree- 
ment, enter  into  a  partnership  to  speculate  in  lands,  how  do  they  come 
in  conflict  with  the  statute  of  frauds?  No  estate  or  interest  in  land 
has  been  granted,  assigned,  or  declared.  When  the  agreement  is 
made  no  lands  are  owned  by  the  firm,  and  neither  party  attempts  to 
convey  or  assign  any  to  the  other.  The  contract  is  a  valid  one,  and 
in  pursuance  of  this  agreement  they  go  on  and  buy,  improve,  and  sell 
lands.  While  they  are  doing  this,  do  they  not  act  as  partners,  and 
bear  a  partnership  relation  to  each  other?  Within  the  meaning  of  the 
statute  in  such  case  neither  conveys  or  assigns  any  land  to  the  other, 
and  hence  there  is  no  conflict  with  the  statute.  The  statute  is  not  so 
broad  as  to  prevent  proof  by  parol  of  an  interest  in  lands.  It  is  simply 
aimed  at  the  creation  or  conveyance  of  an  estate  in  lands  without  a 
writing.  If  there  was  a  parol  agreement  in  this  case  before  the  writ- 
ten one,  it  was  just  like  the  one  embodied  in  the  writing,  to  wit,  a 
partnership  to  purchase,  lease,  and  take  refusals  of  land,  and  then  sell, 
lease,  or  work  them  for  the  joint  benefit  of  the  parties.  This  is  not 
a  controversy  about  the  title  to  any  of  the  lands  taken  or  owned  by 
the  partners,  but  it  simply  relates  to  the  conduct  of  the  defendants 
while  they  were  acting  as  partners ;  and  in  such  a  case  the  statute  of 
frauds  certainly  can  present  no  obstacle  to  relief.* 


COLEMAN  V.  EYRE. 

(Court  of  Appeals  of  New  York,  1S71.    45  N.  Y.  38.) 

Rapallo,  J.  The  plaintiff  was  interested  to  the  extent  of  one- 
fourth  in  the  profits  or  losses  of  a  shipment  of  coffee  undertaken  by 
him  jointly  with  other  parties.  After  the  adventure  had  been  begun,  and 
before  the  coffee  had  reached  its  port  of  destination,  it  was  mutually 

1  "A  contract  formiug  a  partiu'iship  to  be  continued  beyond  one  year  is 
witliin  tbe  sectiuu  of  the  statute  ot  frauds  which  provides  that  every  agi-ee- 
meut  whic'li  by  its  terms  is  not  to  1)0  perforiue<l  in  one  year  from  the  making 
thereof  is  void  unless  it  is  in  writing,  and  a  partnership  so  formed  is  a 
partnership  at  will.     Morris  v.  Peckham,  51  Conn.  128;    Williams  y.  Jouea, 


138  THE   CREATION   OF   A   PARTNERSHIP.  (Cll.  2 

agreed  between  the  plaintiff  and  the  defendant  that  the  latter  should 
have  one-half  interest  in  the  plaintiff's  one-fourth  interest  in  the  ad- 
venture. The  speculation  resulted  in  a  loss,  and  this  action  was  brought 
to  recover  one-half  of  the  plaintiff's  proportion  of  such  loss.  It  is 
now  claimed  on  the  part  of  the  defendant  that  no  valid  contract  was 
made  between  him  and  the  plaintiff;  that  inasmuch  as  the  plaintiff 
had  embarked  in  the  speculation  before  and  without  reference  to  any 
arrangement  with  the  defendant,  and  the  defendant  had  not  done  or 
contributed  anything  to  aid  in  the  joint  enterprise,  there  was  no 
partnership,  and  no  consideration  for  the  undertaking  of  the  plaintiff 
to  give  him  one-half  of  the  profits;  that  therefore  the  defendant  could 
not  have  enforced  payment  of  half  the  profits  if  the  adventure  had 
been  successful,  and  consequently  no  agreement  on  his  part  to  con- 
tribute to  the  loss  can  be  implied. 

This  argument  assumes  that  the  agreement  was  simply  that  the  de- 
fendant should  have  one-half  of  the  profits  which  the  plaintiff  might 
make  out  of  the  adventure  in  case  it  should  prove  successful.  But 
such  was  not  the  agreement  proved.  The  agreement  was  that  the  de- 
fendant should  share  with  the  plaintiff  in  the  adventure,  and  it  seems  to 
have  been  clearly  understood  that  he  should  participate  in  the  result, 
whether  it  should  prove  a  profit  or  a  loss.  That  it  might  result  in  a 
loss  was  contemplated  by  the  parties.  There  is  evidence  in  the  case 
that  the  possibility  of  that  event  was  the  subject  of  conversation  be- 
tween them  at  the  time  of  making  the  contract;  that  the  hope  was 
then  expressed  that  the  plaintiff  would  not  be  compelled  to  call  upon 
the  defendant  to  contribute  to  a  loss;  and  that  afterward,  when  they 
did  call  upon  him  to  contribute,  he  did  not  dispute  his  liability,  but 
sought  to  reduce  the  amount  by  claiming  a  portion  of  the  plaintiff's 
commissions. 

The  evidence  fully  justified  a  finding  that,  in  consideration  of  the 
agreement  by  the  plaintiff  to  account  to  the  defendant  for  half  the 
profits  in  case  of  success,  the  defendant  undertook  to  bear  half  the 
loss  in  the  contrary  event;  and  the  intendment  is  that  the  referee 
did  so  find.  Indeed,  such  is  a  proper  construction  of  the  actual  find- 
ing. It  is  a  clear  case  of  mutual  promises ;  and  the  obligation  of 
each  party  was  a  good  consideration  for  that  of  the  other.  Briggs  v. 
Tillotson,  8  Johns.  3G4. 

The  agreement  was  not  within  the  statute  of  frauds.  It  was  not 
an  agreement  for  the  sale  of  any  personal  property  or  chose  in  action, 
but  an  executory  agreement,  whereby  one  party  undertook  to  bear 
one  part  of  a  possible  loss  in  consideration  of  a  share  of  an  expected 
profit. 

5  B.  &  C.  108;  Jones  v.  McMichael,  12  Rich.  Law  (S.  C.)  176;  Essex  v.  Essex, 
20  Bear.  442;  Burden  v.  Barkus,  3  Giff.  412;  4  De  G.  F.  &  J.  42,  47.  50; 
RePd's  Stat.  Fr.  §  191 ;  Lind.  on  Part.  (25th  Eng.  Ed.)  80,  81."  Per  Follett,  C. 
J.,  in  Wahl  et  al.  v.  Bamum  et  al.,  110  N.  Y.  87,  97,  22  N.  E.  280,  5  L.  R.  A- 
623  (1889).  But  see  Shropshire  v.  Adams  (Tex.  Civ.  App.)  89  S.  W.  448  (1905), 
contra. 


Sec.  4)  roit  what  pukposes.  139 

The  judgment  of  reversal  and  order  granting  a  new  trial  should  be 
reversed,  and  the  judgment  for  the  plaintiff  entered  on  the  report  of 
the  referee  should  be  affirmed,  with  costs. 

Order  of  General  Term  reversed. 


SECTION  4.— FOR  WHAT  PURPOSES. 


CENTRAL  TRUST  &  SAFE  DEPOSIT  CO.  et  al.  v.  RESPASS. 

(C!ourt  of  Appeals  of  Keutucky,  1902.     112  Ky.  GOG,  GG  S.  W.  421,  oG  L.  R.  A. 
470,  09  Am.  St.  Rep.  317.) 

Action  by  Jerome  B.  Respass  against  the  executors  of  Solomon  L. 
Sharp  for  a  settlement  of  partnership  accounts.  Judgment  granting 
relief  .sought,  and  defendants  appeal. 

Du  Relle,  J.  Jerome  B.  Respass  and  Solomon  L.  Sharp  appear 
to  have  formed  a  copartnership,  extending  over  several  years,  in  the 
business  of  managing  a  racing  stable,  and,  in  connection  with  that 
business,  were  engaged  in  "bookmaking,"  or  making  wagers  upon  race 
horses.  They  seem,  also,  to  have  had  an  interest  in  a  pool  room  at 
Newport.  For  the  book  business  a  separate  account  was  kept  by  a 
cashier  employed  for  the  purpose.  They  had  no  regular  time  for  mak- 
ing settlements  with  each  other,  but  at  various  times,  when  requested, 
the  cashier  made  out  statements  of  the  booking  business  of  the  firm. 
It  appears  from  the  testimony  of  Bernard,  the  cashier,  that  Sharp  in 
November,  1S97,  handed  him  $4,724,  and  told  him  to  deposit  it  to 
his  (Sharp's)  credit  in  the  Merchants'  National  Bank  of  Cincinnati, 
Ohio,  which  was  done.  Sharp  appears  to  have  stated  at  the  time  that 
one-half  of  this  fund  belonged  to  Respass.  It  appears  further  that 
this  was  the  "bank  roll"  of  the  bookmaking  concern,  in  which  each 
partner  had  an  equal  interest.  At  the  same  time  he  remarked  that 
Respass  had  paid  out  $1,500  for  the  firm,  and  that  he  would  see  him 
in  a  few  days  and  settle  with  him.  Sharp  died  suddenly,  before  any 
such  settlement  was  made.  The  money  in  the  bank  roll  was  on 
deposit  to  Sharp's  credit.  The  racing  business  of  the  firm  seems  to 
have  been  almost  entirely  in  the  hands  of  Respass,  who  attended  to 
the  horses,  trained  them,  entered  them  in  races,  and  at  times  wagered 
on  them  for  the  benefit  of  the  firm,  which  divided  the  profits  or  shared 
the  losses,  as  the  case  might  be.  Respass  brought  suit  against  Siiarp's 
executors  for  a  settlement  of  the  partnership  accounts.  The  horses 
in  the  racing  stable  were  sold  under  order  of  court,  and  various  claims 
against  the  fund  in  court  were  made  by  Respass  for  expenses  incurred 
in   keeping,   shoeing,   clipping,   training,   and   caring   for   the   various 


140  THE   CUKATION   OF   A   PARTNERSHIP.  (Cll.  2 

horses,  as  well  as  for  entering  certain  of  the  horses  in  stakes,  and  for 
wagers  paid  upon  the  horses  "Fair  Deceiver"  and  "Shannon."  The 
business  of  breeding,  training,  and  racing  horses  for  purses  is  legal. 
The  partnership  for  that  purpose  can  undoubtedly  be  settled  by  the 
chancellor.  The  only  question  presented  as  to  this  matter  is  upon 
the  correctness  of  the  settlement  made. 

[After  allowing  certain  items  for  training  and  keeping  the  horses, 
and  entering  them  for  races:]  Another  item  to  which  exception  is 
taken  consists  of  $700 ;  being  the  amount  of  two  bets  made,  lost,  and 
paid  by  Respass  on  the  horses  "Fair  Deceiver"  and  "Shannon."  In 
view  of  the  statutory  law  of  Kentucky  (see  section  1955  et  seq.,  Ky. 
St.),  we  are  unable  to  see  how  any  legal  consideration  can  exist  for  a 
promise  to  reimburse  to  a  partner  any  portion  of  any  sum  lost  upon  a  bet 
on  a  horse  race.  In  Lyons  v.  Hodgen,  90  Ky.  280,  13  S.  W.  1076,  it 
was  held,  in  an  opinion  by  Chief  Justice  Lewis,  that  this  statute,  pro- 
viding that  "every  contract,  conveyance,  transfer  or  assurance,  for  the 
consideration,  in  whole  or  in  part,  of  money,  property  or  other  thing 
won,  lost  or  bet  in  any  game,  sport,  pastime,  wager,  or  for  the  con- 
sideration of  money,  property  or  other  thing  lent  or  advanced  for 
the  purpose  of  gaming  or  lent  or  advanced  at  the  time  of  any  betting, 
gaming  or  wagering  to  a  person  then  actually  engaged  in  betting,  gam- 
ing or  wagering,  shall  be  void" — applied  to  dealing  in  "futures"; 
that  the  process  by  which  the  money  was  won  or  lost  was  a  v^-ager, 
within  meaning  of  the  statute,  which  was  designed  to  embrace  every 
species  of  wagering,  whether  practiced  at  the  time  the  statute  was  en- 
acted, or  since  devised.  And  in  the  opinion  by  the  same  judge  in 
Sharp  V.  Com.  (from  Kenton  county)  98  Ky.  574,  35  S.  W.  553,  it 
was  held  that  betting  upon  horse  races  was  gaming  and  illegal. 
We  think  it  is  well  settled  that  a  man  who  lends  money  to  another, 
to  be  then  bet  on  a  horse  race,  cannot  recover  it  back.  And  so 
it  would  seem  that  if  A.  agrees  with  B.  that  B.  shall  advance  the 
money,  and  himself  bet  upon  a  horse  race  for  their  joint  account,  no 
action  will  lie  by  B.  to  compel  A.  to  respond  for  his  share  of  a  bet 
which  is  lost.  The  statement  of  this  proposition  seems  to  decide  it. 
It  is  a  contract  for  an  illegal  venture.  The  whole  contract  is  illegal. 
No  right  of  action  can  arise  out  of  that  contract.  This  is  exactly 
the  position  of  Respass  as  to  the  two  bets.  He  advanced  the  money 
to  make  them  for  himself  and  Sharp,  relying  upon  Sharp's  express  or 
implied  agreement  to  pay  half  the  losses  if  loss  should  be  incurred. 
Such  a  contract  cannot  be  enforced  in  this  state. 

A  closer  question  is  presented  by  the  claim  for  a  divison  of  the 
"bank  roll."  This  $4,724  was,  as  found  by  the  chancellor,  earned  by 
the  firm  composed  of  Respass  and  Sharp  in  carrying  on  an  illegal 
business — that  of  "bookmaking" — in  the  state  of  Illinois.  But  though 
this  amount  had  been  won  upon  horse  races  in  Chicago,  it  is  claimed 
that,  though  secured  illegally,  "the  transaction  has  been  closed,  and 
the  appellee  is  only  seeking  his  share  from  the  realized  profits  from 


Sec.  4)  FOR  WHAT  puki'OS!i:.s.  141 

the  illegal  contrac'.s,  if  they  are  illegal."  On  [lie  other  hand,  it  is  claim- 
ed for  appellants  that,  as  to  the  bank  roll,  this  proceeding  is  a  bill  for  an 
accounting  of  profits  from  the  business  of  gambling. 

It  does  not  seem  to  be  seriously  contended  that  the  business  of 
"bookmaking,"  whether  carried  on  in  Chicago  or  in  this  common- 
wealth, was  legal,  for  by  the  common  law  of  this  country  all  wagers 
are  illegal.  Irwin  v.  Williar,  110  U.  S.  510,  4  Sup.  Ct!  IGO,  2S  L. 
Ed.  225.  One  of  the  most  interesting  cases  upon  this  subject  is  that 
of  Everet  v.  Williams — the  celebrated  Highwaymen's  Case — an  ac- 
count of  which  is  given  in  9  Law  Quart.  Rev.  197.  That  was  a  bill 
for  an  accounting  of  a  partnership  in  the  business  of  highwaymen, 
though  the  true  nature  of  the  partnership  was  veiled  in  ambiguous 
language.  The  bill  set  up  the  partnership  between  defendant  and  plain- 
tiff, who  was  "skilled  in  dealing  in  several  sorts  of  commodities" ;  that 
they  "proceeded  jointly  in  the  said  dealings  with  good  success  on 
Hounslow  Heath,  where  they  dealt  with  a  gentleman  for  a  gold 
watch";  that  defendant  had  informed  plaintiff  that  Finchley  "was  a 
good  and  convenient  place  to  deal  in,"  such  commodities  being  "very 
plenty"  there,  and  if  they  were  to  deal  there  "it  would  be  almost  all 
gain  to  them";  that  they  accordingly  "dealt  with  several  gentle- 
men for  divers  watches,  rings,  swords,  canes,  hats,  cloaks,  horses, 
bridles,  saddles,  and  other  things,  to  the  value  of  £200  and  upwards" ; 
that  a  gentleman  at  Blackheath  had  several  articles  which  defendant 
thought  "might  be  had  for  little  or  no  money,  in  case  they  could  pre- 
vail on  the  said  gentleman  to  part  with  the  said  things";  and  that, 
"after  some  small  discourse  with  the  said  gentleman,"  the  said  things 
were  dealt  for  "at  a  very  cheap  rate."  The  dealings  were  alleged  to 
have  amoiv.ited  to  £2,000  and  upwards.  This  case,  while  interesting, 
from  the  views  it  gives  of  the  audacity  of  the  parties  and  their  solicit- 
ors, sheds  little  light  upon  the  legal  questions  involved,  for  the  bill 
was  condemned  for  scandal  and  impertinence,  the  solicitors  were  taken 
into  custody  and  "fyned"  £50  each  for  "reflecting  upon  the  honor  and 
dignity  of  this  court,"  the  counsel  whose  name  was  signed'  to  the  bill 
was  required  to  pay  the,  costs,  and  both  the  litigants  were  consequently 
hanged  at  Tyburn  and  Maidstone,  respectively,  while  one  of  the  solicit- 
ors was  transported.  This  case  is  found  referred  to  in  the  cases  of  Svkes. 
v.  Beadon,  11  Ch.  Div.  170,  195,  and  AIcMullen  v.  Hoffman,  174  U. 
S.  639, 19  Sup.  Ct.  839,  43  L.  Ed.  1117.  In  the  Sykes  Case  it  was  held,  in 
the  opinion  by  Sir  George  Jessel :  "It  is  no  part  of  the  duty  of  a  court 
of  justice  to  aid  either  in  carrying  out  an  illegal  contract,  or  in  dividing 
the  proceeds  arising  from  an  illegal  contract  between  the  parties  to  that 
illegal  contract.  In  my  opinion,  no  action  can  be  maintained  for  the 
one  purpose  more  than  for  the  other."  In  Watson  v.  Fletcher,  7  Grat. 
(Va.)  1,  the  business  of  the  firm  had  been  the  operation  of  a  faro 
bank.  One  of  the  partners  having  died,  the  survivor  sought  an  ac- 
counting of  profits  earned.  The  syllabus  reads :  "A  court  of  equity 
will  not  lend  its  aid  for  the  settlement  and  adjustment  of  the  transac- 


Ii2  THE   CREATION   OF  A   PARTNERSHIP.  (Ch.  2 

tions  of  a  partnership  for  gambling.  Nor  will  it  give  relief  to  either 
partner  against  the  other,  founded  on  transactions  arising  out'  of  such 
partnership,  whether  for  profits,  losses,  expenses,  contribution,  or  re- 
imbursement." To  the  same  effect  is  Shaffner  v.  Pinchback,  133  ,111. 
410,  2i  N.  E.  867,  23  Am.  St.  Rep.  624.  In  McAIullen  v.  Hoffman, 
supra,  it  appeared  that  a  partnership  was  formed  for  the  purpose  of 
obtaining  a  public  contract  by  unlawful  means,  upon  the  terms  of  shar- 
ing the  profits  equally,  and  that  the  profits  came  into  the  hands  of  one 
partner.  Tlie  other  filed  a  bill  for  an  accountmg,  and  was  denied  re- 
lief. Said  the  court:  "We  must  therefore  come  back  to  the  proposi- 
tion that  to  permit  a  recovery  in  this  case  is,  in  substance,  to  enforce 
an  illegal  contract,  and  one  which  is  illegal  because  it  is  against  pub- 
lic policy  to  permit  it  to  stand.  The  court  refuses  to  enforce  such  a 
contract,  and  it  permits  defendant  to  set  up  its  illegality,  not  out  of 
any  regard  for  defendant  who  sets  it  up,  but  only  on  account  of  the 
public  interest.  *  *  *  To  refuse  to  grant  either  party  to  an  il- 
legal contract  judicial  aid  for  the  enforcement  of  his  alleged  rights 
under  it  tends  strongly  towards  reducing  the  number  of  such  trans- 
actions to  a  minimum.  The  more  plamly  parties  understand  that  when 
they  enter  into  contracts  of  this  nature  they  place  themselves  outside 
the  protection  of  the  law,  so  far  as  that  protection  consists  in  aiding 
them  to  enforce  such  contracts,  the  less  inclined  they  will  be  to  enter 
into  them.  In  that  way  the  pubHc  secures  the  benefit  of  a  rigid  ad- 
herence to  the  law."  See,  also,  the  cases  of  Snell  v.  Dwight,  120 
Mass.  9;  Morrison  v.  Bennett,  20  Mont.  560,  52  Pac.  553,  40  L.  R. 
A.  ISa;  King  V.  Winants,  71  N.  C.  4G9,  17  Am.  Rep.  11 ;  Watson  v. 
Murray,  23  N.  J.  Eq.  257;  Gould  v.  Kendall,  15  Neb.  549,  19  N.  W. 
483;  Craft  v.  McConoughy,  79  111.  346,  22  Am.  Rep.  171;  Northrup 
V.  Phillips,  99  111.  449 ;  Wiggins  v.  Bisso,  92  Tex.  219,  47  S.  W\ 
637,  71  Am.  St.  Rep.  837 ;  Chicago,  M.  &  St.  P.  R.  Co.  v.  Railroad  Co.,- 
9  C.  C.  A.  659,  61  Fed.  993 ;  Emery  v.  Candle  Co.,  47  Ohio  St.  320, 
24  N.  E.  660,  21  Am.  St.  Rep.  819;  Hunter  v.  Pfeiffer,  108  Ind.  197, 
9  N.  E.  124. 

Upon  the  other  hand,  a  large  number  of  cases  are  relied  on  on 
behalf  of  appellee.  Many  of  these  cases  do  not  seem  to  us  to  bear 
directly  upon  the  question  here  involved.  We  shall  first  consider 
the  Kentucky  cases:  In  Bibb  v.  Miller,  11  Bush,  306,  the  contest  was 
between  two  persons,  each  of  whom  claimed  title  to  the  proceeds  of 
a  winning  lottery  ticket.  The  court  was  careful  to  say :  "The  ques- 
tion as  to  the  legality  of  the  sale  of  tickets  and  the  distribution  of 
prizes  arises  collaterally,  and  derives  its  importance  solely  from  the  fact 
that  the  plaintiffs  in  the  action  are  compelled  to  rely  on  such  sale  and 
distribution  in  order  to  make  out  their  title  to  the  fund  in  controversy." 
In  that  case  the  corporation  had  recognized  its  obligation  to  pay,  and 
voluntarily  paid  into  court  the  amount  claimed  to  be  due  on  the  coupon. 
The  question  there  was  whether  the  library  company  was  acting  pursu- 
ant to  legal  authority  in  selling  the  ticket  and  paying  the  prize  distribut- 


Sec.  4)  FOR  WHAT  pukfoses.  143 

ed  to  that  ticket ;  and  the  court  held  that,  "in  the  absence  of  proof  to  the 
contrary,  we  must  assume  that  it  acted  within  liic  scope  of  the  powers 
granted  it  by  its  act  of  incorporation."  In  Martin  v.  Richardson,  04  Ky. 
183,  21  S.  W.  1039,  19  L.  R.  A.  G92,  4:3  Am.  St.  Rep.  3.j3,  a  lottery  ticket 
owned  by  one  man  had  been  fraudulently  obtained  from  him  by  an- 
other and  the  proceeds  collected.  It  was  held  that,  the  purchase  of 
the  ticket  not  being  shown  to  have  been  made  in  a  state  where  such 
purchase  was  illegal,  the  presumption  was  in  favor  of  its  legality.  In 
Irwin  V.  Irwin,  107  Ky.  24,  52  S.  W.  927,  a  lottery  ticket,  or  its  pro- 
ceeds, was  given  by  a  husband  to  his  wife,  and  invested  in  real  estate. 
It  was  held  that,  "whether  the  purchase  was  illegal  or  not,  such  trans- 
fer comes  distinctly  within  the  meaning  and  purview  of  the  peremptory 
statute  which  requires  the  restoration  of  property  obtained  directly 
or  indirectly  from  or  through  the  other  party  by  reason  of  the  mar- 
riage." So,  in  Maize  v.  Bradley  (Ky.)  64  S.  W.  655,  where,  in  an 
action  to  recover  money  had  and  received,  it  was  claimed  the  fund 
had  been  placed  in  the  hands  of  defendants  to  avoid  taxation,  it  was 
held  this  defense  was  not  available,  as  the  fund  had  been  reinvested, 
and  a  new  contract  entered  into  between  the  parties,  untainted  by  the 
illegality  of  the  original  transaction.  In  the  case  at  bar  there  was  no 
division  of  the  unlawful  gains  made  by  Sharp  at  Chicago.  There 
was  no  new  transaction  with  reference  to  them,  such  as  the  invest- 
ment of  the  fund,  or  any  part  of  it,  in  horses,  for  their  joint  account. 
There  was  not  even  an  accounting  of  the  gains,  accompanied  by  a 
promise  to  pay  to  Respass  the  amount  ascertained  to  be  due  him  under 
the  terms  of  the  illegal  partnership  agreement.  There  was  simply  a 
termination  by  death  of  an  illegal  partnership,  with  unlawful  gains  in 
the  hands  of  one  of  the  partners,  an  accounting  for  which  is  here 
sued  for.  We  are  cited  to  but  two  cases  which  seem  to  come  up  to 
the  requirements  of  appellee's  contention.  Both  of  those  cases  have 
been  subsequently  questioned.  There  are  many  cases  which  come 
within  the  general  terms  of  the  doctrine  laid  down  in  Norton  v.  Blinn, 
39  Ohio  St.  145 :  "Public  policy  does  not  require  that  one  engaged 
in  an  unlawful  enterprise  should,  by  pleading  it,  shield  himself  from 
liability  for  the  wages  of  his  employes,  agents,  or  servants.  *  *  * 
It  is  contrary  to  public  policy  and  good  morals  to  permit  employes, 
agents,  or  servants  to  seize  or  retain  the  property  of  their  principal, 
although  it  may  be  employed  in  illegal  business  and  under  their  con- 
trol. No  consideration  of  public  policy  can  justify  such  a  lowering 
of  the  standard  of  moral  honesty  required  of  persons  in  these  rela- 
tions. And  again,  if  parties  to  an  illegal  contract  waive  the  illegality 
and  honestly  account  as  between  themselves,  no  other  person  can  be 
heard  to  complain  of  such  accounting.  Hence  we  think  that,  if  in 
making  such  settlement,  one  of  the  guilty  parties  should  deliver  prop- 
erty or  money  to  an  agent  of  another,  to  be  delivered  by  the  agent 
to  his  principal,  such  agent  is  bound  to  account  therefor  to  his  prin- 
cipal."   It  seems  clear,  also,  that  a  wrongdoer  who,  by  force  or  fraud. 


144  THE   CREATION   OF  A   PARTNERSHIP.  (Cll.  2 

obtains  money  or  property  from  another,  or  violates  a  trust  imposed 
in  him,  cannot  be  heard  to  charge  his  victim  with  wrongdoing  in  the 
original  obtention  of  the  money  or  property.  To  this  class  belong  the 
cases  of  Farmer  v.  Russell,  1  Bos.  &  P.  295 ;  Tenant  v.  Elliott,  Id. 
2;  Catts  v.  Phalen,  2  How.  (U.  S.)  376,  11  L.  Ed.  306.  And  see 
Pol.  Cont.  33-i,  note.  The  doctrine  as  to  such  cases  is  aptly  stated  in 
Catts  V.  Phalen,  supra:  "Phalen  &  Morris  had  in  their  possession 
twelve  thousand  five  hundred  dollars,  either  in  their  own  right,  or  as 
trustees  for  others  interested  in  tlie  lottery.  No  matter  which,  the 
legal  right  to  this  sum  was  in  them.  The  defendant  claimed  and  re- 
ceived it  by  false  and  fraudulent  pretenses,  as  morally  criminal  as 
by  larceny,  forgery,  or  perjury;  and  the  only  question  before  us  is 
whether  he  can  retain  it  by  any  principle  or  rule  of  law."  The  cases 
which  come  nearest  to  supporting  the  contention  of  appellee  are  Sharp 
V.  Taylor,  2  Phil.  Ch.  801,  and  Brooks  v.  Martin,  '2  Wall.  (U.  S.) 
70,  17  L.  Ed.  732.  The  former  case  was  a  partnership  in  a  vessel 
registered  in  violation  of  the  laws  of  both  Great  Britain  and  the  Unit- 
ed States.  Her  voyages  were  profitable,  but  one  partner,  colluding 
with  an  outsider,  obtained  possession  of  the  profits  and  refused  to  ac- 
count. The  illegality  of  the  traffic  was  relied  on  by  him  as  a  defense 
to  an  accounting.  Said  Lord  Cottenliam:  "He  is  not  seeking  com- 
pensation and  payment  for  an  illegal  voyage.  That  matter  was  dis- 
posed of  when  Ta3dor  [the  defendant]  received  the  money,  and  plain- 
tiff is  now  only  seeking  payment  for  his  share  of  the  realized  profits. 
*  *  *  As  between  these  two,  can  this  supposed  evasion  of  the  law 
be  set  up  as  a  defense  by  one  as  against  the  otherwise  clear  title  of 
the  other?  Can  one  of  two  partners  possess  himself  of  the  property 
of  the  firm,  and  be  permitted  to  retain  it,  if  he  cj^n  show  that  in  real- 
izing it  some  provision  in  some  act  of  parliament  has  been  violated 
or  neglected?  *  *  *  The  answer  to  this,  as  to  the  former  case, 
will  be  that  the  transaction  alleged  to  be  illegal  is  completed  and 
closed,  and  will  not  be  in  any  manner  affected  by  what  the  court  is 
asked  to  do  between  the  parties."  This  doctrine  comes  very  close  to 
appellee's  contention,  but,  on  examination,  can  be  distinguished  from 
the  case  at  bar,  and  had  been  criticised  and  denied  by  Sir  George 
Jessel,  master  of  the  rolls,  in  Sykes  v.  Beadon,  supra,  as  well  as  in 
the  case  of  McMulIen  v.  Hoffman,  174  U.  S.  639,  19  Sup.  Ct.  839,  43 
L.  Ed.  1117.  The  case  of  Brooks  v.  Martin,  2  Wall.  (U.  S.)  70,  17 
L.  Ed.  732— much  relied  upon  by  appellee— is  explained,  and  qualified 
by  the  Supreme  Court  in  McMuUen  v.  Hoffman,  supra  (page  668, 
174  U.  S.,  page  850,  19  Sup.  Ct,  and  page  1128,  43  L.  Ed.),  in  the 
opinion  by  Mr.  Justice  Peckham :  "The  action  was  sustained  upon 
the  theory  that  the  purpose  of  the  partnership  agreement  had  been 
fully  closed  and  completed,  that  substantially  all  the  profits  arising 
therefrom  had  been  invested  in  other  securities  or  in  lands,  and  that 
therefore  it  did  not  lie  in  the  mouth  of  the  partner  who  had  by  fraud- 
ulent means  obtained  possession  and  control  of  these  funds  to  say  to 


Sec.  4)  '  FOR   WHAT   PURPOSES.  145 

the  other  that  the  original  contract  was  illegal."  The  case  is  also 
criticised  in  King  v.  Winants,  71  N.  C.  473,  17  Am.  Rep.  11,  as  fol- 
lows :  "Two  men  enter  into  a  conspiracy  to  rob  on  the  highway,  and 
they  do  rob,  and  while  one  is  holding  the  traveler  the  other  rifles  his 
pocket  of  $1,000,  and  then  refuses  to  divide,  and  the  other  files  a  bill 
to  settle  up  the  partnership,  when  they  go  into  all  the  wicked  details 
of  the  conspiracy  and  the  rencounter  and  the  treachery.  Will  a  court 
of  justice  hear  them?  No  case  can  be  found  where  a  court  has  al- 
lowed itself  to  be  so  abased.  Now,  if  the  robbers  had  taken  the  $1,000 
and  invested  it  in  some  legitimate  business  as  partners,  and  had  after- 
wards sought  the  aid  of  the  court  to  settle  up  that  legitimate  business, 
the  court  would  not  have  gone  back  to  inquire  how  they  first  got  the 
money.  That  would  have  been  a  past  transaction,  not  necessary  to  be 
mentioned  in  the  settlement  of  the  new  business.  And  this  illustrates 
the  case  of  Brooks  v.  Martin,  supra,  so  much  relied  on  by  plaintifif." 
See,  also,  Snell  v.  Dwight,  120  Mass.  9,  19 ;  Morrison  v.  Bennett,  20 
Mont.  560,  572,  52  Pac.  553,  40  L.  R.  A.  158 ;  Gould  v.  Kendall,  15 
Neb.  519,  556,  557,  19  N.  W.  483 ;  Wiggins  v.  Bisso,  92  Tex.  219, 
225,  47  S.  W.  637,  71  Am.  St.  Rep.  837. 

We  conclude  that  in  this  country,  in  the  case  of  a  partnership  in  a 
business  confessedly  illegal,  whatever  may  be  the  doctrine  where  there 
has  been  a  new  contract  in  relation  to,  or  a  new  investment  of,  the 
profits  of  such  illegal  business,  and  whatever  may  be  the  doctrine  as 
to  the  rights  or  liabilities  of  a  third  person  who  assumes  obligations 
with  respect  to  such  profits,  or  by  law  becomes  responsible  therefor, 
the  decided  weight  of  authority  is  that  a  court  of  equity  will  not  enter- 
tain a  bill  for  an  accounting. 

The  judgment  of  the  chancellor  is  therefore  reversed,  and  the  cause 
remanded,  with  directions  to  enter  a  judgment  in  accordance  with  this 
opinion. 

Gil.Pabt.— 10 


146  .  NATURE   AND   CHARACTERISTICS  OF   A   PARTNERSHIP.   '      (Ch.  3 


CHAPTER  III. 

THE  NATURE  AND  CHARACTERISTICS  OF  A  PART- 
NERSHIP. 


SECTION  1.— VARIOUS  CONCEPTIONS  OF  THE  NATURE 
OF  A  PARTNERSHIP. 


Ex  parte  CORBETT. 

In  re  SHAND. 

(Chancery  Division  of  Higli  Court  of  Justice,  1880.    L.  R.  14  Cli.  Div.  122.) 

*  *  *  On  the  24th  of  September,  1864,  C.  J.  Corbett  grant- 
ed to  Francis  Shand,  Charles  Shand,  Alexander  Shand,  and  R.  A. 
Robinson,  who  weje  then  carrying  on  business  in  partnership  as 
merchants,  a  lease  of  six  rooms  in  the  house  No.  23  Rood  Lane,  in 
the  city  of  London,  for  a  term  of  13%  years,  less  12  days,  from  the 
24th  day  of  June,  1864,  at  an  annual  rent  of  £415.  The  lease  con- 
tained a  covenant  by  the  lessees,  jointly,  and  severally,  to  pay  the  rent 
and  repair  the  premises.  The  rooms  were  occupied  for  the  purpose 
of  the  partnership  business,  and  the  lease  was  as  between  the  part- 
ners partnership  property.  Francis  Shand  died,  and  the  business 
was  thenceforth  carried  on  in  partnership  by  the  other  three  lessees 
in  the  same  rooms,  until  on  the  12th  of  August,  1875,  they  were  ad- 
judicated bankrupts.  On  the  30th  of  August,  1875,  a  trustee  of  their 
property  was  appointed,  and  he,  on  the  6th  of  October,  1875,  obtain- 
ed leave  from  the  court  lo  4isclaim  the  lease.  He  afterwards  exe- 
cuted a  disclaimer,  and  possession  of  the  rooms  was  given  up  to  and 
accepted  by  the  lessor.  The  lessor  afterwards  relet  the  rooms,  but 
at  a  lower  rent.  On  the  14th  of  May,  1879,  he  tendered  a  proof 
against  the  joint  estate  of  the  bankrupts,  and  also  against  their  sep- 
arate estates,  for  £396  2s.  6d.  This  sum  was  made  up  of  £346  2s. 
6d.,  the  difference  between  the  amount  of  the  rent  which  would,  if 
there  had  been  no  disclaimer,  have  been  payable  under  the  lease  from 
the  29th  of  September,  1875,  to  the  expiration  of  the  term,  and  the 
amount  of  the  rent  which  had  been  actually  received  under  the  re- 
letting during  the  same  period,  and  £50  for  dilapidations  to  the  rooms. 
The  Registrar  ordered  the  proof  to  be  admitted  against  the  joint  es- 
tate only.     The  lessor  appealed. 


Sec.  1)  VAUIOUS   CONCEPTIONS   OF   PARTNERSniP.  147 

James,  L.  J.  *  *  *  We  start  with  this  fact  that  the  trustee 
wants  to  g-ct  rid  of  the  lease,  that  it  is  a  dainnosa  h^ereditas,  and  there- 
fore it  never  could  have  been  for  any  practical  purpose  any  part  of 
either  joint  or  separate  estate.  *  *  *  Whose  lease  was  it  that 
he  was  disclaiming?  It  was  not  the  lease  of  the  firm,  because  there 
was  no  such  thing  as  a  firm  known  to  the  law.  The  firm,  as  cestuis 
que  trustcnt,  might  have  been  the  beneficial  owners  of  the  lease;  but 
the  legal'  estate  in  the  lease  was  vested  in  three  joint  tenants,  A.,  B., 
and  C,  who  happened  to  be  in  business  together,  and  unfortunately 
happened  to  become  bankrupt.  The  trustee,  who  is  the  trustee  of  the 
joint  estate,  as  well  as  of  the  separate  estates,  is  the  trustee  of  the 
property  of  A.,  B.,  and  C,  and  he  is  authorized,  although  he  may  have 
done  some  act  which  under  the  old  law  would  have  bound  him  to 
elect  to  take  the  lease,  to  disclaim  it.  He  is  authorized  to  release  the 
bankrupts  from  all  the  liability  under  which  they  would  have  been 
if  the  lease  had  not  been  surrendered.  Then  he,  under  that  statutory 
power,  surrenders  the  lease  against  the  will  of  the  lessor,  and  the  les- 
sor is  obliged  to  accept  the  surrender.  For  whom  is  he  surrendering 
it?  He  is  surrendering  it  for  the  three  joint  tenants  whose  lease  it 
was.  He  is  surrendering  it  for  them,  and  for  each  of  them.  Each 
of  them  was  possessed  of  the  lease  per  my  et  per  tout.  That  being 
so,  the  Legislature  has  said:  "You  may  on  behalf  of  those  persons 
surrender  the  lease  entirely,  and  put  an  end  to  it  as  between  the 
lessor  and  the  lessee."  The  lessor  has  certain  remedies  against  his 
lessees.  But  the  Legislature  says  to  him:  "Instead  of  those  remedies, 
you  may  prove  against  the  estate  of  the  bankrupt."  Of  course,  the 
word  "bankrupt"  may  mean  plural  or  singular,  or  plural  and  sin- 
gular, according  to  the  context.  But  section  23  says:  "You  may  have 
a  right  of  proof  against  an  estate  for  the  damage  you  have  sustained. 
It  is  not  very  much  we  give  you ;  but  we  do  give  you  a  right  of  proof 
for  the  amount  of  the  damage  you  have  sustained."  Against,  whom 
is  he  to  prove?  He  is  to  prove  against  the  bankrupt  whose  trustee 
has  disclaimed.  *  *  *  There  were  four  persons  who  covenanted 
jointly,  and  there  is  no  joint  estate  of  those  four.  How  the  case 
would  have  stood  if  the  three  bankrupts  had  entered  into  the  joint 
covenant  it  is  not  necessary  for  me  to  say.  But  here  there  is  a  dis- 
tinct liability  of  each  of  the  three  bankrupts  on  their  covenant,  and 
that  liability  has  been  put  an  end  to  by  the  act  of  the  trustee.  The  act 
of  the  trustee  has  inured  to  the  injury  of  the  lessor.  The  lessor  has 
a  right  of  proof.  Against  whom?  It  seems  to  me  it  must  be  against 
the  estates  of  the  persons  upon  whose  behalf  and  for  whose  benefit 
the  lessor  has  been  made  to  endure  this  injury;  that  is  to  say,  he  is 
entitled  to  prove  against  the  separate  estate  of  each  of  those  three 
persons.  That,  as  it  appears  to  me,  would  have  been  the  proper  order 
for  the  Registrar  to  make,  and  no  proof  ought  to  have  been  admitted 
against  the  joint  estate. 


148  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

Succession  of  PILCHER. 
(Supreme  Court  of  Louisiana,  1887.    39  La.  Ann.  362,  1  South.  929.) 

Appeal  from  a  judgment  allowing  the  account  of  the  administrator 
of  the  estate  of  one  Pilcher.  The  appellant  is  a  creditor  of  the  firm 
of  Embery  &  Pilcher,  and  objects  to  the  allowance  of  $1,000  to  the 
minor  child  of  the  deceased,  Pilcher,  out  of  the  fund  realized  from 
the  sale  of  the  assets  of  Embery  &  Pilcher.  Pilcher  was  insolvent, 
and  had  no  property  except  his  interest  in  the  partnership. 

Watkins,  J.  In  support  of  his  theory  that  partnership  funds  can- 
not be  applied  to  the  claim  of  the  necessitous  minor  and  the  commis- 
sions of  the  administrator,  because  they. are  by  law  consecrated  to  the 
payment  of  the  debts  of  the  partnership,  which  is  insolvent,  he  cites 
Succession  of  Stauffer,  21  La.  Ann.  520.  In  that  case  the  claim  for  $1,- 
000  set  up  in  favor  of  the  necessitous  widow  and  minor,  was  denied  un- 
der very  like  circumstances  to  those  presented  here.  Its  allowance  was 
opposed  by  the  creditors  of  the  partnership  of  Stauffer  &  Co.,  of  which 
the  deceased  had  been  a  member;  and  the  opposition  was  sustained  on 
the  ground  that  the  property  of  the  partnership  does  not  belong  to 
either  of  the  partners  separately,  but  remains  common  stock,  and  a 
pledge  for  the  payment  of  the  debts  of  the  firm  in  preference  to  any 
claims  against  the  individual  partners.  In  Smith  v.  McMicken,  3 
La.  Ann.  322,  the  court  said:  "The  partnership,  once  formed  and  put 
into  action,  becomes,  in  contemplation  of  law,  a  moral  being,  distinct 
from  the  persons  who  compose  it.  It  is  a  civil  person,  which  has  its 
peculiar  rights  and  attributes.  *  *  *  Hence,  therefore,  the  part- 
ners are  not  the  owners  of  the  partnership  property.  The  ideal  be- 
ing, thus  recognized  by  a  fiction  of  law,  is  the  owner.  It  has  the  right 
to  control  and  administer  the  property  to  enable  it  to  fulfill  its  legal 
duties  and  obligations;  and  the  respective  parties,  who  associated 
themselves  for  the  purpose  of  participating  in  the  profits  which  may 
accrue,  are  not  owners  of  the  property  itself,  but  of  the  residuum 
which  may  be  left  from  the  entire  partnership  property,  after  the  ob- 
ligations of  the  partnership  are  discharged."  City  of  New  Orleans 
V.  Gauthreaux,  32  La.  Ann.  1128. 

Judgment  amended,  disallowing  the  $1,000. 


HUBBARDSTON    LUMBER    COMPANY    v.    COVERT. 

(Supreme  Court  of  Michigan,  1877.    35  Mich.  2.55.) 

Wilson  Homer,  of  North  Plains,  Mich.,  and  Henry  P.  I\Iarcy,  who 
resided  in  Massachusetts,  were  partners  in  the  lumber  business  under 
the  name  of  Homer  &  Marcy.  The  partnership  executed  a  mortgage 
to  ]\Irs.  Homer  on  a  quantity  of  logs.  A  portion  of  the  logs  were  in 
North  Plains,  where  Homer,  the  resident  partner  of  the  firm,  lived, 


Sec.  1)  VARIOOS   CONCEPTIONS    OF    PARTNERSHIP.  149 

and  the  remainder  were  at  Crystal,  Mich.  The  Hubbardston  Lumber 
Company  bought  the  logs  from  Mrs.  Homer,  the  mortgagee,  with  the 
consent  of  the  resident  partner,  Homer,  and  manufactured  them  in- 
to lumber.  Covert,  the  defendant,  as  deputy  sherifif,  seized  the  lumber 
to  satisfy  an  execution  issued  on  a  judgment  in  favor  of  one  Thomp- 
son against  Homer  &  Marcy  on  a  partnership  indebtedness.  The 
Hubbardston  Lumber  Company  brought  replevin  to  recover  the  lum- 
ber, relying  upon  the  title  derived  from  Mrs.  Homer.  It  was  con- 
tended that  the  mortgage  was  invalid,  as  not  complying  with  the 
statute,  which  required  a  chattel  mortgage  to  be  filed  where  the  owner 
of  the  property  resided,  or,  if  he  was  a  nonresident,  then  where  the 
property  was  located ;  that  as  Marcy  was  not  a  resident  of  Michigan, 
and  the  mortgage  was  filed  only  in  North  Plains,  where  Homer,  the 
resident  partner  of  the  firm,  lived,  and  not  in  Crystal,  where  the  prop- 
erty of  the  partnership  was,  it  was  absolutely  void  against  attach- 
ing creditors.  The  trial  court  directed  a  verdict  for  the  defendant. 
The  plaintiff  alleged  error. 

Graves,  J.  For  many  purposes  a  firm,  though  managed  from  neces- 
sity by  its  members,  is  a  distinct  concern  and  possess  a  sort  of  in- 
dividuality. The  assets  are  held  in  a  sort  of  community,  but  the  part- 
ners do  not  hold  as  common  tenants  or  joint  tenants.  The  property 
is  distinctly  separated  from  that  belonging  to  the  individual  members, 
and  it  constitutes  an  identical  and  entire  interest.  The  law  makes 
distinctions  between  debtors  and  creditors  of  the  firm  on  the  one  hand, 
and  debtors  and  creditors  of  the  persons  composing  the  firm  on  the 
other,  and  assets  are  gathered,  catalogued,  and  appropriated  accord- 
ing to  these  distinctions.  A  member  may  become  debtor  or  creditor 
of  the  firm,  and  each  member  is  agent  for  it,  and  within  limits  stands 
for  it.  For  some,  purposes,  then,  the  law  contemplates  the  firm  as 
having  a  sort  of  ideal  existence,  and  with  the  faculty  of  being  in  the 
relation  of  principal  to  agent  in  a  certain  representative  sense.  The 
agency  consequent  upon  the  relation  extends  no  further  than  to  firm 
transactions.  As  partner  there  is  no  power  to  bind  individual  interests. 
Either  partner  may  contract  for  the  firm  in  the  firm  name,  and  the 
act  is  the  act  of  the  firm,  and  not  that  of  the  individual  who  actually 
transacts.  It  is  just  the  same  as  though  the  firm  were  a  natural  per- 
son and  acted  personally.  Taxes  may  be  imposed  on  a  firm  in  the 
firm  name.  Section  978,  Comp.  Laws  1871.  And  suits  are  allowed  to 
be  brought  in  justices'  courts  for  and  against  copartnerships  in  the 
firm  name,  where  the  members'  names  are  unknown.  Section  ."307, 
Comp.  Laws  1871.  These  and  other  characteristics  of  indivilifality 
are  sufficient  to  show  that  the  firm  has  in  many  aspects  a  recognized 
legal  identity. 

That  it  may  have  a  local  abiding  place  is  as  certain  as  that  a  cor- 
poration can.  Carron  Iron  Co.  v.  Maclaren,  5  H.  of  Lords  Cases, 
416.  And,  where  it  has,  I  see  no  reason  why  it  may  not,  as  well  as 
a  corporation,  be  said  to  reside  there,  within  the  meaning  of  the  statute 


150  NATURE  AND   CHARACTERISTICS   OF  A   PARTNERSHIP.  (Ch.  3 

which  provides  for  filing  chattel  mortgages.  Undoubtedly  there  may 
be  cases  in  which  it  would  be  difficult  to  decide  upon  the  question  of 
abode;  but  this  is  nothing  more  than  happens  often  where  the  ques- 
tion concerns  the  residence  of  natural  persons.  Indeed,  there  is  rea- 
son for  thinking  that  much  fewer  perplexing  cases  would  occur  in* 
inquiries  respecting  the  seats  or  abodes  of  firms  than  in  inquiries  con- 
cerning the  residence  of  the  individuals.  In  this  case  the  mortgage 
purported  to  be  the  contract  or  mortgage  of  the  firm,  and  not  of  the 
individuals  composing  it,  as  individuals,  and  the  evidence  tended  to 
show  that  the  firm  resided  or  had  its  seat  in  North  Plains.  The  only 
member  residing  in  the  state,  the  only  party  representing  or  author- 
ized to  represent  the  firm,  lived  there,  and  in  the  state  of  things  which 
appeared,  and  in  the  absence  of  countervailing  proof,  this  was  strong 
evidence  of  the  residence  of  the  firm  there.  This  mortgage  on  firm 
property,  made  in  the  firm  name  by  this  very  party,  was  there  filed, 
and  it  seems  to  me  this  should  be  considered  a  sufficient  filing  within 
the  spirit  of  the  statute. 

The  judgment  should  be  reversed,  with  costs,  and  a  new  trial  or- 
dered. 


JONES  V.  BLUN  et  al. 
(Court  of  Appeals  of  New  York,  1895.     145  N.  Y.  3P..3.  ?.0  N.  E.  954.) 

Bartlett,  J,  This  action  is  brought  to  set  aside  certain  transfers 
made  by  the  Rheubottom  &  Teall  Manufacturing  Company  to  the 
firm  of  F.  S.  M.  Blun  &  Co.,  on  the  ground  that  defendant  Blun  was 
a  stockholder  of  said  corporation  and  that  the  transactions  attacked 
were  after  the  corporation  had  refused  the  payment  of  its  notes  or 
other  evidences  of  debt,  and  were,  therefore,  prohibited  by  statute. 
1  Rev.  St.  (1st  Ed.)  p.  603,  pt.  1,  c.  18,  tit.  4,  §  4;  3  Rev.  St.  (Banks 
&  Bros.'  8th  Ed.)  p.  1729. 

The  plaintiff  recovered  at  Special  Term,  and  the  General  Term 
affirmed  the  judgment. 

[The  statute  prohibited  a  corporation,  which  has  refused  payment 
of  its  debts,  from  transferring  any  of  the  property  to  an  officer  or 
stockholder  directly  or  indirectly  for  the  payment  of  any  debt.  The 
transfers  attacked  in  this  case  were  made  by  the  corporation  to  a 
partnership  of  which  Blun,  a  stockholder  in  the  corporation,  was  a 
member.  It  was  contended  that  such  transfers  were  not  to  a  stock- 
holder of  the  corporation,  and  hence  not  invalid  under  the  statute.] 

There  is  no  such  potency  in  the  entity  known  as  a  copartncrsliip  as 
to  shield  a  stockholder  of  a  corporation  from  the  penalty  denounced 
by  this  statute  because  he  happens  to  be  a  member  of  a  firm,  and  thus 
allow  him  to  secure  to  himself  a  preference  of  his  claim  against  a  cor- 
poration. If  his  copartner,  who  is  not  a  stockholder,  is  injured  by  the 
enforcement  of  the  statute,  it  may  be  a  matter  for  adjustment  between 


Sec.  1)  VARIOUS   CONCEPTIONS    OF    PARTNERSHIP.  151 

themselves,  but  offers  no  reason  for  suspendin;^  the  operation  of 
the  statute.  If  the  contrary  doctrine  were  to  prevail,  it  would  result 
in  the  officers  and  stockholders  of  corporations  securing  to  themselves 
indefinite  preferences  by  forming  partnership  relations  in  which  the 
interest  in  the  firm  profits  of  the  partner  not  a  stockholder  would  be 
only  nominal. 

Judgment  affirmed.* 


BROWN  et  al.  v.  HARTFORD  FIRE  INS.  CO. 
(Supreme  Judicial  Court  of  Massachusetts,  1875.     117  Mass.  479.) 

Colt,  J,  The  action- is  upon  a  policy  of  fire  insurance  in  favor  of 
the  plaintiffs,  Brown  &  Cottrell,  who  were  partners  in  business.  After 
the  fire  the  policy  was  surrendered  and  canceled,  on  payment  by  the 
defendant  of  a  sum  of  money  to  Brown  in  full  satisfaction  and  com- 
promise of  all  claims  under  it.  A  receipt  and  discharge  was  given  by 
him  in  the  name  of  the  firm,  which  is  relied  upon  by  the  defendants 
as  a  -bar  to  this  claim.  The  plaintiffs  reply  that  the  settlement  and 
discharge  were  procured  by  false  and  fraudulent  representations,  and 
that  Brown  was  a  minor  when  he  gave  it.  The  case  finds  that  the 
money  received  by  Brown  was  divided  with  his  partner,  as  were  also 
the  damaged  goods  which  were  not  sold  after  the  fire.  It  is  not  nec- 
essary to  consider  all  the  questions  raised  on  this  report,  because  the 
settlement  and  discharge  relied  on,  although  obtained  by  false  and 
fraudulent  representations,  constitutes  a  good  defense  until  rescinded 
and  avoided  by  a  return  or  an  offer  to  return  the  money  paid  by  the 
defendant  to  obtain  it.  As  a  general  rule  a  party  cannot  rescind  a 
contract  and  retain  the  consideration,  in  whole  or  in  part,  which  he 
has  received  under  it.  There  is  an  exception  to  this  rule  in  favor  of 
infants  and  those  who  are  under  some  form  of  disability.  So  that, 
where  the  consideration  of  the  contract  has  been  wasted  or  lost  dur-« 
ing  minority,  the  infant  does  not  lose  his  right  to  avoid  it  without 
restoration.  Chandler  v.  Simmons,  97  Mass.  508,  514,  93  Am.  Dec. 
117;  Bartlett  v.  Drake,  100  Mass.  174,  97  Am.  Dec.  92,  1  Am.  Rep. 
101;  Bassett  v.  Brown,  105  Mass.  551,  558;  Gibson  v.  Soper,  fi 
Gray,  279,  66  Am.  Dec.  414. 

The  plaintiffs  cannot  avail  themselves  of  this  exception  to  exempt 
tb.em  from  the  duty  of  returning  the  consideration  received.  It  is 
the  firm  that  seeks  to  recover  this  insurance.  The  consideration  for 
the  release  was  received  by  the  partnership  in  discharge  of  the  policy. 
It  was  a  ratification  of  the  act  of  the  infant  partner,  if  such  ratification 

1  "In  tho  contomplation  of  law  there  is  no  merger  or  fusion  of  the  several 
per-sons  composing  a  partnership  into  a  common  or  comprehensive  per.son  in- 
cluding them  all.  A  lirm  adds  nothing  to  population,  and  in  this  respect  is 
unlike  a  corporation,  which  augments  population  in  the  legal,  though  not  in 
the  natural,  world."  Per  Eleclclev.  O.  .7.,  in  Drucker  v.  Wellhoyse,  82  Ga. 
129.   132,  8  S.  E.  <0,  2  L.  R.  A.  32S  (ISSS). 


152  NATURE  AND   CHARACTERISTICS   OF  A   PARTNERSHIP.  (Ch.  3 

was  necessary.  The  infancy  of  one  partner  cannot  excuse  the  firm 
from  its  duties  to  the  defendant,  so  that  the  firm  may  sue  on  the  con- 
tract without  first  returning-  the  consideration  received. 

The  evidence  offered  to  show  the  infant  partner's  want  of  abihty 
to  restore  this  money,  and  his  habihty  on  account  of  the  partnership 
for  a  much  larger  sum,  was  rightly  rejected,  and  according  to  the 
terms  of  the  report  there  must  be 

Judgment  for  the  defendant. 


BANK  OF  BUFFALO  v.  THOMPSON -et  al. 
(Court  of  Appeals  of  New  York,  1890.    121  N.  Y.  280,  24  N.  E.  473.) 

Earl,  J.  On  the  24th,  day  of  April,  1882,  John  Thompson  was  in- 
debted to  the  plaintiff  upon  his  individual  promissory  notes,  and  was 
then  carrying  on  business  in  his  own  name,  and  in  that  way  had  deal- 
ings with  the  plaintiff.  On  that  day  he  executed  to  it  a  mortgage  con- 
ditioned for  the  payment  of  all  notes,  checks,  or  bills  of.  exchange 
thereafter  "made,  drawn,  indorsed,  or  accepted"  by  Thompson  and 
discounted  by  plaintiff  for  his  benefit,  and  also  for  the  payment  of 
"all  sums  of  money  which  shall  at  any  time  be  due  or  owing  by  him 
to  said  bank  upon  any  account  whatever."  Subsequently  to  the  exe- 
cution and  delivery  of  that  mortgage  Thompson  continued  his  in- 
dividual dealings  with  the  plaintiff,  and  it  discounted  for  his  benefit 
notes  made  or  indorsed  by  him.  Several  years  after  the  mortgage 
was  given,  Thompson  formed  a  copartnership  with  three  other  per- 
sons, under  the  firm  name  of  Reynolds,  Thompson  &  Co.,  and  the 
firm  carried  on  the  business  under  that  name,  and  the  plaintiff  dis- 
counted for  the  firm  several  notes  made  and  indorsed  by  Thompson 
in  the  firm  name.  The  plaintiff  claims  that  these  firm  notes  are  se- 
cured by  the  mortgage,  and  the  defendants  contend  that  they  are  not 
so  secured,  and  their  contention  has  been  sustained  by  the  court  below, 
and  mainly,  it  is  said,  upon  the  authority  of  First  National  Bank  of 
Batavia  v.  Tarbox,  38  Hun,  57. 

We  think  the  court  below  properly  construed  the  condition  of  the 
mortgage.  It  is  clear  that  at  the  time  of  the  execution  of  the  mort- 
gage the  parties  did  not  contemplate  any  firm  indebtedness,  or  any 
indebtedness  of  a  firm  of  which  Reynolds  might  be  member.  The 
plaintiff  was  dealing  with  him  individually,  and  it  was  obtaining  se- 
curity for  his  individual  and  personal  obligations,  and  a  fair  con- 
struction of  the  language  shows  that  it  was  intended  to  secure  such 
obligations  and  such  only.  The  language  is  broad  and  general,  and 
carefully  framed  so  as  to  make  sure  that  all  such  obligations  should 
be  covered.  In  ordinary  commercial  language  the  obligation  of  a 
firm  would  not  be  spoken  of  as  the  obligation  of  any  one  of  its  mem- 
bers, and  a  firm  is  regarded  aS  an  entity  distinguished  from  all  the 
individual  members  of  which  it  is  composed.     In  Parsons  on  Partner- 


Sec.  1)  VARIOUS   CONCEPTIONS    OF    PARTNERSHIP,  153 

ship,  346,  it  is  said:  "A  partnership  is  a  legal  body  by  itself.  We  do 
not  say  it  is  a  corporation,  because  it  wants  some  of  the  most  essen- 
tial elements  of  incorporation,  but  we  say  it  is  a  body  by  itself,  and 
is  so  recognized  by  the  law  for  some  purposes,  and  should  be  — always 
in  a. proper  way,  and  to  a  proper  degree — for  all  purposes;  and  among 
these  purposes  is  the  placing  of  its  relation  to  its  creditors  on  the  basis 
of  contracting  its  own  debts,  and  having  its  own  creditors,  and  pos- 
sessing its  own  property,  which  it  applies  to  the  payment  of  its  debts." 
It  was  held  in  Fitzgerald  v.  Grimmell,  G4  Iowa,  261,  20  N.  W.  179, 
that  a  partnership  under  the  statutes  of  that  state  was  a  legal  entity, 
known  to  and  recognized  by  law.  It  is  probably  the  most  accurate 
to  say  that  a  partnership  is  not  strictly  a  legal  entity,  distinguished 
from  the  individuals  composing  it.  Lindley  on  Partnership  (Am.  Ed.) 
5;  Faulkner  v.  Hyman,  142  Mass.  53,  6  N.  E.  8-16.  In  Lindley  on 
Partnership,  p.  110,  it  is  said:  "Partners  are  collectively  a  firm.  Mer- 
chants and  lawyers  have  different  notions  respecting  the  nature  of  a 
firm.  Commercial  men  and  accountants  are  apt  to  look  upon  a  firm 
in  the  light  in  which  lawyers  look  upon  a  corporation ;  i.  e.,  as  a 
body  distinct  from  the  members  composing  it,  and  having  rights  and 
obligations  distinct  from  those  of  its  members.  Hence,  in  keeping 
partnership  accounts  the  firm  is  made  debtor  to  each  partner  for 
what  he  brings  into  the  common  stock,  and  each  partner  is  made  debtor 
to  the  firm  for  all  that  he  takes  out  of  that  stock.  In  the  mercantile 
view,  partners  are  never  indebted  to  each  other  in  respect  of  partner- 
ship transactions,  but  are  always  either  debtors  to  or  creditors  of  the 
firm."  But  this,  the  learned  author  says,  is  not  the  legal  notion  of  a 
firm,  and  that  the  firm  is  not  recognized  by  lawyers  as  distinct  from 
the  members  composing  it. 

This  mortgage  must  be  regarded  as  a  commercial  instrument,  ex- 
ecuted in  commercial  transactions,  and  must  be  construed  as  ordinarv 
commercial  men  would  understand  the  language  used ;  and  we  think 
that  among  business  men  a  distinction  is  made  between  the  firm  as  an 
entity  and  the  members  who  compose  it,  and  that  this  language  would 
not  be  understood  as  broad  enough  to  cover  the  indebtedness  of  a 
finn  of  which  Thompson  was  member,  and  for  whose  debts,  jointly 
with  the  other  members  of  the  firm,  he  could  be  made  responsible. 
We  are  therefore  of  opinion  that  the  judgment  below  was  right,  and 
should  be  affirmed. 

Judgment  affirmed. 


154:  NATURE   AND    CHAKACTEKISTICS   OF  A    PAKTNERSUIP,  (Ch.  3 

SECTION  2.— THE  PARTNERSHIP  NAME. 


McGregor  et  ai.  v.  Cleveland. 

(Supreme  Court  of  New  York,  1830.     5  Wend.  475.) 

The  action  was  on  a  promissory  note  for  $280,  dated  23d  October, 
1827,  payable  to  "McGregor,  Darling  &  Co.,"  and  signed  by  "Oliver 
Cleveland,  Frederick  Cleveland,  and  Rufns  Cleveland."  The  signa- 
ture of  Oliver  Cleveland  was  proved,  and  that  the  names  Frederick 
Cleveland  and  Rufus  Cleveland  were  in  the  proper  handwriting  of 
Rufus  Cleveland.  In  two  other  instances,  Rufus  Cleveland  had  given 
notes,  signing  the  same  "F.  &  R.  Cleveland,"  which  were  ratified  by 
Frederick  Cleveland.  Frederick  Cleveland  and  Rufus  Cleveland*  were 
in  partnership  as  farmers  and  coopers.  *  *  *  The  counsel  for 
the  defendants  insisted  that  the  evidence  as  to  the  execution  of  the 
note  by  Frederick  Cleveland,  and  as  to  the  plaintiffs  being  the  payees. 
was  not  sufficient  to  entitle  the  plaintiffs  to  recover.  The  judge  ruled 
otherwise,  and  under  his  direction  the  jury  found  for  the  plaintiffs. 
The  defendants'  counsel  excepted,  and  now  moved  for  a  new  trial. 
*     *     * 

Savage,  C.  J.  The  questions  raised  by  the  bill  of  exceptions  are: 
(1)  Whether  there  was  suffici'ent  proof  of  the  execution  of  the  note 
by  Frederick  Cleveland.    *    *    * 

So  far  as  respects  F.  &  R.  Cleveland,  the  note  will  be  presumed,  in 
the  absence  of  all  proof  to  the  contrary,  to  have  been  given  for  a 
partnership  transaction.  There  is  no  proof  as  to  what  was  the  style 
of  their  firm,  except  that  in  two  instances  the  name  of  F.  &  R.  Cleve- 
land was  used.  In  this  instance,  one  partner  wrote  the  names  of 
both  at  length,  thus:  "Frederick  Cleveland  and  Rufus  Cleveland," 
coupling  the  two  names  together.  Being  partners,  each  had  power  to 
charge  the  other;  and,  in  my  opinion,  the  signature  was  sufficient, 
and  the  evidence  enough  to  justify  a  verdict  on  this  point  against  all 
the  defendants.    *     *     * 

[A  new  trial  was  granted  because  of  the  insufficiency  of  the  proof 
that  the  plaintiffs  were  the  payees  of  the  note.] 


RASKINS  V.  D'ESTE  et  al. 
(Supreme  Judicial  Court  of  Massachusetts,  1882.     133  Mass.  3."")6.) 

W.  Allen,  J.  St.  1877,  p.  549,  c.  163,  provides  that  "any  sig- 
nature to  a  written  instrument  declared  on  or  set  forth  as  a  cause 
of  action  or  ground  of  defense  or  set-off,  in  an  action  at  law,  shall 
be  taken  as  admitted,  unless  the  party  sought  to  be  charged  thereby 


Sec.  2)  THE    PARTNERSHIP    NAME.  155 

shall  file  in  court,'  within  the  time  allowed  for  answer,  a  special  de- 
nial of  the  genuineness  of  such  signature  and  a  demand  that  the  party 
relying  thereon  shall  prove  the  same  at  the  trial." 

The  two  defendants  were  sued  in  a  writ  which  describes  them  as 
"late  copartners  under  the  firm  name  and  style  of  D'Este  &  Co.,"  and 
the  declaration  alleges  that  they  made  a  promissory  note  signed 
D'Este  &  Co."  One  of  the  defendants,  McKenzie,  did  not  appear.  The 
other,  D'Este,  appeared  and  fded  a  general  denial.  The  question  is 
whether  the  signature  is  to  be  taken  as  admitted  to  bind  D'Este,  or 
whether  it  is  only  admitted  as  the  signature  of  a  copartnership  of 
D'Este  &  Co.,  and  the  plaintiff,  to  hold  D'Este,  must  prove  that  he  was 
a  member  of  the  firm  whose  signature  he  admits.  The  question  is 
precisely  what  it  would  have  been  if  both  defendants  had  appeared 
and  filed  a  general  denial  in  answer.  The  adm'ission  is  the  same,  as 
to  those  making  it,  whether  made  by  both  defendants  together,  or 
separately,  or  by  one  alone. 

A  partnership  is  not  a  person  distinct  from  its  members,  like  a 
corporation.  A  partnership  cannot  be  sued.  A  suit  must  be  against 
the  individuals  composing  it,  and  each  individual  stands,  as  to  proof 
of  his  liability,  as  if  he  were  sued  alone.  In  either  case  his  personal 
liability  upon  the  joint  undertaking  would  have  to  be  made  out,  and 
in  either  case  the  allegation  of  partnership  would  but  express  the  re- 
lation between  the  copartners ;  and  the  relation  of  copartners  to  each 
other,  as  affects  their  liability  to  third  persons,  is  simply  one  of  agency. 
The  allegation  that  a  number  of  individuals  as  members  of  a  co- 
partnership made  a  contract  is  only  the  allegation  that  each  of  them, 
personally  or  by  his  agent,  made  it,  and  the  agency  is  alleged  and 
proved  by  the  copartnership. 

In  the  case  at  bar  the  substantial  allegation  is  that  each  of  the  de- 
fendants made  a  joint  note  in  the  name  of  D'Este  &  Co. ;  that  is,  that 
each  of  them  signed  that  name  to  the  note.  The  allegation  of  copart- 
nership amounts  only  to  a  statement  that  each  of  the  defendants  was 
authorized  to  sign  that  name  for  both,  and  that  an  agent  might  be 
authorized  to  sign  for  both.  This  is  the  whole  significance  of  the  firm 
name.  It  is  a  name  which  the  partners  adopted,  by  which  each  could, 
in  cjertaiti  matters,  bind  the  other  with  himself,  or  another  agent  might 
bind  both.  It  was  simply  a  convenient  abbreviation  of  their  two 
names,  and,  when  used,  had  the  same  effect  as  if  no  firm  name  had 
been  adopted  and  the  name  of  each  partner  had  been  signed  in  full 
as  a  partner;  and  it  bound  each  only  because  he  had  adopted  it  as 
his  name  and  authorized  its  use  for  the  purposes  for  which  it  was  used. 
When  the  defendant  D'Este  admits  the  genuineness  of  the  signature, 
he  does  not  admit  it  to  be  a  mere  name.  He  admits  it  to  be  a  sign 
manual,  the  name  of  a  person  signed,  and  the  only  question  is:  Whose 
name  does  he  admit  it  to  be?  The  aijswer  is  plain.  He  admits  it  to 
be  the  genuine  signature  of  the  persons  whose  signature  it  is  alleged 
in  the  declaration  to  be.     The  declaration  does  not  allege  that  the  firm 


156  NATURE   AND   CHARA.CTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

made  the  note.  It  alleges  that  the  defendants,  D'Este  and  McKenzie, 
in  the  name  of  D'Este  &  Co.,  made — that  is,  signed — the  note;  that 
it  is  the  genuine  signature  of  both  in  the  name  they  had  adopted  for 
binding  themselves  jointly.  It  is  said  that  it  is  not  alleged  that  the 
note  was  signed  by  the  defendant  D'Este  personally  and  that  he  may 
not  have  been  one  of  the  persons  doing  business  under  the  name  of 
D'Este  &  Co.  Cut  it  is  alleged  that  the  two  defendants,  one  of  whom 
is  D'Este,  made  the  note  in  that  name.  If  the  allegation  had  been 
that  the  defendant  D'Este,  doing  business  in  the  name  of  John  Doe, 
had  made  the  note  in  that  name,  it  would  hardly  be  contended  that  the 
genuineness  of  his  signature  would  not  be  admitted,  because  there 
might  have  been  another  person  doing  business  in  that  name  whose 
signature  it  might  be,  nor  because  the  signature  might  have  been 
made  by  an  agent,  and  not  by  the  defendant  personally.  The  declara- 
tion alleges  that  the  defendants  made  the  note.  If  the  writ  is  taken 
in  connection  with  the  declaration,  there  is,  so  far  as  the  question  in 
issue  is  concerned,  only  the  further  allegation,  in  effect,  that  th5  two 
defendants  held  such  a  relation  to  each  other  that  each  had  authorized 
the  other  to  bind  him  in  a  joint  note  by  the  name  of  D'Este  &  Co. 
We  think  the  signature  is  alleged  to  be  that  of  the  defendant  D'Este, 
and  that  its  genuineness,  not  having  been  denied,  must  be  taken  to 
have  been  admitted.  See  Wilkes  v.  Hopkins,  1  C.  B.  737;  Mahaiwe 
Bank  v.  Douglass,  31  Conn.  l70. 

In  the  opinion  of  a  majority  of  the  court,  the  ruling  of  the  judge 
that  the  plaintiff  was  not  entitled  to  recover  was,  for  these  reasons, 
erroneous. 

Exceptions   sustained. 


BERKSHIRE  WOOLEN  CO.  v.  JUILLARD  et  al. 
(Court  of  Appeals  of  New  York,  1879.     75  N.  Y.  535,  31  Am.  Rep.  488.) 

Appeal  from  order  of  the  General  Term  of  the  Supreme  Court  in 
the  First  Judicial  Department,  reversing  an  order  of  Special  Term, 
which  overruled  exceptions  to  and  confirmed  a  referee's  report  herein. 
Reported  below,  13  Hun,  506. 

This  action  was  brought  by  plaintiff,  as  creditor  of  the  firm  of  Hoyt, 
Spragues  &  Co.,  in  its  own  behalf  and  in  behalf  of  other  creditors, 
against  the  receiver  of  said  firm,  appointed  in  a  former  action,  and 
against  the  members  of  said  firm,  to  reach  the  assets  of  said  firm  and 
have  them  applied  in  payment  of  its  debts.  By  the  judgment  there- 
in said  firm  was  declared  insolvent,  and  it  was  adjudged  that  the 
assets  in  the  hands  of  the  receiver  constituted  a  fund  out  of  which 
the  creditors,  upon  proof  of  their  claims,  were  entitled  to  be  paid  pro 
rata  according  to  their  respective  rights,  and  a  referee  was  appointed 
to  take  proof  of  the  claims  of  creditors.  Five  savings  banks  presented 
to  the  referee  claims  upon  a  bond  executed  by  one  Josiah  Chapin,  as 


Sec.  2)  TUE    PARTNERSHIP    NAME.  157 

principal,  and  by  all  of  the  members  of  said  firm  of  Hoyt,  Spragues 
&  Co.,  individually,  as  sureties. 

Rapallo,  J.  The  bond  upon  which  the  banks  found  their  claim 
against  the  copartnership  assets  of  the  firm  of  Hoyt,  Spragues  &  Co., 
is  executed  by  all  the  six  members  of  that  firm,  and  purports  to  be 
their  joint  obligation,  as  well  as  the  several  obligation  of  each  of  them. 
It  also  purports  to  create  a  joint  obligation  on  the  part  of  any  two  or 
more  of  them.  The  only  aspect  in  which  it  is  necessary  to  consider 
it  on  this  appeal  is  as  the  joint  obligation  of  all  the  members  of  the 
firm,  and  the  question  presented  is  whether  it  can  be  enforced  as  a 
copartnership  obligation  against  the  copartnership  assets,  notwithstand- 
ing that  the  firm  name  is  not  mentioned  therein,  but  it  appears  on  its 
face  to  be  simply  the  joint  obligation  of  the  copartners,  contracted 
in  their  individual  names,  and  is  under  seal.  We  are  of  opinion  that, 
notwithstanding  the  form  of  the  instrument,  if  it  was  executed  in  the 
business  of  the  firm  and  for  its  benefit,  it  should  be  regarded  as  a  co- 
partnership obligation,  payable  out  of  the  copartnership  funds.  When 
funds  or  property  are  obtained  on  the  obligation  of  only  a  portion  of 
the  members  of  a  firm,  the  fact  that  the  property  thus  obtained  goes 
to  the  use  of  the  firm  is  not  of  itself  sufficient  to  render  the  firm  liable. 
But  wdicre  the  property  is  not  only  obtained  for  and  applied  to  the 
benefit  of  the  firm,  but  is  so  obtained  by  the  joint  act  and  upon  the 
joint  written  obligation  of  all  its  members,  and  the  credit  is  given  to 
all,  the  transaction  is  in  substance  a  copartnership  transaction,  though 
the  firm  name  is  not  actually  used  in  the  writing  and  though  the  part- 
ners may  have  superadded  to  their  joint  obligation  the  several  liability 
of  each  of  them. 

The  orders  should  be  affirmed,  with  costs  out  of  the  fund. 


YORKSHIRE  BANKING  CO.  v.  BEATSON  et  al. 

(Court  of  Appeals,  1880.    L.  R.  5  C.  P.  Div.  109.) 

In  these  actions  the  respective  plaintifits  appealed  against  the  judg- 
ment of  Denman  and  Lopes,  JJ.,  in  favor  of  the  defendants. 

TiiESiGivR,  L.  J.  This  is  an  action  brought  upon  two  bills  of  ex- 
change of  which  the  plaintiffs  are  the  holders.  The  first  is  a  bill  for 
£270.  15s.,  dated  the  6th  of  ^larch,  1878,  drav;n  by  R.  R.  Kelley  & 
Co.  upon,  and  accepted  by,  Messrs.  J.  &  R.  Wilson,  payable  to  the 
order  of  the  drawers  four  months  after  date,  and  bearing  the  succes- 
sive indorsements,  ''R.  R.  Kelley  &  Co.,"  "Wm.  Beatson,"  and  "Jo^'^^i 
Carr  &  Son."  The  second  is  a  bill  for  £iSi.  13s.,  dated  the  13th  of 
IVIarch,  1878,  drawn  by  Josiah  Carr  &  Son,  addressed,  "Mr.  William 
Beatson,  Chemical  Works,  Rotherham,"  and  accepted  in  the  name 
"\\'iriiam  Beatson,"  payal.-le  to  the  order  of  the  drawers  four  months 
after  date,  and  indorsed  by  them.     Both  bills  were  discounted  by  the 


158  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

plaintiffs  upon  the  14th  of  March,  1878.  The  defendants  to  the  action 
are  Wm.  Beatson  and  John  Henry  Mycock.  The  signature  "Wm. 
Beatson"  upon  each  of  the  bills  was  the  signature  of  the  defendant 
Wm.  Beatson.  He  has  allowed  judgment  to  go  by  default,  and  the 
action  is  defended  by  Mycock  alone,  who  disputes  his  liability  upon 
either  of  the  bills. 

The  circumstances  of  the  case  are  as  follows:  Beatson,  for  many 
years  prior  to  December,  1877,  carried  on  business  as  a  chemical  man- 
ufacturer at  certain  works  at  Rotherham.  At  the  end  of  the  year  1873 
and  beginning  of  the  year  1874  the  plaintiffs  made  inquiries  as  to 
Beatson's  commercial  position  of  Josiah  Carr,  who  was  bringing  them 
paper  for  discount  with  Beatson's  name  upon  it,  and,  the  result  of  the 
inquiries  being  satisfactory,  they  discounted  such  paper.  Beatson 
and  Carr  had  some  trade  transactions  together,  but  apart  from  these 
trade  transactions  there  was  a  series  of  accommodation  transactions 
carried  out  by  accommodation  bills  between  Beatson  and  the  other  par- 
ties to  the  bills  now  sued  upon,  including  Carr  himself,  and  these  ac- 
commodation bills  were  from  time  to  time  renewed. 

Down  to  the  end  of  the  year  1877  Beatson  had  no  partner;  but 
upon  the  11th  of  December  in  that  year  a  deed  of  partnership  was 
entered  into  between  him  and  the  defendant  Mycock.  By  its  terms 
the  partnership  was  to  last  for  a  period  of  five  years,  with  power  of 
continuance.  The  value  of  the  good  will  of  the  business,  the  works 
and  premises  where  the  same  was  carried  on,  and  the  machinery,  plant, 
and  effects  belonging  to  it,  was  estimated  at  £25,000,  and  Mycock 
was  to  purchase  a  one-fifth  share  of  the  business  by  the  payment  of 
the  sum  of  £5,000.  The  business  was  to  be  carried  on  under  the'  style 
of  "William  Beatson,"  the  works  and  premises  were  to  remain  vested 
in  Beatson,  who  was  to  stand  possessed  of  them  for  the  purposes  of 
the  partnership,  and  the  business  was  to  be  managed  by  Beatson;  his 
partner  not  being  required  to  attend  to  the  business  any  further  than 
he  should  think  fit.  By  the  eleventh  clause  of  the  deed  it  was  provided 
that  neither  of  the  partners,  without  the  written  consent  of  the  other 
first  obtained,  should  on  the  credit  of  the  firm  make  any  payment,  ad- 
vance, or  other  application  of  the  money  or  effects  of  the  said  part- 
nership, or  in  any  manner  engage  or  use  the  same,  or  the  name  or 
credit  of  the  partnership  firm,  except  on  account  and  for  the  benefit 
of  the  partnership  and  in  the  usual  manner  of  carrying  on  the  business ; 
and  by  the  twelfth  clause  it  was  provided  that  neither  of  the  partners 
should  lend  or  deliver  upon  credit  any  of  the  moneys  or  effects  be- 
longing to  the  partnership  to  any  person  whom  the  other  partner 
should  previously  have  forbidden  to  be  trusted,  nor  without  the  pre- 
vious consent  in  writing  of  the  other  partner  would  become  bail,  sure- 
ty, or  security  with  or  for  any  person  whomsoever,  or  make,  give, 
dra\v,  accept,  or  indorse  any  bond,  bill,  promissory  note,  or  other  in- 
strument, or  enter  into  any  obligation  or  engagement,  or  make  any 
default,  wherebv  the  estate  and  effects  of  the  partnership  might  be 


Sec.  2)  THE    PARTNERSHIP    NAME.  15D 

made  liable  for  the  payment  or  satisfaction  of  any  sum  of  money,  for 
which  the  partnership  should  not  have  received  a  full  and  sufficient 
consideration. 

The  object  with  which  JMycock  entered  into  this  partnership  was 
that  of  ultimately  putting  his  son,  who  was  then  under  age,  into  it, 
and  as  a  matter  of  fact  Mycock  never  interfered  in  any  way  wiih  the 
management  of  the  business,  or  occupied  any  other  position  or  con- 
nection with  it  than  that  of  a  dormant  partner.  Beatson  concealed  from 
him  all  information  relating  to  his  accommodation  transactions,  and 
for  his  frauds  upon  him  in  this  and  other  matters  connected  with  the 
inception  of  the  partnership  was  ultimately  prosecuted  and  convicted. 
The  plaintiffs  never  knew  of  the  partnership  until  July,  1878,  at 
which  date  Beatson  was  a  bankrupt.  For  some  time  prior  to  the 
formation  of  the  partnership  Beatson  had  kept  an  account  at  the  Shef- 
field and  Rotherham  Bank,  headed  "William  Beatson,"  and  after  the 
formation  of  the  partnership  that  account  was  continued  without  any 
change  in  its  heading,  and  into  that  account  Beatson  paid  all  moneys, 
whether  moneys  belonging  to  the  partnership  or  his  own  private  mon- 
eys, and  upon  it  he  drew,  whether  for  the  purpose  of  the  business  or 
his  own  private  purposes.  Beatson  himself  was  called  as  a  witness 
for  the  plaintiffs,  and  in  addition  to  proving  the  facts  already  men- 
tioned gave  evidence  to  the  effect  that  he  kept  two  cash  books,  of 
which  one  was,  as  he  stated,  a  private  book  kept  as  manager  at  the 
place  of  business,  and  the  other  a  partnership  cash  book ;  that  in  the 
former  he  did  not  enter  cash  received  on  account  of  the  partnership, 
but  that  in  the  latter  all  business  payments  were  entered.  With  refer- 
ence to  his  bill  accommodation  transactions  generally  he  stated  that 
none  of  them  were  brought  into  the  ledger  either  before  the  partner- 
ship or  after;  that  the  cash  transactions  relating  to  these  accommoda- 
tion bills  were  entered  in  the  private  book,  to  which  Mycock  had  no 
access,  and  were  never  put  into  the  partnership  cash  book,  to  which 
Mycock  might  have  had  access.  With  reference  to  his  particular  trans- 
actions with  Josiah  Carr  he  stated  that  all  trade  transactions  between 
them  were  over  before  the  partnership,  and  that  as  regards  the  par- 
ticular bills  sued  on  they  were  bills  drawn  for  his  and  Carr's  accom- 
modation, not  for  Mycock's,  although  he  added  that  they  were  in  a 
degree  for  the  business  as  one  way  of  finding  capital,  and  that  with- 
out the  bill  transactions  there  was  not  capital  enough  to  work  the 
business.  He  admitted  that  Mycock  found  the  i5,000  which  he  was 
to  pay  for  his  share  in  the  business,  that  he  never  told  Mycock  that 
money  was  wanted,  that  he  thought  that  he  was  not  making  Mycock 
liable  for  any  of  the  accommodation  bills,  whether  renewals  or  other- 
wise, and  that  he  considered  them  private  transactions,  and  did  not 
enter  them  in  the  partnership  books.  He  further  said  that  he  con- 
sidered the  bank  book  private,  and  that  Mycock  had  left  him  to  keep 
the  banking  account  as  he  thought  proper;  that  the  proceeds  of  the 
accommodation  bills  were  paid  into  the  banking  account;   and  that  out 


IGO  NATURE   AXD   CHARACTERISTICS   OF   A   PARTNERSHIP.  (Ch.  3 

of  such  proceeds  goods  supplied  to  the  business  and  wages  were 
sometimes  paid.  As  regards  the  proceeds  of  the  bills  sued  on,  it  ap- 
peared that  a  portion  of  them  found  their  way  into  the  banking  ac- 
count, but  that  upon  the  same  day  when  this  occurred  Beatson  drew 
out  more  than  he  put  in.  On  the  part  of  Mycock  an  accountant  was 
called,  who  upon  examination  of  Beatson's  books  proved  that,  apart 
from  the  accommodation  -bill  transactiojis,  the  business  had  during 
the  period  between  the  beginning  of  January  and  the  end  of  May,  18T8, 
a  cash  balance  to  its  credit,  that  the  net  result  of  the  accommodation 
bills  was  to  reduce  the  balance,  and  that  Beatson  had  drawn  out  for 
his  own  purposes,  independent  of  the  business,  about  £4,000.  Upon 
these  facts  taken  from  the  notes  of  Lindley,  J.,  before  whom,  with 
a  jury,  the  case  was  tried,  that  learned  judge  stated  to  the  jury  that 
the  questions  for  them  w-ere,  first:  "Was  the  name  (Wm.  Beatson) 
put  to  the  bills  to  denote  the  firm  or  to  denote  William  Beatson?" 
Secondly:  "Did  the  bank  take  the  bills  as  the  bills  of  the  Chemical 
Works,  whoever  the  proprietors  might  be,  or  as  the  bills  of  William 
Beatson  only?"  The  jury  retired,  and,  returning  into  the  court,  the 
foreman  stated  that  as  regards  the  bill  for  £484.  13s.,  it  having  been 
drawn  upon  William  Beatson  at  the  Chemical  Works,  Rotherham,  the 
jury  agreed  that  William  Beatson's  acceptance  of  it  must  be  held  to 
denote  the  acceptance  of  the  firm,  but  that  as  regards  the  other  bill 
they  found  no  evidence  upon  the  point.  Upon  being  asked  by  the 
learned  judge  to  ansv/er  the  question  as  regards  that  bill  according  to 
their  judgment,  the  jury  conferred  again,  and  subsequently  stated  that 
from  the  fact  of  that  bill  being  put  in  connection  with  the  other  they 
might  take  it  as  being  the  same  thing,  and  to  the  second  question  they 
answered  that  the  bank  took  the  bills  as  the  bills  of  the  Chemical 
Works.  Upon  these  findings  a  verdict  and  judgment  was  entered  for 
the  plaintiffs  against  the  defendant  Mycock.  That  judgment  was 
subsequently  set  aside,  and  judgment  entered  for  Mycock,  by  the  Com- 
mon Pleas  Division,  upon  the  ground,  stated  shortly,  that  in  a  case 
where  the  name  of  an  individual  is  the  name  also  of  a  firm,  and  that 
name  is  put  to  a  bill,  the  presumption  is  that  the  signature  is  the  sig- 
nature of  the  individual,  and  not  of  the  firm;  that  consequently  it 
lay  upon  the  plaintiffs  in  this  case  to  displace  the  presumption  by  show- 
ing the  signature  to  the  bills  sued  upon  were  respectively  the  sig- 
natures of  the  firm,  and  that  Beatson  was  authorized  to  use  the  firm's 
name  on  the  particular  occasions  and  for  the  particular  purposes — in 
other  words,  that  the  bills  were  given  for  partnership  objects  and  as 
partnership  acts,  and  that  the  plaintiifs  had  failed  to  discharge  the 
burden  cast  upon  them.  Against  the  judgment  of  the  Common  Pleas 
Division  the  present  appeal  is  brought. 

In  support  of  the  appeal  it  is  contended  for  the  plaintiffs  either, 
first,  that  where,  as  this  case,  a  signature  is  common  to  an  individual 
and  a  firm  of  which  the  individual  is  a  member,  it  is  open  to  the  bona 
fide  holder  for  value  without  notice,  whose  paper  it  is,  of  a  bill  VvMth 


Sec.  2)  Till!.    I'AKT-NEUiUll'    NAME.  161 

such  signature  upon  it,  to  sue  either  ihc  individual  or  the  firm;  or, 
secondly,  that  if  this  option  is  not  open  to  the  holder,  there  is  a  pre- 
sumption that  the  bill  was  given  for  the  firm  and  is  binding  upon  it, 
at  least  where  the  individual  carries  on  no  business  separate  irum  the 
business  of  the  firm  of  which  he  is  a  member. 

As  regards  the  first  gf  these  two  contentions,  we  think  that  it  is  not 
a  well-founded  one.  *  *  *  Apart,  too,  from  authority,  it  appears 
to  us  manifestly  contrary  to  true  principles  of  law  that  the  holder  of 
a  bill  bearing  upon  it  a  name  which  prima  facie  indicates  an  individual, 
and  would  naturally  lead  to  credit  being  given  to  the  individual  alone, 
should,  upon  discovery  and  proof  that  there  is  a  firm  of  which  the 
individual  is  a  member  carrying  on  business  under  his  name,  have  the 
right  of  going  against  the  firm,  although  at  the  same  time  that  the 
proof  is  given  it  is  proved,  also,  that  the  bill  was  signed  by  the  individ- 
ual for  himself,  and  not  for  his  firm,  and  for  considerations  entirely 
unconnected  with  any  partnership  purpose. 

The  second  contention  made  on  behalf  of  the  plaintiffs  is  one  of 
more  weight,  and,  apart  from  the  intrinsic  importance  of  the  question 
involved  in  it,  there  is  an  ajlditional  importance  derived  from  the  fact 
that,  if  the  cofitention  be  correct,  it  at  least  displaces  the  ground  upon 
which  the  judgment  of  the  court  below  rests,  although  it  will  still  re- 
main to  be  considered  whether  judgments  may  or  not  be  rested  upon 
another  ground.  As  a  matter  of  principle,  there  is  considerable  force 
in  the  arguments  both  for  and  against  the  contention.  Against  it 
it  is  said  that  when  a  signature  to  a  bill  is  of  a  name,  which  in  itself 
and  prima  facie  indicates  an  individual  and  would  lead  to  credit  being 
given  to  the  individual,  and  the  holder  of  the  bill  suing  upon  it  is 
therefore  compelled  to  give  some  proof  that  the  name  indicates  a 
partnership,  it  is  but  just  that  he  should  be  compelled  to  go  the  whole 
length  of  proving,  not  only  that  a  partnership  existed  under  the 
particular  name,  and  that  the  individual  carried  on  no  business  sepa- 
rate from  that  carried  on  by  the  firm,  but,  further,  that  the  bill  was 
signed  by  the  individual  as  a  partnership  act  and  for  partnership  ob- 
jects. In  support  of  the  contention  it  is  said  that,  inasmuch  as  a  bill 
of  exchange  is  ordinarily  used  as  a  trade  instrument,  there  is  a  pre- 
sumption that  a  bill  having  upon  it  a  name  common  to  the  firm  and 
to  the  individual  is  a  trade  bill,  and  therefore  the  bill  of  the  firm,  in 
a  case  where  it  is  proved  or  admitted  that  there  is  no  trading  in  the 
name  except  by  the  firm.  In  the  absence  of  authority  upon  this  ques- 
tion, our  opinion  uiton  it  would  be  in  favor  of  the  plaintiffs'  con- 
tention. In  point  of  convenience  and  expediency,  and  in  the  interests 
of  trade,  it  has  much  to  support  it.  The  vast  majority  of  bills  given 
under  the  circumstances  supposed  would  be  really  partnership  bills, 
and  yet  it  would  be  often  difficult,  if  not  impossible,  for  the  holders 
of  such  bills  to  do  more  than  prove  that  the  only  trade  carried  on 
under  the  individual  name  was  the  trade  of  partnership,  and  if  they 
were  compelled  to  go  further,  and  prove  that  the  particular  bill  was  a 
Gil. Part. — 11 


1S2       NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHIP.     (Cll.  3 

partnership  bill,  the  effect  might  be  that  in  many  cases  dormant  part- 
ners, and  in  some  cases  ostensible  ones,  too,  might  escape  from  just 
liabilities.  On  the  other  hand,  the  partners  sought  to  be  made  re- 
sponsible on  the  bills  would  in  most  instances  be  able  to  prove  whether 
any  particular  bill  sued  on  was  or  was  not  a  partnership  bill,  and 
should,  as  it  appears  to  us,  at  least  have  the  onus  of  doing  so  thrown 
upon  them,  when  it  is  through  their  own  act,  in  allowing  the  firm 
name  to  be  the  same  as  that  of  an  individual  in  the  firm,  that  difficulty' 
and  doubt  arise. 

But  in  the  court  below  it  was  considered  that  the  American  au- 
thorities clearly  negative  this  view,  and  tliat  the  weight  of  English 
authorities  is  in  favor  of  the  American  view  of  the  law. 

We  propose  to  consider  first  the  English  authorities.  [The  court 
here  examines  Swan'v.  Steele,  7  East,  209;  Emly  v.  Lyle,  15  East, 
G;   Ex  parte  Bolitho,  1  Buck.  100;    Bank  of  South  Carolina  v.  Case, 

8  B.  &  C.  427 ;   Furze  v.  Sharwood,  2  Q.  B.  388 ;   Nicholson  v.  Rick- 
etts,  2  E.  &  E.  497;    In  re  Adansonia  Fibre  Co.,  Miles'  Claim,  L.  R. 

9  Ch.  635.] 

Upon  this  review  of  English  authorities*  they  appear  to  support  the 
view  that  where  a  name  is  common  to  a  firm  and  to  an  individual 
member  of  such  firm,  and  the  individual  member  carries  on  no  busi- 
ness separate  from  that  of  the  firm,  there  is  a  presumption  that  a 
bill  of  exchange  drawn,  accepted,  or  indorsed  in  the  common  name  is 
a  bill  drawn,  accepted,  or  indorsed  for  the  partnership,  and  for  which 
the  partnership  is  liable,  and  that  it  lies  upon  the  defendants  in  an 
action  against  the  partners  upon  such  bill  to  get  rid  of  the  prima  facie 
case  made  against  them.  But  as  the  court  below  relies  much  upon  the 
American  authorities  as  uniformly  negativing  this  view,  and  those 
authorities  have  been  much  discussed  in  the  argument  before  this 
court,  we  think  it  desirable  to  refer  to  them. 

[The  court  here  examines  Parsons  on  Bills  of  Exchange,  p.  131 ; 
Story  on  Partnership,  pp.  106,  142 ;  Oliphant  v.  Mathews,  16  Barb. 
(N.  Y.)  608;  U.  S.  Bank  v.  Binney,  5  Mason  (U.  S.)  176,  185,  Fed. 
Cas.  No.  16,791;  Mifflin  v.  Smith,  17  Serg.  S:  R.  (Pa.)  165;  Bank 
of  Rochester  v.  Monteith,  1  Denio  (N.  Y.)   402,  43  Am.  Dec.  681.] 

It  appears  to  us,  therefore,  that  the  American  authorities  are  in 
accord  with  the  English  upon  the  point  under  consideration,  and  that 
both  fail  to  support  the  view  taken  by  the  court  below,  and  are  in  favor 
of  the  second  contention  urged  in  this 'case  on  behalf  of  the  plaintiffs. 

Applying,  then,  the  presumption  for  which  the  plaintiffs  contend  to 
the  circumstances  of  the  present  case,  the  matter  stands  thus:  The 
only  business  carried  on  in  the  year  1878  in  the  name  of  and  by  Wil- 
liam Beatson  was  the  business  of  the  partnership,  and  both  the  bills 
sued  upon  have  the  appearance  of  trade  bills.  Prima  facie,  then,  the 
bills  were  bills  indorsed  and  accepted,  respectively,  in  the  name  and 
on  account  of  the  partnership;  and,  if  that  prima  facie  case  were 
not  displaced,  Mycock  would  be  liable  upon  them  to  the  plaintiffs  as 


Sec.  3)  THE    PARTNERSHIP    NAME.  103 

bona  fide  holders  for  value  without  notice,  even  though  they  were 
^o  indorsed  and  accepted  for  private  purposes  of  Beatson  and  in 
fraud  of  his  partner.  The  nature  of  the  partnership  business  was 
such  as  to  give  Beatson,  in  respect  to  persons  dealing  with  him  in  busi- 
ness, an  implied  authority  to  bind  his  partner  by  bills  of  exchange, 
and  his  partner,  although  a  secret  one,  must  be  held  responsible  upon 
any  bills  signed  by  Beatson  in  the  name  of  the  firm  in  favor  of  a 
holder  whose  title  cannot  be  impeached,  however  much  Beatson,  in 
signing  that  name,  may  have  exceeded  the  authority  and  broken  the 
trust  reposed  in  him  by  the  agreement  of  partnership.  As  was  said 
by  the  court  in  giving  judgment  in  the  case  of  Wintle  v.  Crowther, 
1  C.  &  J.  316,  318:  "Where  a  partnership  name  is  pledged,  the  part- 
nership, of  whomsoever  it  may  consist,  and  whether  the  partners  are 
named  or  not,  and  whether  they  are  known  or  secret  partners,  will 
be  bound,  unless  the  title  of  the  person  who  seeks  to  charge  them  can 
be  impeached."  And  the  authorities  generally,  both  English  and 
American,  are  uniform  in  support  of  this  view.  There  is  no  differ- 
ence in  this  respect  between  the  dormant  and  the  ostensible  partner, 
and,  when  once  it  is  established  that  a  name  common  to  a  firm  and 
an  individual  member  of  it  has  been  put  to  a  bill  as  the  name  of  the 
firm,  there  is  no  diflference  between  the  liability  of  partners  carrying 
on  business  in  a  name  which  bears  in  itself  the  stamp  and  evidence 
of  a  partnership.  It  may,  perhaps,  be  argued  that  in  the  latter  case 
the  bona  fide  holder  without  notice  is  induced  by  the  name  itself  to 
trust  the  firm,  and  is  therefore  entitled  to  have  the  responsibility  of 
all  the  members  of  that  firm,  while  an  individual  name  would  suggest 
no  responsibility  other  than  that  of  the  individual  whose  name  it  is ; 
but  when  it  is  remembered  that  firm  names  are  often  used  by  individ- 
ual traders,  while  individual  names  are  often  used  by  firms,  the  argu- 
ment practically  comes  to  nothing,  and  a  common  principle  applicable 
to  both  cases  remains  alone  consistent  with  mercantile  expediency  and 
general  law. 

But,  assuming  that  there  is  no  difference  as  matter  of  law  between 
the  two  cases,  there  is  as  a  matter  of  evidence  a  very  real  and  very 
practical  diflference.  A  name  in  itself  indicating  a  firm  does  not,  ex- 
cept in  rare  instances,  of  which  the  ca^e  of  Stephens  v.  Reynolds  is 
an  example,  leave  open  any  doubt  as  to  the  meaning  of  a  signature 
in  such  name ;  but  a  name  which  in  itself  indicates  an  individual  is, 
notwithstanding  the  effect  of  any  legal  presumption,  ambiguous,  and 
there  are  likely  to  be  few,  if  any,  cases  where  the  decision  of  the  jury 
or  of  a  court  will  be  rested  upon  the  presumption  alone.  The  present 
case  is  no  exception  to  the  rule,  and  the  presumption  in  favor  of  the 
plaintiffs,  arising  from  the  fact  that'  Beatson  carried  on  no  business 
separate  from  that  of  the  partnership,  sinks  into  comparative  insig- 
nificance by  tht  side  of  the  additional  facts  which  are  proved  in  the 
case.  Upon  those  facts  we  have  to  decide,  as  the  courts  in  Nicholson 
V.  Ricketts,  and  In  re  Adansonia  Fibre  Co.,  Miles'  Case,  were  called 


164  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

upon  to  decide,  whether  the  signature  to  the  bills  upon  which  the  dis- 
pute arises  was  intended  to  denote  and  did  denote  the  partnership  of 
which  the  defendant  was  a  member.  [After  commenting  on  the  evi- 
dence the  opinion  continues :] 

Can  any  inference  be  reasonably  drawn  from  such  evidence  than 
that  Bcatson,  in  signing  the  bills,  intended  to  sign  and  did  sign  them 
for  himself?  We  think  that  no  other  inference  ought  to  be  drawn, 
and  that  the  jury,  in  finding  that  the  signature  "William  Beatson"  up- 
on each  of  the  bills  was  intended  to  denote  the  firm,  gave  a  verdict 
against  the  evidence,  and  one  which  ought  not  to  stand. 

We  think  that  the  judgment  of  the  court  below  should  stand,  and 
that  the  appeal  should  consequently  be  dismissed. 

Judgment  affirmed. 


SECTION  3.— PARTxXERSHIP  PROPERTY. 
I.  Capitau 


DEAN  et  al.  v.  DEAN  et  al. 
(Supreme  Court  of  Wisconsin,  1882.    54  Wis.  23,  11  N,  W.  239.) 

Cole,  C.  J.  This  action  is  brought  by  the  plaintiffs,  as  executors, 
to  obtain  a  construction  of  the  codicil  to  the  will  of  N.  W.  Dean, 
who  died  February  28,  1880.  The,  will  was  dated  February  39,  1876, 
and  makes  a  full  disposition  of  the  testator's  estate,  both  real  and  per- 
sonal. *  *  *  There  is  no  controversy  as  to  the  proper  construction 
of  the  will,  and  we  need  not  further  give  its  provisions.  The  codicil 
bears  date  February  23,  1880.  On  May  1,  1871,  the  decedent  and  liis 
brother,  Thaddeus  Dean,  entered  into  partnership  in  the  business  of 
dealing  in -lumber  in  the  city  of  Chicago,  which  partnership  was  con- 
tinued to  the  death  of  N.  W.  Dean.  The  will  makes  no  express  refer- 
ence to  this  partnership  business.  But  the  codicil,  after  reciting  that 
this  partnership  business  had  hitherto  been  profitable  to  the  tes- 
tator, which  was  largely  due  to  the  business  capacity  and  integrity 
of  his  brother  Thaddeus,  contains  this  language: 

"  *  *  *  I  hereby  direct  my  said  executors  to  allow  my  present 
capital  in  said  business  to  remain  for  the  period  of  two  years  after 
my  decease,  collecting  and  receiving  annually,  from  my  said  brother 
Thaddeus,  the  net  profits  arising  from  said  business,  under  my  agree- 
ment with  him,  belonging  to  me,  for  the  benefit  of  my  estate.  At  the 
expiration  of  two  years  it  is  my  will  and  I  direct  that  my  said  execu- 
tors have  a  full  settlement  and  accounting  with  my  said  brother  Thad- 
deus in  relation  to  said  business,  and  that  thereupon  they  collect  and 


Sec.  3)  PAUTNEKSiiir  pkopertt.  IGij 

receive  from  him  one-half  of  the  net  value  of  my  interest  therein, 
and  upon  the  payment  by  him  of  the  one-half  value  so  ascertained  I 
instruct  and  direct  my  said  executors  to  execute  and  deliver  to  him 
all  proper  and  necessary  assignments  and  conveyances  so  as  to  vest 
in  him  absolutely  all  my  right,  title,  and  interest  in  the  business  afore- 
said; it  being  my  intention,  in  addition  to  the  bequest  heretofore 
made  to  him  in  my  said  will,  to  bequeath  and  devise  to  him  one-half 
of  my  entire  interest  in  said  business,  subject  to  the  limitations  and 
restrictions  aforesaid." 

The  articles  of  copartnership,  to  which  reference  is  made  in  the 
codicil,  are  quite  full  and  specific.  They  provide,  among  other  things, 
that  each  partner  should  contribute  $15,000  to  the  capital  of  the  firm, 
which  was  to  be  used  in  carrying  on  the  copartnership  business ;  that 
Thaddeus  Dean  was  to  have  the  management  of  the  business ;  that  he 
should  be  entitled  to  receive  two-thirds  of  the  profits,  and  N.  W.  Dean 
one-third  thereof.  The  losses  were  to  be  borne  in  the  same  propor- 
tion. Books  of  account  were  to  be  kept,  wherein  all  of  the  transac- 
tions of  the  firm  should  be  entered,  and  which  books  should  be  open 
to  the  inspection  of  each  partner  at  all  times.  By  the  ninth  clause  it 
was  provided  that  N,  W.  Dean  was  to  take  out  of  the  cash  of  the 
company's  funds  $125  per  month  for  his  own  use,  and  Thaddeus  Dean 
$250  per  month,  providing  these  sums  could  be  so  drawn  out  by  the 
respective  parties  without  impairing  the  capital  of  the  firm,  but  neither 
partner  was  to  take  a  greater  sum  for  his  own  use  during  any  month 
without  the  written  consent  of  the  other.  The  tenth  clause  provided 
that  Thaddeus  Dean,  at  the  end  of  each  year,  and  oftener,  if  need  be, 
on  request,  should  make  and  render  to  N.  W.  Dean  a  just  and  true 
account  of  all  the  gains  and  profits,  as  well  as  losses,  of  the  business, 
and  of  all  things  done  on  behalf  of  the  partnership,  and  this  account 
being  so  made  he  was,  to  pay  N.  W.  Dean  his  proportionate  share  of 
the  profits,  and  take  to  himself  his  own  share.  In  the  eleventh  clause 
it  was  provided  that  during  the  continuance  of  the  copartnership  none 
of  the  capital  of  the  firm,  nor  any  of  the  accrued  but  undivided  gains 
and  profits  thereof,  should  be  used  or  employed  by  the  parties  thereto 
for  any  other  purpose  than  carrying  on  said  business.  In  the  twelfth, 
that  at  the  end  of  the  copartnership  a  final  accounting  should  be  had, 
and  all  the  debts  of  the  firm  should  be  first  paid,  then  each  should 
draw  out  the  amount  of  capital  originally  contributed  by  him,  dimin- 
ished by  his  proportionate  share  of  losses,  if  any ;  the  balance,  if  any, 
to  be  divided  as  provided  for  dividing  profits.  These  are  the  material 
provisions  of  the  copartnership  agreement. 

From  three  letters  which  were  introduced  on  the  hearing — one  writ- 
ten by  Thaddeus  Dean ;  the  other  two  by  N.  W.  Dean— it  appears 
that  each  party  agreed,  in  July,  1872,  to  increase  its  capital  to  $20,000, 
and  did  so.  And  it  further  appears,  from  the  annual  statement  made 
of  the  partnership  business,  that  at  the  end  of  each  partnership  year 
each  partner  was  credited  on  the  books  of  the  concern  with  his  share 


iG6  NATURE   AND    CHARACTERISTICS   OF   A   PARTNHRSHIP.  (Ch.  3 

of  the  profits,  and  was  charged  with  the  amount  which  he  had  drawn 
out  during-  the  year.  The  accumulated  but  undivided  profits  of  the 
business  consisted  ahnost  wholly  of  real  estate,  lumber,  notes,  book 
accounts,  and  other  personal  property  belonging  to  the  firm.  The 
amount  standing  to  the  credit  of  N.  W.  Dean  at  the  time  of  his  death, 
including  his  capital  of  $20,000,  was  $-13,478.16.  Or,  to  speak  more 
accurately,  that  sum  embraced  the  profits  st|anding  to  the  credit  of 
N.  W.  Dean  on  the  books  of  the  firm  at  the  time  of  his  death,  and  also 
the  unascertained  profits  which  had  accrued  since  the  last  annual  state- 
ment of  I'.--y  1,  1879,  down  to  that  time. 

The  question  arising  upon  the  codicil,  which  the  executors  request 
the  aid  of  the  court  in  determining,  is  what  amount  they  must  leave 
in  the  partnership  business  for  two  years,  and  which,  at  the  end  of 
that  period,  they  are  directed  to  assign  and  convey  to  Thaddcus  Dean 
upon  his  paying  one-half  of  its  ascertained  net  value;  the  annual 
profits  having  been  collected  by  them  in  the  meantime.  On  the  part 
of  the  residuary  legatee  Thaddeus  Dean  it  is  claimed  that  it  was  the 
intention  of  the  testator  that  his  entire  interest  in  the  partnership  busi- 
ness should  remain  in  the  business,  including  both  his  capital  of  $20,- 
000  and  all  accumulated  but  undivided  profits  belonging  to  him  under 
the  partnership  agreement;  while,  on  the  part  Of  other  residuary  leg- 
atees, it  is  insisted  that  it  was  his  capital  only  which  was  to  be  left  in 
the  business.  Considerable  proof  was  taken  on  the  hearing  relating 
to  the  acts  of  the  parties  and  their  course  of  dealing,  for  the  purpose 
of  aiding  the  court  in  arriving  at  the  intention  of  the  testator  in  mak- 
ing the  codicil.  But,  aside  from  the  articles  of  copartnership,  this 
evidence  furnishes  but  little  assistance  in  construing  the  codicil.  The 
intention  of  the  testator  must,  therefore,  be  ascertained  from  the  lan- 
guage of  the  codicil  itself,  read,  of  course,  in  the  light  of  thfe  written 
agreement  to  which  it  refers. 

On  looking  at  the  language  of  the  codicil  itself,  the  first  thing  which 
will  be  noticed  is  that  the  testator,  in  the  introductory  part,  speaks  of 
his  "interest"  in  the  business,  which  has  been  profitable  to  him.  Be- 
ing desirous  that  the  business  so  commenced  should  be  maintained  and 
carried  on,  he  directs  his  "executors  to  allow  my  present  capital  in 
said  business  to  remain  for  the  period  of  two  years  after  my  decease, 
collecting  and  receiving  annually  from  my  said  brother,  Thaddeus 
Dean,  the  net  profits  arising  from  said  business  under  my  agree- 
ment with  him,  belonging  to  me,  for  the  benefit  of  my  estate."  It  will 
be  seen  that  the  mind  of  the  testator  was  fixed  at  the  outset  upon  his 
entire  interest  in  that  business  as  distinguishable  from  his  capital  there- 
in. If  he  intended  that  his  entire  interest  should  remain,  it  is  singular 
that  he  changed  his  language,  using  words  which  convey  a  different 
meaning.  The  terms  "interest"  and  "present  capital"  are  not  equiva- 
lent-expressions, and  do  not  convey  the  same  idea  in  the  connection 
in  which  they  are  used.  If  the  testator  intended  that  his  entire  inter- 
est in  the  business  should  remain,  it  is  remarkable  that  he  changed 


Sec.  3)  PAKTNER8HIP    PROPEliTY.  1G7 

his  pliraseology.  But  this  is  not  all.  The  executors  are  directed  to 
collect  annually  from  his  brother  Thaddcus  the  net  profits  arising 
from  the  business  under  the  partnership  agreement  which  belonged 
to  him  for  the  benefit  of  his  estate.  If  the  codicil  is  construed,  as  it 
must  be,  in  connection  with  the  partnership  agreement,  there  is  no 
difficulty  in  getting  at  the  intention  of  the  testator,  for  the  agreement 
makes  a  plain  and  broad  distinction  between  capital  and  profits.  The 
former  is  devoted  to  the  use  of  the  partnership  business,  but  provi- 
sion is  made  for  withdrawing  the  latter  from  time  to  time.  There- 
fore we  think  that  the  word  "capital,"  as  used  in  the  codicil,  must  be 
understood  as  meaning  the  same  thing  as  when  used  in  the  agreement; 
it  means  the  capital  as  opposed  to  profits,  and  the  word  "profits"  means 
the  gains  upon  the  capital  invested  in  the  business. 

The  testator  further  directs  that  when  a  final  settlement  is  made 
or  accounting  had  the  executors  shall  convey  to  his  brother,  upon 
payment  by  him  of  one-half  of  its  ascertained  value,  all  his  right,  title, 
and  interest  in  the  business,  declaring  that  it  is  his  "intention,  in  ad- 
dition to  the  bequest  heretofore  made  to  him  in  my  said  will,  to  be- 
queath and  devise  to  him  one-half  of  my  entire  interest  in  said  busi- 
ness, subject  to  the  limitations  and  restrictions  aforesaid."  If  the 
qualifying  words,  "subject  to  the  limitations  and  restrictions  afore- 
said," were  omitted,  this  clause  of  the  codicil  would  tend  strongly  to 
warrant  the  inference  that  it  was  the  intention  of  the  testator  that  his 
entire  interest  in  the  business  should  remain  for  tw'O  years,  and  then 
be  disposed  of  as  directed.  But,  as  the  clause  stands,  in  view  of  the 
previous  language,  where  the  words  "interest"  and  "capital"  are  used 
in  a  different  sense,  more  especially  in  consideration  of  the  fact  that 
the  whole  codicil  is  to  be  construed  in  connection  with  the  written 
agreement,  no  such  inference  or  presumption  can  fairly  be  made;  for 
the  agreement,  in  its  terms,  so  clearly  and  distinctly  discriminates 
between  capital  and  profits  that  it  is  impossible  to  hold  the  testator,  by 
tlie  words  "my  present  capital,"  intended  to  designate  not  only  the" 
capital  proper,  which  he  had  contributed  to  the  business,  but  also  all 
the  accumulated  and  undivided  profits  which  had  accrued  from  the 
use  of  that  capital.  If  he  had  intended  to  direct  that  his  whole  in- 
terest in  the  business  should  remain  two  years,  or  if  he  regarded  his 
entire  assets  therein  as  capital,  his  intention  or  understanding  would 
have  been  made  manifest  by  the  use  of  dift'erent  language  than  that 
employed. 

But,  as  observed  by  counsel  who  argue  in  favor  of  the  view  we 
have  taken  of  the  meaning  of  the  codicil,  the  testator,  in  the  very 
sentence  in  which  the  words  "my  present  capital"  occur,  directs  what 
shall  be  done  with  the  "net  profits"  of  the  business,  and  pointedly 
makes  a  distinction  between  capital  and  profits,  thus  showing  that  the 
two  things  were  separate  in  his  mind.  The  intention  of  the  testator 
must  prevail  if  it  is  possible  to  gather  it  from  the  language  of  the 
entire  codicil.     That  intention  was  to  allow  his  capital  to  remain  io 


168      NATURE  AND  CHARACTERISTICS  OF  A  PARTXERSHIP.    (Cll.  3 

the  business  for  two  years,  but  nothing  more.  This  construction  of 
the  codicil  is  vigorously  combated  by  the  learned  counsel  for  Thad- 
deus  Dean,  because,  as  he  says,  if  the  accumulated  profits  of  the  par- 
ties were  withdrawn  it  would  so  cripple  the  business  that  it  could  not 
be  carried  on  with  the  success  and  profit  which  had  theretofore  at- 
tended it.  But  this  argument,  under  the  circumstances,  is  entitled  to 
but  little  weight ;  for  if  there  had  been  no  provision  for  continuing 
the  business  it  would  have  to  be  closed  up  on  the  death  df  N.  W. 
Dean.  Its  continuance,  therefore,  was  a  favor,  and  could  not  have 
been  claimed  as  a  right  by  the  surviving  partner.    *    *     * 

It  results,  from  the  views  expressed,  that  the  judgment  of  the  circuit 
court,  placing  a  construction  upon  the  codicil,  and  giving  directions 
to  the  executors  in  regard  to  the  proper  execution  of  their  trust,  is 
erroneous.  The  judgment  must,  therefore,  be  reversed,  and  the  cause 
be  remanded,  with  directions  to  enter  a  judgment  in  accordance  with 
this  opinion.  ^ 


SHEA  V.  DONAHUE  et  al. 
(Supreme  Court  of  Tennessee,  1885.    15  Lea,  IGO.  54  Am.   Rep.  407.) 

Cooper,  J.  Bill,  among  other  things,  for  a  partnership  account  be- 
tween Shea  and  Donahue.  The  capital  of  the  partnership  business 
was  contributed  exclusively  by  Shea,  and  the  only  question  raised  by 
the  parties  is  whether  Donahue,  upon  a  settlement,  is  entitled  to  one- 
half  of  the  capital  thus  advanced.  The  chancellor  decided  against 
Donahue,  and  he  has  appealed. 

The  agreement  of  partnership,  entered  into  March  21,  1877,  provided 
as  follows :  "We  do  hereby  agree  to  become  partners  as  merchants,  in 
making,  buying  and  selling  all  kinds  of  tinware,  stoves,  pumps,  etc., 
in  the  city  of  Knoxville,  Tennessee,  for  the  term  of  one  year  from  this 
date,  under  the  style  and  firm  name  of  Shea  &  Donahue.  And  to  con- 
stitute a  fund  for  the  purpose,  Timothy  Shea  has  paid  in  as  stock 
one  thousand  dollars,  which  will  constitute  a  common  stook,  to  be 
used  and  employed  between  us  in  buying  goods,  wares  and  merchan- 
dise. John  Donahue,  being  a  practical  workman,  and  having  consider- 
able experience  in  the  above  named  business,  it  is  agreed  that  he  will 
give  the  business  his  entire  personal  attention  and  the  benefit  of  his 
experience  to  place  against  the  cash  furnished  by  said  Shea.  We  are 
to  bear  the  expenses  and  losses  jointly  and  share  the  profits  equally. 
The  capital  stock  is  not  to  be  withdrawn  by  either  party  until  the  end 
of  the  term,  but  to  be  employed  as  capital  unless  mutually  agreed  be- 
tween us  in  writing." 

The  partnership  business  was  in  fact  carried  on  for  about  three  years, 
the  agreement  only  stipulating  for  one  year.  The  contention  of  the 
defendant  is  that  by  the  terms  of  the  agreement  he  was  entitled  at  the 
end  of  one  year  to  an  equal  share  of  the  profits  of  the  business  and 


Sec.  3)  PARTNERSHIP   PROPERTY.  169 

to  one-lialf  of  the  capital  advanced  by  his  partner;  and  this,  although 
it  goes  without  saying  he  would  retain  all  his  practical  experience 
which  was  to  be  placed  against  the  cash  furnished  by  his  partner. 
But  the  agreement  is  that  the  partners  are  only  to  "share  the  profits 
equally,"  not  the  profits  and  the  capital.  And  the  profits  of  any  busi- 
ness are  only  what  remains  after  deducting  debts  and  expenses  and  the 
capital  paid  in.  Lindl.  Part.  791,  806.  The  provision  that  the  capital 
stock  shall  constitute  a  common  stock,  to  be  used  in  buying  the  mate- 
rials and  wares  of  their  trade,  merely  designates  the  mode  in  which 
it  is  agreed  that  the  capital  shall  be  invested.  And  the  further  pro- 
vision that  the  capital  stock  shall  not  be  withdrawn  by  either  party  un- 
til the  end  of  the  term  was  only  intended  to  restrain  the  partners  from 
drawing  funds  from  the  business,  so  as  to  trench  upon  the  capital, 
while  the  partnership  continued.  There  is  nothing  in  the  articles  of 
agreement  to  take  the  case  out  of  the  ordinary  one  of  a  partnership 
in  profit  and  loss  upon  unequal  capitals. 

Of  course,  the  articles  of  a  partnership  may  expressly  provide  for 
an  equal  division  of  the  assets  upon  a  dissolution,  notwithstanding  an 
unequal  advance  of  capitals  by  the  respective  partners.  The  same  re- 
sult may  follow  a  continuous  course  of  dealing  upon  a  basis  which  im- 
plies such  equal  division ;  for,  if  there  is  no  evidence  from  which  any 
dififerent  conclusion  as  to  what  was  agreed  can  be  drawn,  the  shares 
of  all  the  partners  will  be  adjusted  equally,  upon  the  favorite  maxim 
of  chancery  that  equality  is  equity.  But,  as  Mr.  Lindley  tells  us,  the 
rule  is  when  the  partners  have  advanced  unequal  capitals,  and  have 
agreed  to  share  profits  and  losses  equally,  without  more,  each  partner 
is  entitled  to  his  advance  before  division,  and  a  deficiency  in  the  capital 
must  be  treated  like  any  other  loss,  and  borne  equally  by  the  partners. 
Lindl.  Part.  807. 

The  only  authorities  adduced  by  the  learned  counsel  of  the  defend- 
'ants  in  support  of  his  contention  in  this  case  are  to  the  efifect  that  prop- 
erty brought  into  the  partnership  business  by  the  members  of  the  firm, 
or  bought  with  the  capital  advanced,  becomes  partnership  property,  and 
may  be  disposed  of  as  such  by  one  of  the  partners  under  h^is  general 
powers  as  a  member  of  the  firm.  And  so  it  does  beyond  all  question, 
for  the  very  object  of  contributing  capital,  either  in  property  or  money,, 
is  to  secure  a  partnership  stock  for  the  purpose  of  carrying  on  the 
common  business.  But  this  fact  has  nothing  to  do  with  the  settlerr.ent 
between  the  partners  of  their  accounts  at  the  end  of  the  partnership. 
"By  the  capital  of  a  partnership,"  says  Mr.  Lindley,  "is  meant  the 
aggregate  of  the  sums  contributed  by  its  members  for  the  purpose  of 
commencing  or  carrying  on  the  partnership  business.  The  capital  of  a 
partnership  is  jiot,  therefore,  the  same  as  its  property.  The  capital  is 
a  sum  fixed  by  the  agreement  of  the  partners,  whilst  the  actual  assets 
of  the  firm  vary  from  day  to  day,  and  include  everything  belonging  to 
the  firm  and  having  any  money  value.  Aloreover,  the  capital  of  each 
partner  is  not  necessarily  the  amount  due  to  him  from  the  firm ;    for 


170  NATURE  AND   CHARACTERISTICS   OF  A   PARTNERSHIP.  (Ch.  3 

not  only  may  he  owe  the  firm  money,  so  that  less  than  his  capital  is  due 
to  him,  but  the  firm  may  owe  him  money  in  addition  to  his  capital — 
e.  g.,  for  money  loaned.  The  amount  of  each  partner's  capital  ought, 
therefore,  always  to  be  accurately  stated,  in  order  to  avoid  disputes 
upon  a  final  adjustment  of  accounts;  and  this  is  more  important  where 
the  capitals  of  the  partners  are  unequal,  for,  if  there  is  no  evidence  as 
to  the  amounts  contributed  by  them,  the  share  of  the  whole  assets  Vv'ill 
be  treated  as  equal."  Lindl.  Part.  610.  The  same  author  adds  in 
another  place :  "\^^^en  it  is  said  that  the  shares  of  partners  are  prima 
facie  equal,  although  their  capitals  are  unequal,  what  is  meant  is  that 
losses  of  capital,  like  other  losses,  must  be  shared  equally;  but  it  is 
not  meant  that  on  a  final  settlement  of  accounts  capitals  contributed 
unequally  are  to  be  treated  as  an  aggregate  fund  which  ought  to  be 
divided  between  the  partners  in  equal  shares."  Lindl.  Part.  67.  On 
the  contrary,  in  his  chapter  devoted  to  Partnership  Accounts,  he  ex- 
pressly tells  us  that  the  assets  of  a  partnership  should  be  applied  as 
follows:  "(1)  In  paying  the  debts  and  liabilities  of  the  firm  to  non- 
partners;  (2)  in  paying  to  each  partner  ratably  what  is  due  from 
capital;  (3)  in  paying  to  each  partner  ratably  what  is  due  from  the  firm 
to  him  in  respect  of  capital;  (4)  and  the  ultimate  residue,  if  any, 
will  then  be  divisible  as  profits  between  the  partners  in  equal  shares,  un- 
less the  contrary  can  be  shown."    Lindl.  Part.  806. 

In  accordance  with  these  principles,  the  following  decision  has  been 
made  by  the  Supreme  Court  of  New  York  in  a  case  cited  in  a  note 
to  page  610  of  Lindley  on  Partnership :  "Where  by  the  terms  of  the 
agreement  the  defendant  furnished  the  capital  stock,  and  the- plain- 
tiff contributed  his  skill  and  services,  and  the  profits  of  the  copartner- 
ship were  to  be  equally  divided,  the  plaintiff  is  not  entitled  to  any  part 
of  the  capital  stock  on  a  settlement  of  the  affairs  of  the  partnership. 
He  has  no  interest  in  any  part  of  the  capital,  excepting  so  far  as  in  the 
progress  of  the  business  the  same  may  have  been  converted  into  prof-' 
its."  Conroy  v.  Campbell,  13  Jones  &  S.  (N.  Y.)  326.  The  case,  it 
"will  be  noticed,  is  exactly  in  point.  And  to  the  same  effect  in  prin- 
ciple are  Whitcomb  v.  Converse,  119  Mass.  38,  20  Am.  Rep.  311, 
Knight  v.  Ogden,  2  Tenn.  Ch.  473,  and  Shepherd,  Ex  parte,  3  Tenn. 
Ch.  189.    No  case  has  been  found  to  the  contrary. 

Affirm  the  chancellor's  decree. 

Decree  affirmed. 


Sec.  3)  PARTNERSHIP  PROPERTY.  171 


II.  Property  Other  than  Capital. 
ROBINSON   BANK  v.  MILLER  et  al. 

(Supreme  Court  of  Illinois,  LS94.     inS  111.  244.  38  N.  E.' 1078,  27  L.  R.  A.  440. 

46  Am.   St.   Rep.  883.) 

John  Newton,  John  S.  Emmons,  and  Frank  O.  Miller,  having  each 
acquired,  with  individual  funds,  a  one-third  interest  iti  a  certain  parcel 
of  land  containing  four  acres,  entered  into  an  oral  agreement  of  part- 
nership to  engage  in  the  husiness  of  milling  and  of  buying  and  selling 
grain.  The  business  of  the  firm  was  done  in  a  mill  on  said  land.  John 
S.  Emmons  executed  two  mortgages  on  his  one-third  interest  in  the 
land — one  to  Willis  Emmons  to  secure  him  as  surety  on  a  note  of 
John  S.  Emmons,  and  the  other  to  Wiley  S.  Emmons  and  William  W. 
Walter  to  secure  them  as  sureties  on  another  note  of  John  S.  Emmons. 
Frank  O.  Miller  also  executed  a  mortgage  on  his  one-third  interest  to 
one  Lamport.  The  Robinson  Bank,  a  creditor  of  the  firm  of  Newton, 
Emmons  &  Miller,  claims  that  the  mill  property  and  the  land  upon 
which  the  mill  stands  was  partnership  property  belonging  to  Newton, 
Emmons  &  Miller  as  partners ;  that  the  individual  creditors  of  Miller 
and  John  S.  Emmons,  such  as  Willis  Emmons,  \\'iley  S.  Emmons,  and 
William  W.  Walter,  were  only  entitled  to  such  surplus  as  might  arise 
out  of  the  mill  property  after  the  payment  of  the  firm  debts  therefrom. 
The  bank  filed  a  bill  seeking  to  have  the  mortgages  to  Wiley  S.  Em- 
mons, William  W.  Walter,  and  Willis  Emmons,  and  to  Lamport,  set 
aside.  Said  mortgagees  filed  cross-bills  asking  for  the  foreclosure  of 
their  respective  mortgages.  In  the  circuit  court  the  mortgages  by 
John  S.  Emmons  were  held  to  be  valid,  and  a  foreclosure  was  decreed. 
The  mortgage  to  Lamport  was  set  aside  for  fraud.  This  wa#  an  appeal 
by  the  bank  and  by  Lamport.  The  validity  of  the  mortgages  depends 
on  whether  the  land  on  which  they  were  given  was  the  property  of  the 
mortgagors  individually  or  whether  it  belonged  to  the  partnership. 
Magruder,  j.  *  *  *  Whether  real  estate  upon  which  a  part- 
nership transacts  its  business  is  firm  property  or  the  property  of  the 
individual  members  of  the  firm  is  oftentimes  a  difficult  question  to 
determine,  and  one  upon  which  the  authorities  are  not  altogether  uni- 
form. The  mere  fact  of  the  use  of  land  by  a  firm  does  not  make  it 
partnership  property.  Geopper  v.  Kinsinger,  39  Ohio  St.  429;  Hat- 
chett  V.  Blanton,  72  Ala.  423.  Nor  is  real  estate  necessarily  the  in- 
dividual property  of  the  members  of  a  firm  because  the  title  is  held 
by  one  member,  or  by  the  several  members  in  individual  interests.  1 
Bates,  Partn.  §  2S0.  Whether  real  estate  is  partnership  or  individual 
property  depends  largely  upon  the  intention  of  the  partners.  That  in- 
tention may  be  expressed  in  the  deed  conveying  the  land,  or  in  the  arti- 
cles of  partnership;  but  when  it  is  not  so  expres^cd  the  circumstances 
iisuallv  relied  upon  to  determine  the  question  are  the  ownership  of  the 


172       NATURE  AND  CHAKACTERISTICS  OF  A  PARTXERSUIP.     (Cll.  3 

funds  paid  for  the  land,  the  uses  to  which  it  is  put,  and  the  manner  in 
which  it  is  entered  in  the  accounts  upon  the  books  of  the  firm.  1  Bates, 
Partn.  §  280 ;  2  Lindl.  Partn.  marg.  p.  649 ;  17  Am.  &  Eng.  Enc.  Law, 
p.  945,  and  cases  in  note.  Where  real  estate  is  bought  with  partnership 
funds  for  partnership  purposes,  and  is  appHed  to  partnership  uses,  or 
entered  and  carried  in  the  accounts  of  the  firm  as  a  partnership  asset, 
it  is  deemed  to  be  firm  property ;  and  in  such  case  it  makes  no  diflfer- 
ence,  in  a  court  of  equity,  whether  the  title  is  vested  in  all  the  part- 
ners, as  tenants  in  common,  or  in  one  of  them,  or  in  a  stranger.  T, 
Pars.  Partn.  (4th  Ed.)  §265;  1  Bates,  Partn.  §  281;  Johnson  v. 
Clark,  18  Kan.  157;  17  Am.  &  Eng.  Enc.  Law,  p.  948,  and  cases  cited. 
If  the  real  estate  is  purchased  with  partnership  funds,  the  party  hold- 
ing the  legal  title  will  be  regarded  as  holding  it  subject  to  a  resulting 
trust  in  favor  of  the  firm  furnishing  the  money.  In  such  case  no  agree- 
ment is  necessary,  and  the  statute  of  frauds  has  no  application.  Park- 
er V.  Bowles,  57^N.  H.  491 ;   1  Bates,  Partn.  §  281. 

In  the  case  at  bar  the  land  was  not  purchased  with  partnership  funds. 
The  undivided  one-third  interest  bought  by  John  S.  Emmons  was  paid 
for  by  him  with  his  own  individual  money.  Miller  also  paid  for  tlie 
one  undivided  one-third  interest,  purchased  by  him  with  his  individual 
funds.  None  of  the  money  of  the  firm  of  Newton,  Emmons  &  Miller 
was  contributed  towards  the  purchase  of  the  one-third  interest  held 
by  Newton.  Indeed,  the  proof  shows  that  the  firm  of  Newton,, Emmons 
&  Miller  was  formed  by  an  oral  agreement  after  Emmons  and  Miller 
had  bought  their  interests.  Each  partner  here  held  the  title  to  an  un- 
divided one-third  part  of  the  property.  No  entries  were  made  upon  the 
books  "of  the  firm  showing  that  the  real  estate  was  treated  as  firm 
assets.  The  evidence,  however,  does  show  that  the  property  was 
bought  for  the  purpose  of  being  used  in  the  milling  business,  and 
that  after  its  purchase  it  was  used  for  firm  purposes,  and  that  the  firm 
gave  its  n'otes  to  pay  for  repairs,  and  for  placing  new  machinery  in 
the  mill  upon  the  premises.  Under  these  circumstances,  was  the  land 
partnership  property,  or  the  individual  property  of  the  partners,  hold- 
ing as  tenants  in  common?  It  cannot  be  said  that  the  land  is  firm 
property,  upon  the  theory  of  a  resulting  trust,  because  the  money  of 
the  firm  was  not  used  to  buy  the  property.  Such  a  trust  might  exist 
in  favor  of  the  firm,  regarding  it  as  a  person,  if  the  partners  had  taken 
the  legal  title,  and  the  firm  had  advanced  the  purchase  money.  The 
trust  must  arise  at  the  time  of  the  execution  of  the  conveyance,  and 
when  the  title  vests  in  the  grantee.  Such  could  not  have  been  the  case 
here,  under  the  facts  stated.  Van  Buskirk  v.  Van  Buskirk,  148  111. 
9,  35  N.  E.  383.  In  view  of  the  fact  that  the  land  was  bought  with 
individual,  and  not  partnership,  funds,  and  was  conveyed  in  undivided 
interests  to  the  several  partners,  and  in  the  absence  of  any  agreement 
that  it  should  be  regarded  as  firm  property,  does  the  conduct  of  the 
parties  in  afterwards  forming  a  partnership,  and  using  the  property 
for  partnership  purposes,  and  repairing  and  improving  the  mill  at  the 


Sec.  3)  PARTNEkSHIP   PROPEUTT.  173 

expense  of  the  firm,  make  the  land  firm  property,  in  a  court  of  equity? 
A  negative  answrer  to  this  question  is  found  in  many  of  the  authori- 
ties, as  will  be  seen  by  reference  to  the  following:  Alexander  v.  Kim- 
bro,  49  Miss.  529;  Theriot  v.  Michel,  28  La.  Ann.  107;  Reynolds  v. 
Ruckman,  35  Mich.  80;  Parker  v.  Bowles,  57  N,  H.  491;  Thompson 
V.  Bowman,  6  Wall.  (U.  S.)  316,  18  L.  Ed.  736;  Frink  v.  Branch, 
16  Conn.  2C0 ;  Wheatley's  Heirs  v.  Calhoun,  12  Leigh  (Va.)  264, 
37  Am.  Dec.  G5 1 ;  Sikes  v.  Work,  6  Gray  (Mass.)  433;  Gordon  v. 
Gordon,  49  Mich.  501,  13  N.  W.  834;  Moody  v.  Rathburn,  7  Minn. 
89  (Gil.  58)  ;  Paige  v.  Paige,  71  Iowa,  318, '32  N.  W.  360,  60  Am. 
Rep.  799;  T.  Pars.  Partn.  (4th  Ed.)  §  266;  Hatchett  v.  Blanton, 
supra. 

The  general  doctrine  of  all  these  cases  is  that  a  purchase  of  the  land 
with  partnership  funds  is  necessary  to  make  it  firm  property.  T. 
Parsons,  in  his  work  on  Partnership  (4th  Ed.),  says:  "Although  it 
[real  estate]  be  held  in  the  joint  name  of  two  or  more  persons,  if 
there  be  no  proof  that  it  was  purchased  with  partnership  funds  for 
partnership  purposes,  it  will  be  considered  as  held  by  them  as  joint 
tenants  or  tenants  in  common.  *  *  *  So,  if  not  paid  for  by  part- 
nership funds,  then  it  is  probably  his  property  who  does  pay  for  it, 
whatever  use  he  permits  to  be  made  of  it."  Sections  265,  266.  In 
Hatchett  v.  Blanton,  supra,  the  Supreme  Court  of  Alabama  say: 
"Steering  clear  of  all  cases  of  fraud,  or  of  the  use  by  one  partner, 
without  the  approbation  of  his  associates,  of  partnership  funds  in  the 
acquisition  of  real  estate,  the  two  facts  must  concur  to  constitute  real 
estate  partnership  property — acquisition  with  partnership  funds,  or  on 
partnership  credit,  and  for  the  uses  of  the  partnership."  In  Thompson 
V.  Bowman,  supra,  the  Supreme  Court  of  the  United  States  say :  "In 
the  absence  of  proof  of  its  purchase  with  partnership  funds  for  part- 
nership purposes,  real  property  standing  in  the  names  of  several  per- 
sons is  deemed  to  be  held  by  them  as  joint  tenants  or  as  tenants  in 
common."  Buchan  v.  Sumner,  2  Barb.  (N.  Y.)  165,  47  Am.  Dec. 
305.  The  theory  of  some  of  the  cases  is  that  real  estate  bought  with 
separate,  and  not  partnership,  funds,  cannot  be  converted  into  firm 
property  by  a  verbal  agreement  between  the  partners,  because  no  trust 
can  be  created  in  lands,  unless  by  writing,  in  view  of  the  statute  of 
frauds,  except  such  as  results  by  implication  of  law.  Parker  v.  Bowles, 
sivpra.  There  are  cases  which  hold  that,  even  though  the  land  was 
originally  bought  by  the  several  partners  with  their  individual  funds, 
and  deeded  to  them  as  tenants  in  common,  yet  it  will  be  regarded  in 
equity  as  firm  property  where  it  is  improved  out  of  partnership  funds 
for  firm  purposes,  and  actually  used  for  such  purposes,  or  where  the 
firm  puts  valuable  and  permanent  improvements  upon  it  for  firm  pur- 
poses, and  which  are  essential  to  the  firm.  In  some  instances  the  land 
is  held  to  be  the  property  of  the  partners,  and  the  improvements  to  be 
the  property  of  the  firm.  1  Bates,  Partn.  §§  281,  282.  The  use  of 
the  property  is  not  conclusive  of  its  character  as  real  estate  or  per- 


174  NATURE   AND    CHARACTElilSTlCS   OF   A   PARTNERSHIP.  (Ch.  3 

sonalty,  but  is  only  evidence  of  the  intention  of  the  parties.  Id.  §  285. 
When  the  intention  of  the  partners  to  convert  the  land  into  firm  prop- 
erty is  inferred  from  circumstances,  the  circumstances  must  be  such 
as  do  not  admit  of  any  other  equally  reasonable  and  satisfactory  ex- 
planation. T.  Pars.  Partn.  §  267.  And,  where  it  is  sought  to  show 
a  conversion  of  the  land  into  personalty  by  agreement  of  the  partners, 
such  agreement  must  be  clear  and  explicit.  17  Am.  &  Eng.  Enc.  Law, 
p.  954,  and  cases  cited.  In  Alkire  v.  Kahle,  123  111.  49G,  17  N.  E. 
693,  5  Am.  St,  Rep.  540,  land  was  conveyed  during  the  existence  of 
the  partnership  to  "Cato  Abbott  and  Henry  Robinson,  composing  the 
firm  of  Abbott  &  Robinson,"  and  it  was  held  not  to  be  partnership 
property,  because  it  was  not  shown  to  have  been  either  purchased  with 
partnership  funds,  or  used  for  partnership  purposes;  but  we  do  not 
regard  that  case  as  holding  that  the  mere  use  of  the  land  for  partner- 
ship purposes  constitutes  it  firm  property.  In  Mauck  v.  Mauck,  54 
111.  281,  land  which  had  been  bought  and  held  for  firm  purposes  was 
said  to  be  firm  property,  and  to  partake  of  the  character  of  personalty ; 
but  in  that  case  a  part  of  the  business  of  the  firm  was  to  buy  and  sell 
real  estate,  and,  although  the  land  was  said  to  belong  to  the  firm,  it 
does  not  appear  that  it  was  not  purchased  with  partnership  funds.  In 
Faulds  v.  Yates,  57  111.  416,  11  Am.  Rep.  24,  the  land  was  bought  for 
the  use  of  the  partnership,  but  after  the  partnership  was  formed,  and 
with  the  money  of  two  of  the  partners.  In  Bopp  v.  Fox,  63  111.  450, 
land,  bought  by  four  partners  with  their  individual  funds,  and  convey- 
ed to  them  in  their  individual  names,  was  held  to  be  partnership  prop- 
erty, because,  two  weeks  before  the  purchase,  the  four  purchasers 
made,  not  a  mere  executory  agreement  to  form  a  partnership  at  a  fu- 
ture time,  but  a  "present,  verbal  agreement  of  partnership,"  and  then 
afterwards  bought  the  land,  and  began  the  erection  of  a  mill  for  the 
purpose  of  carrying  on  the  milling  business  as  a  firm  "already  formed 
under  the  verbal  agreement."  It  was  there  held  that  the  essential  ques- 
tion was  whether  the  purchase  money  "was  paid  as  partnership  money 
for  a  partnership  purpose,"  and  we  said,  "We  consider  this  was  es- 
sentially a  purchase  with  partnership  funds  for  partnership  purposes." 

The  weight  of  authority  seems  to  us  to  support  the  position  that 
where  persons  who  afterwards  become  partners  buy  land  in  their  in- 
dividual names  and  with  their  individual  funds,  before  the  making  of 
a  partnership  agreement,  the  land  will  be  regarded  as  the  individual 
property  of  the  partners,  in  the  absence  of  a  clear  and  explicit  agree- 
ment subsequently  entered  into  by  them  to  make  it  firm  property,  or 
in  the  absence  of  controlling  circumstances  which  indicate  an  inten- 
tion to  convert  it  into  firm  assets.  We  do  not  think  that  an  application 
of  this  rule  to  the  facts  of  the  present  case  shows  the  real  estate  here 
in  controversy  to  be  firm  property.     *     *     * 

Decree  affirmed. 


Sec.  3)  PARTNERSHIP   PROPEUTT.  175 

STUMPH  et  al.  v.  BAUER  et  al. 
(Supreme  Court  of  Imliana,  1881.    76  Ind.    157.) 

Replevin  for  six  barrels  of  whisky  seized  by  the  defendant  Pressley, 
sheriff,  on  an  execution  in  favor  of  defendant  Bauer,  on  a  judgment 
obtained  by  Bauer  against  Stuniph.  Prior  to  the  rendition  of  said 
judgment,  Stumph  had  entered  into  a  partnership  with  one  Ross. 
Stumph  furnished  all  the  capital  and  owned  all  of  'the  stock  of  the 
partnership.  Ross  contributed  his  labor  and  experience,  and  had  a 
•'working  interest"  only,  and  received  a  share  of  the  profits.  The  low- 
er court  found  for  the  defendants.     Plaintiffs  appeal. 

.Best,  C.  *  *  *  If  the  property  in  question  was  partnership 
property,  its  seizure  was  unlawful,  and  the  appellants  were  entitled  to 
recoyer.  On  the  other  hand,  if  the  property  belonged  to  Stumph,  the 
levy  was  lawful,  and  the  judgment  was  right.  Did  the  property  be- 
long to  Stumph?  This  depends  upon  their  contract.  By  its  terms 
Stumph  was  to  furnish  all  the  capital,  own  all  the  stock,  and  give  his 
attention  to  the  business.  Ross  was  to  contribute  his  labor  and  ex- 
perience, and  was  to  have  a  third  of  the  net  profits.  This  property 
was  a  part  of  the  stock.  By  the  contract  Stumph  did  not  put  this 
property  into  the  firm,  if  one  was  formed,  as  partnership  property, 
nor  part  with  its  title,  but,  on  the  contrary,  retained  it  tjimself.  By 
express  stipulation  his  title  to  the  property  was  the  same  after  as  be- 
fore he  made  the  contract,  and  Ross  had  no  greater  or  different  interest 
in  the  property  than  he  would  have  had,  had  he  engaged  to  render  the 
same  services  for  a  like  compensation.  Ross  was  not  to  own  the  prop- 
erty, nor  any  interest  in  it,  nor  was  it  to  belong  to  the  firm.  True,  if 
it  had  been  sold,  he  would  have  been  entitled  to  one-third  of  the  net 
profits,  and  so  he  would  have  been,  had  he  been  employed  to  render 
such  services  for  such  compensation.  Had  Stumph  put  this  property 
into  the  firm,  and  Ross  his  labor,  and  experience,  the  profits  to  be  di- 
vided in  the  proportion  named,  the  property  would  have  been  part- 
nership property.  But  this  was  not  done.  On  the  contrary,  Stumph 
retained  it,  stipulating  that  he  himself  should  own  it,  and  this  stipula- 
tion fixes  the  relation  of  these  parties  to  this  property.  As  between 
them,  Stumph  owns  the  property,  and  any  right  that  he  can  assert 
to  it  against  Ross  can  be  asserted  against  him  by  the  individual  cred- 
itors of  Stumph. 

Again,  the  conclusion  that  this  property  is  the  individual  property 
of  Stumph  is  strengthened  by  the  stipulation  in  the  contract  that  Ross' 
interest  is  a  "working  interest,"  viz.,  one-third  of  the  net  profits. 
Stumph  furnished  everything,  owns  everything,  and  Ross  has  a  "work- 
ing interest."  What  is  that  but  a  compensation  for  his  services  ?  Why 
call  it  a  "working  interest,"  if  that  was  not  a  compensation  for  his 
work?  This  language  is  significant.  It  is  in  harmony  with  the  clause 
providing  that  Stuniph  should  own  the  stock,  and  both  clauses  are  ut- 


176  NATURE  AND   CHARACTERISTICS   OF  A   PARTNERSHIP.  (Ch.  3 

terly  inconsistent  with  the  position  that  Stumph  put  the  property  into 
the  firm  and  that  it  became  partnership  property.  If,  then,  the  "work- 
ing interest"  of  Ross  was  a  mere  compensation  for  his  services,  the 
fact  that  it  consisted  of  one-third  of  the  net  profits  did  not  make  him 
a  partner.    Keiser  v.  State,  58  Ind.  379. 

Again,  by  the  terms  of  this  contract  the  relation  between  these  part- 
ies may  be  discontinued  at  any  time.  When  this  relation  ceases,  what 
becomes  of  this  property?  Must  it  be  converted,  and  an  accounting 
had?  Under  such  circumstances,  would  any  one  suppose  that  it  must 
be  disposed  of  as  partnership  property,  or  doubt  that  Stumph  is  its 
absolute  owner?    We  think  not. 

The  appellants  also  insist  that,  under  the  facts  found,  Ross  is  liable 
as  a  partner,  and  therefore  he  is  entitled  to  hold  the  partnership  prop- 
erty until  all  partnership  liabilities  are  extinguished,  so  as  to  protect 
'himself.  The  answer  to  this  position  is  that  it  assumes  the  very  fact 
in  dispute,  viz.,  that  this  is  partnership  property.  If  it  is  not,  neither 
Ross,  nor  any  one  claiming  through  him,  has  any  lien  upon  it,  whatever 
his  liabilities  may  be  to  third  parties.     *     *     * 

We  do  not  hold  that  Ross  is  not  liable  as  a  partner  to  third  persons, 
but  hold  that  the  property  levied  upon  was  liable  to  be  seized  and  sold 
to  satisfy  Stumph's  individual  debt,  and  therefore  think  the  judg- 
ment should  be  affirmed. 

Per  Curiam.  It  is  therefore  ordered,  upon  the  foregoing  opinion, 
that  the  judgment  be,  and  it  is  hereby,  affirmed,  at  appellants'  costs.^ 

1  "The  mere  use  of  the  property  by  the  partnership  did  not  impress  upon 
it  the  character  of  partnership  property.  It  is  not  an  uncommon  occurrence 
that  a  partnership  uses  the  property  of  its  several  members,  or  of  a  preceding 
partnership.  In  the  absence  of  an  agreement  that  the  property  shall  become 
joint  propertv.  its  title  and  character  is  unchanged."  Per  Brickell,  C.  J.,  in 
Hatchett  v.  Blanton,  72  Ala.  423,  435  (1882). 

In  Foster  v.  Sargent,  72  N.  H.  170.  55  Atl.  423  (1903),  the  court  said: 
"The  question  *  *  *  Is  whether  individual  or  firm  creditors  shall  have 
priority   in   certain    real   estate     *     *     *     acquired   with   partnership   funds. 

*  *  *  It  is  *  *  *  contended  that,  although  *  *  *  obtained  with 
partnership  property,  still  it  cannot  be  so  regarded,  *  *  *  because  it  has 
'never  been  used  in  any  way  in  the  partnership  business,  but  has  been  rented 
to  others.'  *  *  *  In  Collumb  v.  Read,  24,  N.  Y.  505,  the  court  says: 
'Where  the  land  was  not  purchased  for  partnership  uses,  and  there  was  no 
agreement  making  it  partnership  property,  and  yet  it  was  paid  for  out  of 
funds  of  tht  partnership,  or  taken  in  payment  of  debts  due  it,  the  question 
between  the  two  classes  of  creditors  would  be  one  of  construction  as  to  the 
intent  of  the  partner  in  making  the  purcha«.e.  It  might  be  that  sucli  a  pur- 
chase would  be  made  as  an  investment  of  realized  profits.  If,  for  instance, 
the  purchase  price  shor.lrl  be  charged  to  the  separate  ac^'ounts  of  the  partners, 
that  would  be  an  indication  that  it  was  considered  by  them  as  an  application 
of  divided  profits.  If,  on  the  other  hand,  the  income  should  be  carried  into 
the  books  of  the  copartnership,  or  if  the  land  itself  should  be  included  in  the 
periodical  Inventories  of  stock  in  trade,  there  would  be  an  inference  more  or 
less  strong  that  it  had  been  agreed  to  hold  the  estate  as  partnership  property. 

*  ♦  *  Where  the  price  of  land  *  *  *  is  paid  by  copartnership  money 
or  effects,  or  it  is  taken  in  .'■atisfaction  of  a  debt  duo  the  concern,  the  real 
estate  becomes  partnership  property,  or  is  individual  property,  *  *  *  as 
the  intention  of  the  purchasers  shall  appear  to  have  been.     It  may  be  either 

one  or  the  other.'  " 


Sec  3)  PARTNERSHIP   PEOPERTT.  177 

III.  Good  Will. 

WILLIAMS  et  al.  v.  FARRAND  et  al 

(Supreme  Court  of  Michigan,  1891.    88  Mich.  473,  50  N.  W.  446,  14  L.  It  A. 

161.) 

McGrath,  J.     Complainants  and   defendants  had   been   for   some 
years  engaged  as  wholesale  druggists  on  Larned  Street  East,  in  the 
city  of  Detroit,  as  copartners,  under  the  name  and  style  of  Farrand, 
Williams  &  Co.    There  were  no  articles  of  copartnership,  and  no  term 
fixed  for  which  the  partnership  was  to  continue.     Prior  to  the  taking 
of  the  annual  inventory  in  January,  1890,  defendant  Jacob, S.  Farrand 
expressed  to  complainant  Sheley  a  desire  to  dissolve  the  copartnership. 
Mr.  Sheley  declined  to  say  anything  until  the  annual  inventory  should 
be  taken,  and  the  business  of  the  year  settled  up.     On  the  25th  of 
January,  1890,  after  the  completion  of  the  inventory,  defendants  made 
a  proposition  in  writing  to  "pay  Messrs.  Sheley  &  Brooks,  for  their 
interest  in  the  firm  of  Farrand,  Williams  &  Co.,  for  the  amount  of 
their  interest,  being  fifty  thousand  dollars,  ($50,000,)  the  sum  of  six- 
ty thousand  dollars,    ($G0,000,)    or  they  will  take  for  their  interest, 
the  amount  being  one  hundred  thousand  dollars,'  ($100,000,)  the  sum 
of  one  hundred  and  twenty  thousand  dollars,  ($120,000,)  the  sum  to 
be  paid  in  cash,  or  in  notes  acceptable  to  the  parties  who  sell,  one 
week  from  to-day,  Saturday,  the  first  day  of  February  next.    The  store 
to  be  leased  to  the  party  purchasing  for  a  term  of  five  years,,  at  a  rent 
of  eight  thousand  dollars   ($8,000)   a  year,  and  the  warehouse  to  be 
rented  to  the  party  purchasing,  at  a  net  rental  of  Q'J,  a  year  on  the 
cost  of  their  interest  therein."    On  the  following  ?\Ionday  Mr.  Sheley 
accepted  defendants'  offer  to  sell,  and  on  the  1st  day  of  February  fol- 
lowing a  bill  of  sale  was  prepared,  reciting,  among  other  things,  that 
defendants,  in  consideration  of  the  sum  of  $120,000,  paid"  to  them  by 
Alanson  Sheley,  party  of  the  second  part,  "have  bargained  and  sold 
unto  the  said  party  of  the  second  part  all  our  right,  title,  and  interest 
to  the  within-mentioned  resources  of  said  firm,  including  the  good  will 
attendant  upon  the  business."    This  bill  of  sale  was  not  executed,  ob- 
jection being  made  to  the  clause,  "including  the  good  will  attendant 
upon  the  business,"  and  a  new  instrument  was  prepared,  reciting  that 
defendants,  parties  of  the  first  part,  "for  and  in  consideration  of  the 
sum  of  one  hundred  and  twenty  thousand  dollars,  to  them  paid  by 
Alanson  Sheley,  of  the  second  part,  have  bargained  and  sold,  and  by 
these  presents  do  grant  and  convey,  unto  the  said  party  of  the  second 
part,  his  executors,  administrators,  or  assigns,  all  our  right,  title,  and 
interest  in  the  firm  of  Farrand.  Williams  &  Company."     This  instru- 
ment was  executed,  the  insurance  policies  were  assigned  by  Farrai)d. 
Williams  S:  Co.  to  Williams,  Sheley  &  Brooks,  and  an  agreement  to  as- 
sume and  pay  all  the  debts  of  the  old  firm  was  executed  by  Williams. 
Gil.  Taut.— 12 


ITS  NATUUE   AND   CHARACTERISTICS   OF   A   PARTNERSHIP.  (CIl.  3 

Sheley  &  Brooks,  and  delivered  to  defendants.  Defendants  after- 
wards formed  a  copartnership  under  the  firm  name  of  Farrand,  Wil- 
liams &  Clark,  and  opened  a  wholesale  drug  establishment  at  No.  32 
Woodward  avenue.  Complainants  adopted  the  name  and  style  of  Wil^- 
liams,  Sheley  &  Brooks ;  posted  their  firm  name,  as  successor  to  Far- 
rand, WiUiams  &  Co.,  over  their  place  of  business;  had  the  words 
"Williams,  Sheley  &  Brooks,  Successors  to"  printed  in  red  ink  over 
the  words  "Farrand,  Williams  &  Co."  wherever  the  latter  appeared 
upon  letter  heads,  bill  heads,  labels,  and  on  other  stationery;  adver- 
tised themselves  in  the  newspapers  and  trade  journals  as  Williams, 
Sheley  &  Brooks,  successors  to  Farrand,  Williams  &  Co. ;  and  sent 
out  circulars  to  the  trade  containing  not  only  their  firm  name,  but  the 
names  of  the  individual  members  of  ihe  firm.  Defendants  also  ex- 
tensively advertised  the  new  enterprise  through  the  same  mediums, 
calling  special  attention  to  the  names  of  the  members  of  the  new  firm, 
their  long  connection  with  the  drug  business,  and  the  dissolution  of 
the  old  firm,  and  soliciting  trade. 

The  complainants  contend  that  the  assignment  by  defendants  of  all 
interest  in  the  business  carried  with  it  the  good  will  of  the  business, 
and,  having  purchased  the  good  will  of  that  business,  they  are  en- 
titled to  the  exclusive  use  of  the  old  firm  name;  that,  while  defendants 
have  the  right  to  engage  in  the  same  line  of  business,  they  have  not 
the  right  to  such  collocation  of  their  own  names  as  will  produce  con- 
fusion, attract  customers,  and  secure  orders,  letters,  and  goods  intend- 
ed for  the  old  firm;  that  defendants  have  no  right  to  simulate  their 
labels,  to  solicit  their  customers,  or  entice  away  their  employes.  "Good 
will"  has  been  defined  by  this  court  to  be  "the  favor  which  the  man- 
agement of  a  business  wins  from  the  public,  and  the  probability  that 
old  customers  will  continue  their  patronage."  Chittenden  v.  Witbeck, 
50  Mich.  401,  15  N.  W.  52G.  Lord  Eldon,  in  Cruttwell  v.  Lye,  17 
Ves.  335,  defined  it  as  simply  the  probability  that  old  customers  will 
resort  to  the  old  place. 

The  following  propositions  must  be  regarded  as  established  by  the 
clear  weight  of  authority: 

1.  Though  a  retiring  partner  may  have  assigned  his  interest  in  the 
partnership  business,  including  the  good  will  thereof,  to  his  copartner, 
he  may,  in  the  absence  of  an  express  agreement  to  the  contrary,  en- 
gage in  the  same  line  of  business  in  the  same  locality,  and  in  his  own 
name. 

2.  He  may,  by  newspaper  advertisements,  cards,  and  general  cir- 
culars, invite  the  general  public  to  frade  with  him,  and  through  the 
same  mediums  advertise  his  long  connection  with  the  old  business,  and 
his  retirement  therefrom. 

3.  He  will  not  be  allowed,  however,  to  use  his  own  name,  or  to  ad- 
vertise his  business,  in  such  a  way  as  to  lead  the  public  to  suppose  that 
he  is  continuing  the  old  business;  hence,  will  not  be  allowed  to  ad- 
vertise himself  as  its  successor. 


Sec.  3)  PARTNEKSHIP    PROPERTY.  I'J'i^ 

4.  The  purchaser  will  not,  in  the  absence  of  an  express  agreement, 
be  allowed  to  continue  the  business  in  the  name  of  the  old  firm. 

5.  That  no  man  has  a  right  to  sell  or  advertise  his  own  business  or 
goods  as  those  of  another,  and  so  mislead  the  public,  and  injure  such 
other  person.     *     *     * 

C.  That  when  an  express  contract  has  been  made  to  remain  out  of 
business,  or  for  the  use  by  a  purchaser  of  a  fictitious  name,  or  a  trade- 
name, or  a  trade-mark,  the  courts  will  enjoin  the  continued  violation 
of  such  agreement.     *     *     * 

7.  That  an  assignment  of  all  the  stock,  property,  and  elTects  of  a 
business,  or  the  exclusive  right  to  manufacture  a  given  article,  carries 
with  it  the  exclusive  right  to  use  a  fictitious  name  in  which  such  busi- 
ness has  been  carried  on,  and  such  trade-marks  and  trade-names  as 
have  been  in  use  in  such  business.  These  incidents  attach  to  the  busi- 
ness or  right  of  manufacture,  and  pass  with  it.  Courts  have  uniform- 
ly held  that  a  trade-mark  has  no  separate  existence ;  that  there  is  no 
property  in  words,  as  detached  from  the  thing  to  which  they  are  ap- 
plied; and  that  a  conveyance  of  the  thing  to  which  it  is  attached  car- 
ries with  it  the  name.     *     *     * 

8.  A  corporate  name  is  regarded  as  in  the  nature  of  a  trade-mark, 
even  though  composed  of  individual  names,  and  its  simulation  may  be 
restrained.  After  adoption  it  follows  the  corporation.  Statutes  provid- 
ing for  the  organization  of  corporations  usually  prohibit  the  adoption 
of  the  same  name  by  two  companies.  Holmes  v.  Manufacturing  Co., 
37  Conn.  278,  9  Am.  Rep.  324.  These  propositions  are  sustained  by  a 
long  line  of  authorities,  but  in  none  of  the  cases  cited  does  the  question 
hinge  upon  a  grant  of  good  will.  Complainants  insist,  however,  that  a 
grant  of  good  will  may  be  implied,  and,  when  express  or  implied,  it  im- 
poses certain  restraints  upon  the  vendors,  viz.:  (1)  That  they  cannot 
afterwards  personally  solicit  customers  of  the  old  firm,  and  (2)  that 
they  are  restricted  in  the  use  that  may  be  made  of  their  own  names. 

1.  The  doctrine  that  a  retiring  partner,  who  has  conveyed  his  in- 
terest in  an  established  business,  whether  the  good  will  be  included  or 
not,  cannot  personally  solicit  the  customers  of  the  old  firm,  has  no 
support  in  principle.  A  retiring  partner  conveys,  in  addition  to  his 
interest  in  the  tangible  efifects,  simply  the  advantages  that  an  estab- 
lished business  possesses  over  a  new  enterprise.  The  old  business  is 
an  assured  success,  the  new  an  experiment.  The  old  business  is  a  go- 
ing business,  and  produces  its  accustomed  profits  on  the  day  after  the 
transfer.  It  is  capital  already  invested,  and  earning  profits.  The  con- 
tinuing partner  gets  these  advantages.  The  new  business  must  be 
built  up.  The  capital  taken. out  of  the  old  concern  will  earn  nothing 
for  months,  and  in  all  probability  the  first  year's  business  will  show 
loss  instead  of  profit.  For  a  time  at  least  it  is  capital  awaiting  in- 
vestment, or  invested,  but  earning  nothing.  The  retiring  partner  takes 
these  chances  or  disadvantages.  He  does  not  agree  that  the  benefit 
derived   from  his  connection  with   that   business  shall   continue.     He 


180  NATURE   AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

does  not  agree  that  the  old  business  shall  continue  to  have  the  benefit 
of  his  name,  reputation,  or  service;  nor  does  he  guaranty  the  continu- 
ance of  that  patronage  which  may  have  been  attracted  by  his  name  or 
reputation.  He'  does  not  pledge  a  continuance  of  conditions.  He 
takes  out  of  the  business  an  element  that  has  contributed  to  the  success 
of  that  business.  He  sells  only  those  advantages  and  incidents  which 
attach  to  the  property  and  location,  rather  than  those  which  attach  to 
the  person  of  the  vendor.  T.  Pars.  Partn.  *409,  He  sells  only  so 
much  of  the  custom  as  will  continue  in  spite  of  his  retirement  and  ac- 
tivity. He  sells  probabilities,  not  assurances.  It  is  urged  that  by  the 
solicitation  of  the  customers  of  the  old  firm  he  is  endeavoring  to  im- 
pair the  value  of  that  which  he  has  sold,  but  every  act  of  his  in  the 
direction  of  the  establishment  of  the  new  business  tends  to  divert  the 
customers  of  the  old  firm.  The  right  to  enter  into  the  same  line  of 
business  in  the  same  locality  (next  door  if  you  please),  to  advertise 
his  former  connection  with  the  old  business,  and  to  solicit  generally 
the  patronage  of  the  public,  is  conceded  by  the  clear  weight  of  author- 
ity. The  exercise  of  these  rights  necessarily  involves  the  diversion  of 
custom  to  the  new  firm.  Does  not  the  right  to  again  engage  in  the 
same  line  of  business  include  all  of  the  incidents  of  that  right?  Upon 
what  principle  is  the  line  arbitrarily  drawn  at  the  personal  solicitation 
of  the  customers  of  the  old  firm?  The  right  to  engage  in  business  in 
'his  own  name  attaches  to  the  retiring  partner,  and,  unless  expressly 
so  agreed,  there  is  no  restraint  upon  that  right.  In  the  present  case, 
Jacob  S.  Farrand  had  been  at  the  head  of  the  old  house  for  half  a 
century.  His  name  could  not  be  subsequently  used  in  the  same  line 
of  business  without  attracting  the  attention  of  the  entire  trade,  nor 
without  affecting  the  probabilities  of  a  continuance  of  the  patronage  of 
the  old  house.  He  gave  no  hint  that  he  did  not  intend  to  again  en- 
gage in  business.  All  of  the  circumstances  pointed  in  the  direction  of 
a  new  business.  The  retirement  was  not  of  Jacob  S.  Farrand  alone, 
but  of  his  son-in-law  and  Mr.  Clark  also.  The  proposition  made  to 
complainants  was  not  only  to  sell,  but  to  buy.  In  Ginesi  v.  Cooper, 
14  Ch.  Div.  596,  the  court  went  so  far  as  to  insist  that  a  retiring  part- 
ner had  no  right  to  deal  with  the  customers  of  the  old  firm ;  but  that 
rule  would  operate  as  a  restriction  upon  the  public,  and  the  case  is 
without  support  in  that  respect.  In  Labouchere  v.  Dawson,  L.  R. 
13  Eq.  322,  the  court  say  that  a  retiring  partner  who  sells  the  good 
will  of  a  business  is  entitled  to  engage  in  a  similar  business,  may  pub- 
lish any  advertisement  he  pleases  in  the  papers,  stating  that  he  is  car- 
rying on  such  a  business;  he  may  publish  circulars  to  all  the  world, 
and  say  that  he  is  carrying  on  such  a  business ;  but  he  is  not  entitled, 
by  private  letter,  or  by  visit  by  himself  or  agent,  to  solicit  the  custom- 
ers of  the  old  firm.  But  in  Pearson  v.  Pearson,  27  Ch.  Div.  145,  La- 
bouchere V.  Dawson  is  expressly  overruled.  The  court  say  :  "The  case 
of  the  plaintiff  is  founded  on  contract,  and  the  question  is,  what  are 
his  rights  under  the  contract?     There  is  no  express  covenant  not  to 


Sec.  3)  PARTNKKSHIP    PROPERTY.  181 

solicit  the  customers  oi  tlie  old  business,  but  it  is  said  that  such  a 
covenant  is  to  be  implied.  I  have  a  great  objection  to  straining  words 
so  as  to  make  them  imply  a  contract  as  to  a  point  upon  which  the  par- 
ties have  said  notliing,  particularly  when  it  is  a  point  which  was  in 
their  contemplation.  It  is  said  that  there  was  a  sale  of  the  good  will.  I 
think  that  there  was,  taking  good  will  as  defmcd  by  Lord  Eldon  in 
CruttwcU  V.  Lye,  17  Ves.  335.  The  purchaser  has  a  right  to  the 
place  and  a  right  to  get  in  the  old  bills;  so  the  purchaser  gets  the 
good  will,  as  defined  by  Lord  Eldon.  But  the  term  'good  will'  is  not 
used ;  and  when  a  contract  is  sought  to  be  implied  we  must  not  sub- 
stitute one  word  for  another.  But  suppose  the  word  did  occur,  what 
is  the  effect  of  the  sale  of  'good  will'?  It  does  not,  per  se,  prevent  the 
vendor  from  carrying  on  the  same  class  of  business."  Vernon  v.  Hal- 
lam,  34  Ch.  Div.  752,  held  that  a  covenant  by  a  vendor  of  a  business, 
including  the  good  will  thereof,  that  he  would  not  for  a  term  of  years 
carry  on  the  business^  of  a  manufacturer,  either  by  himself  or  jointly 
with  any  other  person,  under  the  name  or  style  of  J.  H.  or  H.  Bros, 
(the  name  of  the  business  which  he  had  sold),  is  npt  a  covenant  that 
the  vendor  would  not  carry  on  business  as  a  manufacturer,  but  against 
using  a  particular  name  or  style  in  trade,  and  the  injunction  was  grant- 
ed to  restrain  a  breach  of  that  covenant.  The  court  say:  "When  a 
vendor  sells  his  business,  and  commences  a  similar  business  in  the  same 
locality,  and  solicits  customers  of  the  old  house  to  deal  with  him, 
the  court,  following  the  decision  in  Pearson  v.  Pearson,  and  being  of 
opinion  that  the  case  of  Labouchere  v.  Dawson  had  been  overruled 
by  the  decision  in  that  case,  refused  to  grant  an  injunction  to  restrain 
such  solicitation."  Leggott  v.  Barrett,  15  Ch.  Div.  306,  Ginesi  v. 
Cooper,  14  Ch.  Div.  596,  and  a  number  of  other  cases  cited,  follow 
Labouchere  v.  Dawson. 

The  correct  rule  is,  we  think,  laid  down  in  Cottrell  v.  Manufacturing 
Co.,  54  Conn.  138,  6  Atl.  791.  The  court  say:  "Cottrell  did  not  require 
Babcock  to  agree,  and  the  latter  did  not  agree,  to  abstain  from  the  man- 
ufacturing of  printing  presses.  By  purchasing  the  good  will  merely 
Cottrell  secured  the  right  to  conduct  the  old  business  at  the  old  stand 
with  the  probability  in  his  favor  that  old  customers  would  continue  to  go 
there.  If  he  desired  more,  he  should  have  secured  it  by  positive  agree- 
ment. The  matter  of  good  will  was  in  his  mind.  Presumptively  he  ob- 
tained all  that  he  desired.  At  any  rate,  the  express  contract  is  the  meas- 
ure of  his  right ;  and  since  that  conveys  a  goodnvill  in  terms,  but  says  no 
more,  the  court  will  not  upon  inference  deny  to  the  vendor  the  possibility 
of  successful  competition  by  all  lawful  means  with  the  vendee  in  the 
same  business.  No  restraint  upon  trade  may  rest  upon  inference. 
Therefore,  in  the  absence  of  any  express  stipulation  to  the  contrary, 
Babcock  might  lawfully  establish  a  similar  business  at  the  next  door, 
and  by  advertisement,  circular,  card,  and  personal  solicitation  invite 
all  the  world,  including  the  old  customers  of  Cottrell  &  Babcock.  tc 
come  there  and  purchase  of  him;    being  very  careful  always   when 


182       NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHir.     (Ch.  3 

addressing  individuals  or  the  public,  either  through  the  eye  or  the  ear, 
not  to  lead  any  one  to  beheve  that  the  presses  which  he  offered  for 
sale  were  manufactured  by  the  plaintiffs,  or  that  he  was  the  successor 
to  the  business  of  Cottrell  &  Babcock,  or  that  Cottrell  was  not  carrying 
on  the  business  formerly  conducted  by  that  firm.  That  he  may  do 
this  by  advertisements  and  general  circulars  courts  are  substantially 
agreed,  we  think.  But  some  have  drawn  the  line  here  aiid  barred 
personal  solicitation.  They  permit  the  vendor  of  a  good  w^iW  to  es- 
tablish a  like  business  at  the  next  door,  and  by  the  potential  instru- 
mentalities of  the  newspapers  and  general  circulars  ask  o\().  customers 
to  buy  at  the  old  place,  and  withhold  from  him  only  the  instrumentality 
of  highest  power,  viz.,  personal  solicitation.  To  deny  him'  the  use 
of  the  newspapers  and  general  circulars  is  to  make  successful  business 
impossible,  and  therefore  is  to  impose  an  absolute  restraint  upon  the 
right  to  trade.  This  the  courts  could  not  do,  except  upon  express 
agreement.  But  possibly  the  old  customers  might  not  see  these;  and 
in  some  cases,  the  courts  have  undertaken  to  preserve  this  possibility 
for  the  advantage  of  the  vendor,  and  found  a  legal  principle  upon  it. 
Other  courts  have  been  of  the  opinion  that  no  legal  principle  can  be 
made  to  rest  upon  this  distinction ;  that  to  deny  the  vendor  personal 
access  to  old.  customers  even  would  put  him  at  such  disadvantage  in 
competition  as  to  endanger  his  success ;  that  they  ought  not  upon  in- 
ference to  bar  him  from  trade,  either  totahy  or  partially;  and  that  all 
restraint  of  that  nature  must  come  from  his  positive  agreement.  And 
such,  we  think,  is  the  present  tendency  of  the  law."  Good  will  may  be 
said  to  be  those  intangible  advantages  or  incidents  which  are  imperson- 
al, so  far  as  the  grantor  is  concerned,  and  attach  to  the  thing  conveyed. 
Where  it  consists  of  the  advantages  of  location,  it  follows  an  assign- 
ment of  the  lease  of  location.  Again,  it  may  not  depend  at  all  upon 
location,  as  in  the  case  of  a  newspaper,  and  it  would  follow  an  assign- 
ment of  all  interest  in  the  plant,  property,  effects,  and  business.  A  part- 
nership may  become  impersonal,  after  the  death  of  the  partners,  and 
it  is  then  treated  like  a  fictitious  or  corporate  name.  A  surname  may 
become  impersonal  when  it  is  attached  to  an  article  of  manufacture, 
and  becomes  the  name  by  which  such  article  is  known  in  the  market, 
and  the  right  to  use  the  name  may  in  conseqiience  follow  a  grant  of 
the  right  to  manufacture  that  article,  or  a  sale  of  the  business  of  man- 
ufacturing such  article;  and  where  the  right  to  manufacture  is  ex- 
clusive, the  right  to  the  use  of  the  name  as  applied  to  that  article  be- 
comes likewise  exclusive.  It  appears,  however,  that  in  the  first  bill 
of  sale  which  was  prepared  the  words,  "including  the  good  will  at- 
tendant upon  said  business,"  were  inserted,  but  were  objected  to, 
stricken  out,  and  a  new  bill  of  sale  prepared,  omitting  any  reference 
to  good  will.  But  it  is  said  that  this  clause  was  objected  to  because, 
in  the  opinion  of  the  objector,  it  might  preclude  him  from  engaging 
in  the  same  business,  whereas,  under  the  law,  he  would  have  such 
a  right  had  the  clause  remained.     The  only  use,  however,  which  com- 


Sec.  3)  PARTNKIiSHIP    PROPKHTY.  183 

plainants  now  propose  to  make  of  the  clause,  treated  as  a  part  of  the 
insirunient,  is  to  restrict  that  right  to  engage  in  business  by  taking 
away  one  of  its  incidents.  Adopting  the  language  used  in  Churton  v. 
Douglas,  Johns.  Eng.  Ch.  174,  with  reference  to  the  right  of  plaintiff 
to  continue  the  use  of  the  old  firm  name,  ''I  think  the  defendant  is 
fully  entitled  to  the  benefit  of  the  observation  that  it  was  proposed  to 
him  to  insert  such  a  provision,  and  that  he  refused  it.  I  think,  there- 
fbre,  that  this  case  goes  a  step  higher  than  the  authorities,  and  the  de- 
fendant is  entitled  to  put  his  case  in  the  highest  possible  form  with 
regard  to  his  right"  to  engage  in  the  same  line  of  business. 

II.  The  next  question  relates  to  the  use  by  defendants  of  the  firm 
name  of  Farrand,  Williams  &  Clark.  It  is  clear  that  complainants 
have  no  right  to  continue  their  business  under  the  old  firm  name.  The 
rule  that  upon  a  dissolution  of  a  firm  neither  partner  has  the  right  to 
use  the  firm  name,  as  well  as  the  other  rule  that  a  retiring  partner 
has  no  right  to  use  the  old  firm  name,  are  both  subject  to  the  excep- 
tion that  a  person  has  the  right  to  use  his  own  name  unless  he  has 
expressly  covenanted  otherwise.  In  case  A.  B.  should  sell  out  his 
business  to  C.  D.,  in  the  absence  of  a  grant  to  C.  D.  of  the  right  to 
use  the  name  of  A.  B.,  or  an  agreement  to  the  contrary,  is  there  any 
doubt  but  that  A.  B.  would  have  the  right  to  engage  in  the  same  line 
of  business  in  his  own  name?  In  that  case,  such  a  probability  would 
naturally  suggest  itself  to  C.  D.,  and  if  he  desired  to  get  the  advantage 
of  A.  B.'s  abstinence  from  business,  he  would  insist  upon  an  agreement 
to  that  effect.  In  the  present  case,  Mr.  Farrand's  name  had  been 
at  the  head  of  the  firm  name  for  nearly  half  a  century,  and  the  name  of 
another  of  the  retiring  members  corresponded  with  the  only  other 
surname  used  in  the  old  firm  name.  It  must  have  been  evident  to  com- 
plainants that  in  any  event  the  name  of  the  new  firm  would  be  similar 
to  that  of  the  old  firm.  If  complainants  desired  any  protection  against 
such  a  use  of  the  names  of  the  retiring  members,  they  should  have  in- 
serted a  provision  to  that  effect  in  the  bill  of  sale.  The  right  to  con- 
tinue the  use  of  a  firm  name,  as  well  as  a  restriction  upon  the  use  by 
a  retiring  partner  of  his  own  name,  are  proper  subjects  of  bargain, 
sale,  and  agreement.  Here  neither  have  been  purchased.  Complain- 
ants have  purchased  the  business  of  the  old  firm.  They  have  the 
right  to  advertise  themselves  as  succeeding  to  and  continuing  that  busi- 
ness. The  exercise  of  such  a  right  does  not  conilict  with  any  right 
reserved  by  defendants.  Complainants,  by  such  a  holding  out,  commit 
no  fraud,  misrepresentation,  or  deception.  They  publish  the  truth 
only.  Defendants  have  the  right  to  use  their  own  names,  or  any  col- 
location of  their  own  names.  They  have  not  adopted  the  old  firm 
name,  although  it  would  have  been  appropriate.  They  have  adopted 
no  fictitious  name.  There  is  no  deception  in  the  use  of  the  name 
adopted  by  them.  The  business  of  the  old  firm'  is  a  separate  and  dis- 
tinct business.  Defendants  have  no  right  to  advertise  their  business 
as  a  continuation  of  the  old  firm  business.     They  are  subject  to  tlic 


184  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

rule  already  laid  down,  that  no  man  has  the  right  to  sell  or  advertise 
his  own  goods  or  business  as  that  of  another,  and  so  mislead  the  pub- 
lic and  injure  such  other  person.  In  Lathrop  v.  Lathrop,  47  How. 
Prac.  (N.  Y.)  532,  after  dissolution  J.  Lathrop  formed  a  copartnership 
with  one  Tisdale,  and  adopted  the  name  of  J.  Lathrop  &  Co.,  which 
was  the  style  of  the  old  firm.  Held  that,  in  the  absence  of  any  cove- 
nant with  his  late  partner,  he  might  legally  do  so.  In  Reeves  v.  Den- 
icke,  12  Abb.  Prac.  (N.  S.)  [N.  Y.]  92,  the  court  say:  "In  this  case, 
the  firm  name  was  not  sold  or  transferred  to  defendants  as  constitut- 
ing a  part  of  the  partnership  property;  nor  did  the  sale,  in  terms  or 
by  necessary  implication,  include  the  good  will ;  and  it  is  therefore 
unnecessary  to  determine  whether  the  partnership  'name  was  a  part 
of  such  good  will.  There  was  no  restraint  upon  a  retiring  partner  hold- 
ing him  from  engaging  in  a  similar  business;  and  he  violated  no  obli- 
gation by  forming  a  new  firm  under  his  own  name,  and  transacting 
a  business  in  all  respects  like  that  he  had  released  to  them.  It  is  quite 
clear  that  defendants  acquired  no  right  to  continue  the  use  of  the  part- 
nership name  of  the  old  firm.  If  the  good  reputation  of  that  firm  was 
intended  to  pass  and  become  a  part  of  defendant's  new  firm,  it  should 
have  been  provided  for  in  the  conveyance.  That  it  was  not  intended 
it  should  pass  is  evident  from  the  omission  to  include  it."  Iowa  Seed 
Co.  V.  Dorr,  70  Iowa,  481,  30  N.  W.  866,  59  Am.  Rep.  446 ;  Bassett 
V.  Percival,  5  Allen  (Mass.)  345  ;  McGowan  Bros,  Pump  &  Machine  Co. 
V.  McGowan,  22  Ohio  St.  370.  In  Turton  v.  Turton,  42  Ch.  Div.  128, 
although  there  were  no  contract  relations  between  the  parties,  the  court 
say :  "No  man  can  have  the  right  to  represent  his  goods  as  the  goods  of 
another;  therefore,  if  a  man  uses  his  own  name,  that  is  no  prima  facie 
case,  but  if  he,  besides  using  his  own  name,  does  other  things  which 
show  that  he  is  intending  to  represent,  and  is  in  point  of  fact  making 
his  goods  represent,  the  goods  of  another,  then  he  is  so  prohibited;  but 
not  otherwise."  In  Hookham  v.  Pottage,  L.  R.  8  Ch.  App.  91,  plaintiff 
and  defendant  had  been  copartners  as  Hookham  &  Pottage.  Plaintiff 
succeeded  to  the  business,  and  defendant  afterwards  set  up  a  shop 
only  a  few  doors  away,  and  printed  over  the  door  the  words,  "Pot- 
tage, from  Hookham  &  Pottage."  The  court  held  that  "defendant  had 
a  right  to  state  that  he  was  formerly  manager,  and  afterwards  a  part- 
ner, in  the  firm  of  Hookham  &  Pottage,  and  that  he  had  a  right  to  avail 
himself  by  the  statement  of  that  fact  of  the  reputation  which  he  had 
so  acquired,  but  that  he  had  no  right  to  make  that  statement,  or  to 
avail  himself  of  that  reputation,  in  such  a  way  as  was  calculated  to 
represent  to  the  world  that  the  business  which  he  was  carrying  on  was 
the  business  of  Hookham  &  Pottage,  or  that  Plookham  had  any  in- 
terest in  it."  In  Meneely  v.  Meneely,  62  N.  Y.  431,  20  Am.  Rep.  489, 
the  court  say;  "If  defendants  were  using  the  name  with  the  intention 
of  holding  themselves  out  as  the  successors  of  Andrew  Meneely.  and 
as  the  proprietors  of  the  old  established  foundry  which  was  being  con- 
ducted by  plaintiffs,  and  thus  enticing  away  customers,  and  if  with  that 


Sec.  3)  PARTNKUSIIIP    niOFEIlTT.  185 

intention  they  used  the  name  in  such  a  way  as  to  make  it  appear  that 
of  the  plaintiffs'  firm,  or  resorted  to  any  artifice  to  induce  the  beUef 
that  defendants'  cstabhshment  was  the  same  as  that  of  plaintiffs,  and, 
perhaps  without  actual  fraudulent  intent,  they  had  done  acts  calculated 
to  mislead  the  public  as  to  the  identity  of  the  establishment,  and  pro- 
duce injury  beyond  that  which  resulted  from  similarity  in  name,  then 
the  court  would  enjoin  them,  not  from  the  use  of  the  name,  but  from 
using  it  in  such  a  way  as  would  deceive  the  public.  *  *  *  Every 
man  has  the  absolute  right  to  his  own  name  in  his  own  business,  even 
though  he  may  thereby  interfere  with  or  injure  the  business  of  another 
bearing  the  same  name,  provided  he  does  not  resort  to  any  artifice  or 
contrivance  for  the  purpose  of  producing  the  impression  that  the  es- 
tablishments are  identical,  or  do  anything  calculated  to  mislead."  In 
Fullwood  V.  Fullwood,  9  Ch.  Div.  176,  R.  J.  Fullwood  carried  on  busi- 
ness as  manufacturer  of  annatto  at  24  Somerset  place,  Hexton,  from 
1785  to  1832.  Plaintiff  and  three  brothers,  one  of  whom  was  the  de- 
fendant, succeeded  to  the  business,  but  ultimately  the  right  to  carry  on 
the  business  vested  in  the  plaintiff.  Defendant,  Mathew  Fullwood, 
and  another  brother  formed  a  copartnership  in  the  name  of  E.  Full- 
wood  &  Co.,  and  issued  and  distributed  in  various  ways  cards  contain- 
ing the  following:  "Established  over  85  years.  E.  Fullwood  &  Co. 
(late  of  Somerset  Place,  Hexton),  Original  Manufacturers  of  Liquid 
and  Cake  Annatto."  They  also  placed  around  the  bottles  containing 
the  annatto  a  wrapper  resembling  that  which  plaintiff  used.  The  court 
say :  "Defendants  are  entitled  to  carry  on  their  business  under  the 
firm  name  which  they  have  adopted,  if  they  are  so  minded,  provided 
they  do  not  represent  themselves  to  be  carrying  on  the  business  which 
has  descended  to  plaintiff."  In  Bininger  v.  Clark,  60  Barb.  (N.  Y.) 
113,  the  defendant  wrongfully  advertised  himself  as  successor  to  the 
old  firm,  and  made  such  a  use  of  his  own  name  as  to  indicate  a  fraud- 
ulent intent.  Hegeman  &  Co.  v.  Hegeman,  8  Daly  (N.  Y.)  1; 
Levy  V.  Walker,  10  Ch.  Div.  436.  In  Churton  v.  Douglas,  Johns.  Eng. 
Ch.  174,  5  Jur.  (N.  S.)  887,  plaintiff  and  defendant  had  carried  on  the 
business  as  stuff  manufacturers  at  Bradford,  in  a  building  owned  by 
defendant,  and  known  as  "Plall  Ings,"  under  the  name  and  style  of 
John  Douglas  &  Co.  Defendant  sold  out  'to  plaintiff  all  his  share, 
right,  and  title  in  the  business,  including  the  good  will,  and  executed 
to  plaintiff  a  seven-year  lease  of  the  premises  occupied  by  the  firm. 
Within  a  short  period'  defendant  set  up  in  the  same  line  of  business, 
next  door  to  plaintiff,  in  a  part  of  the  same  building  known  as  "Hall 
Tngs."  adopting  the  old  firm  name  of  John  Douglas  &  Co.  The  court 
held  that  defendant,  by  the  use  of  the  old  firm  name,  and  the  surround- 
ings, would  be  obtaining  the  custom  of  the  old  firm,  by  inducing  the 
belief  that  his  was  a  continuation  of  the  old  establishment.  The  court 
says :  "The  authorities,  I  think,  are  conclusive  upon  this  point  that 
the  mere  expression  of  parting  with  or  selling  the  good  will  does 
not  imply  a  contract  on  the  part  of  the  person  parting  with  that  good 


186       NATURE  AND  CHARACTERISTICS  OF  &  PARTNERSHIP.     (Ch.  3 

will  not  to  set  up  again  in  the  similar  business ;  but  I  use  the  expres- 
sion 'similar'  to  avoid  including  the  case  of  the  vendor  seeking  to  car- 
ry on  the  identical  business.  He  does  not  contract  that  he  will  not 
carry  on  an  exactly  similar  business,  with  all  the  advantage  which  he 
might  acquire  from  his  industry  and  labor,  and  from  the  regard  people 
may  have  of  him,  and  that  in  a  place  next  door,  if  you  like,  to  the  very 
place  where  the  former  business  was  carried  on.  It  is  settled  that  it 
is  the  fault  of  those  who  wish  any  protection  against  such  a  class 
that  they  do  not  take  care  to  insert  the  provision  to  that  effect  in  the 
deed." 

The  same  principle  obtains  with,  reference  to  trade-marks.  One  may 
have  a  right  in  his  own  name  as  a  trade-mark,  but  he  cannot  have  such 
a  right  as  against  another  person  of  the  same  name,  unless  the  de- 
fendant use  a  forrn  of  stamp  or  label  so  like  that  used  by  the  plaintiff 
as  to  represent  that  the  defendant's  goods  are  of  the  plaintiff's  man- 
ufacture. Sykes  v.  Sykes,  3  Barn.  &  C.  541 ;  Holloway  v.  Holloway, 
13  Beav._209;  Rogers  v.  Taintor,  97  Mass.  291;  Oilman  v.  Hunne- 
well,  122  Mass.  139;  Goodyear  India  Rubber  Glove  Mfg.  Co.  v.  Good- 
year Rubber  Co.,  128  U.  S.  598,  9  Sup.  Ct.  166,  32  L.  Ed.  535.  The  tests 
applied  by  all  the  autliorities  in  this  class  of  cases  are :  Is  a  corporate 
or  trade  or  fictitious  name  simulated  ?  Is  the  name  assumed  or  adopt- 
ed false  in  fact?  Is  it  used  in  connection  with  locality  or  other  repre- 
sentations, so  as  to  convey  the  impression  that  the  business  is  a  contin- 
uation of  the  old  business  ?  Defendants  are  not  responsible  for  the  blun- 
'  ders  made  by  clerks,  postal  clerks,  mail  carriers,  telephone  employes  or 
newspaper  reporters.  In  Meneely  v.  Meneely,  the  court  say:  "When 
the  only  confusion  created  is  that  which  results  from  the  similarity  of 
names,  the  court  will  not  interfere."  In  Turton  v.  Turton  it  is  said 
that  "defendants  are  not  responsible  for  the  blunders  made  by  the 
business  community  in  not  distinguishing  between  John  Turton  & 
Sons  and  Thomas  Turton  &  Sons."  See,  also,  Richardson  &  Boynton 
Co.  v.  Richardson  &  Morgan  Co.,  55  Hun,  606,  8  N.  Y.  Supp.  52  ; 
Goodyear  India  Rubber  Glove  Mfg.  Co.  v.  Goodyear  Rubber  Co.,  128 
U.  S.  598,  9  Sup.  Ct.  166,  32  L.  Ed.  535. 

Any  collocation  of  the  ijames  of  Farrand  and  Williams  would  create 
some  confusion,  Defend-ant  Clark  had  been  connected  with  the  old 
business  for  30  years,  and  Williams,  the  son-in-law  of  MTr.  Farrand, 
for  21  years.  Defendants  are  using  their  own  names  only.  They 
went  into  business  on  Woodward  avenue,  several  blocks  from  the  old 
stand.  In  every  letter  head,  bill  head,  card,  or  advertisement  in  which 
their  firm  name  appears  they  give  the  individual  names  of  the  members 
of  the  firm,  the  new  place  of  business,  and  in  no  case  have  they  rep- 
resented that  they  are  successors  to  the  old  firm.  The  bill  heads  used 
by  the  old  firm  had  a  cut  of  the  old  stand  on  the  left-hand  upper  cor- 
ner, about  three  inches  square.  Those  of  the  new  firm  contain  no 
cut,  and  less  than  half  of  the  amount  of  matter.  It  would  be  exceed- 
ingly difficult  to  prepare  two  bill  heads  more  unlike.     The  letter  heads 


vSeC.  .')  PAKTNERSHIP    PROPF.RTY.  1S7 

of  the  old  firm  contained  two  cuts — one  of  the  old  stand,  at  the  left 
hand,  and  one  of  the  Peninsular  White  Lead  &  Color  Works,  on  the 
right.  The  dissipiilarity  is  marked.  The  envelopes  used  by  the  old 
firm  contain  eight  printed  lines  on  the  upper  left-hand  corner,  occupy- 
it\g  an  inch  and  three-quarters  of  space.  Those  used  by  the  new 
firm  contain  five  lines,  occupying  about  three-quarters  of  an  inch 
in  space.  There  has  been  no  attempt  at  imitation,  in  words  or  type. 
On  March  loth  they  announced,  through  circulars  distributed 
generally,  that  they  had  engaged  in  business  at  32  and  3-1  Wood- 
ward avenue;  that  they  expected  to  have  their  new  store  ready  for 
occupancy  in  a  few  days ;  and  that  the  work  of  getting  a  new  stock 
of  goods  would  be  pushed  as  fast  as  possible.  On  April  7th  they 
issued  another  circular,  announcing  that  ihey  were  now  prepared  to 
fill  orders,  and  hoping  that  the  friendly  acquaintance  of  many  years 
would  be  continued.  An  advertisement  is  produced,  wherein  defend- 
ants say:  "Though  it  may  seem  paradoxical,  it  is  nevertheless  true, 
that  the  wholesale  drug-house  of  Farrand,  Williams  &  Clark  is  both 
the  oldest  and  the  newest  representative  of  this  important  commercial 
indu.stry  in  Detroit."  But  in  the  same  advertisement  they  announce 
the  dissolution  of  the  old  firm,  their  retirement  from  said  firm,  and  the 
formation  and  business  location  of  the  new  firm.  It  is  difficult  to 
imagine  how  such  an  advertisement  would  mislead  the  public.  It  con- 
tains no  false  colors.  Both  parties  advertised  extensively  in  the  city  and 
state  papers  and  in  the  trade  journals ;  complainants  giving  the  names 
of  their  individual  members,  and  their  new  firm  name,  and  advertising 
theinselves  as  the  successors  to  Farrand,  Williams  &  Co. ;  and  defend- 
ants giving  the  names  of  their  individual  members,  and  the  name  and 
business  location  of  the  new  firm.  Complainants  sent  out  circulars 
to  the  trade  generally,  informing  it  of  the  dissolution  of  the  old  firm, 
the  fact  that  they  were  the  successors,  and  giving  their  firm  name ; 
and  defendants  sent  out  circulars  announcing  their  withdrawal  and 
the  formation  of  a  new  firm.  There  is  no  doubt  but  that  the  dissolution 
of  this  firm,  the  fact  that  complainants  had  bought  out  the  interests 
of  defendants,  the  name  adopted  by  complainants,  the  formation  of 
the  new  firm,  the  names  of  its  members,  and  the  defendants'  firm 
name,  have  been  most  extensively  advertised  by  both  parties,  not  only 
in  the  city,  but  throughout  the  state  and  Union.  Nearly  50  letters 
have  been  received  by  "the  old  firm,  since  the  dissolution,  addressed 
to  Farrand  &  W^illiams ;  Farrand  &  Williams  Paint  Co.;  Farrand  &■ 
Williams  Drug  Co.;  Farrand,  Sheley  &  Brooks;  Farrand,  Williams 
&  Sheley;  Farrand,  Williams,  Sheley  &  Co.;  Farrand,  Williams  & 
Brooks ;  Farrand  &  Co. ;  Williams.  Farrand  &  Co. ;  Farrand,  Sheley  & 
Brooks;  \\'illiams  &  Farrand;  Williams,  Farrand  &  Co.;  and  Wil- 
liams &  Co.  It  cannot  be  said  that  any  act  of  defendants  is  respon- 
sible for  these  blunders.  Confusion  is  inseparable  from  the  dissolu- 
tion of  an  old  firm  and  the  composition  of  two  firms  from  its  member- 
ship, especially  when  the  name  of  but  one  of  tho'^Je  who  remain  has 


188  NATURE   AND   CHARACTERISTICS  OF  A  PARTNERSHIP.  (Ch.  3 

appeared  in  the  firm  name,  and  the  new  firm  is  composed  of  one 
whose  name  for  nearly  half  a  century  has  stood  at  the  head  of  the 
firm   name,    and    the    surname    of   another    retiring'  member   is    the 
same  as  the  only  other  name  used  in  the  old  firm  name.     It  appears 
that  at  the  outset  defendant  Clark  by  mistake  opened  two  or  three 
letters  addressed  "Farrand,  Williams  &  Co.,"  It't  in  every  other  in- 
stance defendants  refused  to  receive  mail  directed  to  Farrand,  Wil- 
liams &  Co.,  unless  directed  to  defendants'  street  and  number;    that 
in  a  single  instance  Clark  inadvertently  signed  a  letter  "Farrand,  Wil- 
liams &  Co." ;  that  two  checks  were  sent  to  defendants  in  payment  for 
goods  bought  from  them,  which  were  payable  to  the  order  of  Farrand, 
\\'illiams  &  Co.,  and  Mr.  Farrand  indorsed  them  Farrand,  Williams 
&  Co.,  and  guarantied  the  indorsements;   that  in  four  instances  mer- 
chandise or  articles  not  marked,  but  intended  for  defendants,  were 
delivered  to  complainants,  and  afterwards  taken  away;    that  in  two 
instances  complainants  were  notified  by  freight  agents  that  freight 
awaited  delivery;   that  in  both  the  goods  were  manifested  to  Farrand, 
Williams  &  Co.,  but  marked,  and  were  afterwards  delivered,  to  Far- 
rand, Williams  &  Clark,  for  whom  they  were  intended ;    that  com- 
plainants were  notified  that  a  sample  box  of  glassware  had  been  shipped 
to  them,  but  they  had  not  received  it;    that  defendants  received   a 
sample  box  of  glassware  from  the  same  house,  which  was  billed  to 
Farrand,  Wilhams  &  Clark,  and  the  latter  were  notified  of  the  ship- 
ment by  the  assignors;    that,  similar  boxes  of  samples  had  been  sent 
to  other  drughouses  at  Detroit ;    that  in  one  or  two^  instances  mer- 
chandise had  been  delivered  to  defendants  which  was  intended  for 
complainants;    that  in  a  single  instance  a  customer  at  Port  Huron, 
who  knew  of  the  dissolution,  intending  to  call  up  the  old  house  by 
telephone,  asked  for  Farrand  &  Williams,  was  given  Farrand,  Wil- 
liams &  Clark,  and  told  that  it  was  Farrand,  Williams  &  Clark,  asked 
the  price  of  oil,  and  ordered  one  barrel;    that  112  letters,  telegrams, 
receipts,  or  bills  Vvcre  received  by  complainarits  directed  to  Farrand, 
Williams  &  Co.,  which  were  intended  for  defendants;    that  of  these 
35  were  directed  on  the  inside  to  Farrand,  Williams  &  Clark;  that  all 
of  the  letters  so  received  were  from  business  houses  from  which  de- 
fendants were  buying  goods,  and  none  were  from  customers  of  either 
house.     These  proofs  do  not. tend  to  show  any  appropriation  by  de- 
fendants of  the  old  firm  name,  or  any  attempt  to  secure  the  corres- 
pondence addressed  to  the  old  firm,  or  that  the  customers  have  been 
deceived  or  misled,  or  that  defendants,  have  practiced  any  fraud,  con- 
cealment, or  deception.    *    *    * 

The  decree  of  the  court  below  must  be  affirmed  as  of  February  27, 
1891,  and  the  bill  dismissed,  with  costs  to  defendants. 

Morse  and  Grant,  JJ.,  concurred  with  McGkath,  J.    Long,  J.,  did 
not  sit.^ 

1  Th^  dissenting  opinion  of  ChanipUn,  C.  J.,  Is  omitted. 


Sec,  4)  TITLE  TO  FAKTNERSHIP  PROPERTT.  189 

SECTION  4.— TITLE  TO  PARTNERvSHIP  PROPERTY: 
HOW  TAKEN  AND  HELD. 


HENDREN  et  al.  v.  WING  et  al. 

(Supreme  Court  of  Arkansas,  ISOf).    60  Ark.  5G1,  31  S.  W.  149,  40  Am.  St.  Rep. 

218.) 

Replevin  by  D.  R.  Wing  and  others,  partners  as  the  Arkansas  Ma- 
chine &  Supply  Company,  against  G.  H.  Hendren  and  others.  Jutlg- 
ment  for  plaintiffs.    Defendants  appeal. 

The  appellees,  D.  R.  Wing,  C.  E.  Stephens,  and  Joseph  Eggleston, 
are  partners  doing  business  under  the  firm  name  of  Arkansas  Machin- 
ery &  Supply  Company,  in  the  course  of  their  business  as  such  firm 
they  sold  one  E.  H.  Miller  the  following  machinery:  One  35  horse 
power  return  tubular  boiler,  with  fixtures  and  fittings;  and  one  35 
horse  power  C.  &  T.  engine  complete,  with  fixtures  and  connections. 
For  this  property  Miller  agreed  to  pay  $906.50,  and  he  gave  his  notes 
for  that  amount,  payable  in  installments.  Afterwards,  to  further  se- 
cure the  payment  of  these  notes.  Miller  executed  a  mortgage  to  said 
Arkansas  Machinery  &  Supply  Company,  including  in  said  mortgage 
the  machinery  purchased  and  also  other  property.  Miller  at  this  time 
was  also  indebted  to  appellants,  and  to  secure  the  same  had  previously 
given  them  a  mortgage  on  another  boiler  and  engine.  He  disposed 
of  this  machinery  without  appellants'  consent,  and  replaced  it  with  the 
machinery  in  controversy.  Appellants  obtained  possession  of  the  boiler 
and  engine  purchased  from  appellees  and  claim  the  right  to  hold  same 
in  lieu  of  the  boiler  and  engine  wrongfully  disposed  of  by  Miller. 
Appellees  brought  replevin  to  recover  the  same.  Their  action  was 
resisted  on  the  ground  that  the  mortgage  to  the  Arkansas  Machinery 
&  Supply  Company,  under  which  appellees  claimed,  did  not  contain 
the  name  of  either  a  natural  or  artificial  person,  and  was  therefore 
void.  The  circuit  court  held  that  the  mortgage  was  valid,  and  gave 
judgment  in  favor  of  appellees. 

RiDDiCK,  J.  The  Arkansas  Machinery  &  Supply  Company  is  not 
a  corporation,  but  it  is  a  business  name  of  a  firm  of  partners.  The 
question  for  us  to  determine  is  whether  a  chattel  mortgage  executed 
to  it  as  such  partnership  is  valid  at  law.  It  was  said  by  Mr.  Justice 
Eakin,  in  Percifull  v.  Piatt,  36  Ark.  464,  that  "a  partnership  as  such 
cannot  at  law  be  the  grantee  in  a  deed  or  hold  real  estate."  "The 
legal  title,"  said  he,  "must  vest  in  some  person,  and  a  partnership  is 
not  a  corporation.  If  the  title  be  made  to  all  the  partners  by  name, 
they  hold  the  legal  title  as  tenants  in  common.  *  *  *  If  the  deed  be 
to  a  name  adopted  as  the  firm  style,  which  includes  the  name  of  no 
party,  it  passes  nothing  at  law."     He  proceeds,  then,  to  say  that  in 


100  NATURE   AND   CHARACTERISTICS   OF   A    PARTNERSHIP.  (Ch.  3 

equity  the  rule  is  different.  A  deed  or  mortgage  of  real  estate  to  part- 
ners, describing  them  only  by  their  firm  name,  will  be  enforced  in  equi- 
ty, whether  such  firm  name  includes  the  name  of  one  or  more  of  the 
partners  or  not.  Chicago  Lumber  Co.  v.  Ashworth,  26  Kan.  212 ; 
Bates,  Partn.  §  296,  and  authorities  there  collated.  But,  as  this  is  an 
action  at  law,  it  is  contended  that  the  strict  rule  of  law  with  reference 
to  the  conveyance  of  real  estate  to  partnerships  must  apply.  The  de- 
cisions in  regard  to  transfers  of  real  estate  to  partnerships  are  based 
on  the  old  rule  stated  by  Judge  Eakin,  that  "a  partnership,  as  such, 
cannot  at  law  be  the  grantee  in  a  deed  or  hold  real  estate."  This  rule 
does  not  apply  to  personal  property.  On  the  contrary,  a  partnership, 
as  such,  can  at  law  be  the  vendee  in  a  bill  of  sale  or  other  conveyance 
of  personal  property.  The  custom  of  the  country  teaches  us  that  this 
is  so.  The  business  of  the  country  is  largely  carried  on  by  partners 
under  partnership  names  which  frequently  do  not  contain  the  name 
of  any  person.  Vast  quantities  of  personal  property  of  all  kinds  are 
contracted  for,  bought,  and  sold  by  such  firms  under  their  firm  names 
each  year,  and  their  right  to  thus  buy  and  sell  goes  unchallenged.  A 
consideration  of  this  fact  shows  that  there  is  a  wide  distinction  be- 
tween the  rights  of  partnerships  at  law  in  regard  to  the  buying  and 
selling  of  personal  property  and  the  restrictions  which  prevail  there- 
in in  regard  to  transfers  of  real  estate.  A  mortgage  is  only  a  con- 
veyance for  the  purpose  of  securing  a  debt.  If  a  bill  of  sale  conveying 
personal  property  to  a  partnership  by  its  firm  name  is  valid,  we  see 
no  reason  why  a  mortgage  of  personal  property  to  a  partnership  shoiild 
not  be  upheld  under  like  circumstances.  It  is  true  that  the  statute  re- 
quires certain  formalities  in  regard  to  acknowledging  and  recording 
mortgages  in  order  to  give  notice  to  third  parties.  But  there  is  noth- 
ing in  the  statute  which  renders  invalid  mortgages  of  personal  property 
executed  to  a  partnership  by  its  firm  name.  Such  a  conveyance  to  a 
firm  is  just  as  effectual  as  if  the  name  of  each  partner  had  been  set 
out  in  the  mortgage.  Henderson  v.  Gates,  52  Ark.  373,  12  S.  W.  780*; 
Kellogg  v.  Olson,  34  Minn.  103,  24  N.  W.  364;  Byam  v.  IJickford, 
140  Mass.  32,  2  N.  E.  687 ;  Brunson  v.  Morgan,  76  Ala.  593 ;  Chi- 
cago Lumber  Co.  v.  Ashworth,  26  Kan.  212.  We  therefore  conclude 
that  the  judgment  of  the  circuit  court  in  regard  to  the  validity  of  the 
mortgage  was  correct,  and  it  is  affirmed. 


GILLE  V.  HUNT  et  al. 

(Supreme  Court  of  Minnesota,  1886.    35  Minn.  357,  29  N.  W.  ?.) 

GiivFiLLAN,  C.  J.  Action  under  the  statute  to  determine  adverse 
claims  to  real  estate,  each  party  claiming  the  title.  July  25,  1856,  Jared 
S.  Demman  ov/ned  the  premises,  and  on  that  day  executed  a  mortgage 
thereon  to  "D.  B,  Dorman  &  Co.,"  containing  the  usual  power  of 
sale,  and  which  was,  on  the  same  day,  duly  recorded.    October  7,  1856, 


Sec.  4)  TITLE    TO    PARTNERSHIP   PROPERTY.  I'H 

Demman  conveyed  the  premises  to  Peter  Poncin,  by  deed  duly  record- 
ed the  next  day.  On  the  same  day,  evidently  cither  at  the  same  thne 
of  or  after  the  execution  of  this  last  deed,  D,  B.  Dorman  executed  to 
Poncin  a  deed  of  quitclaim  and  release  of  the  premises,  which  was 
recorded  October  8,  185G.  Plaintiff  claims  under  Poncin.  "D.  D.  Dor- 
m.an  &  Co."  was  a  partnership  under  that  name,  composed  of  D.  B. 
Dorman  and  6vid  Pinney,  though  that  fact  does  not  appear  to  have 
been  stated  in  the  mortgage.  April  15,  1857,  Dorman  executed  to 
Pinney  an  assignment  of  the  mortgage  recorded  September  13.  1859. 
In  May,  18Gir,  Pinney  proceeded  to  foreclose  the  mortgage  under  the 
power  of  sale,  signing  his  name  to  the  notice  of  sale,  "Ovid  Pinney, 
Mortgagee  and  Assignee."  At  the  sale  he  became  the  purchaser,  and 
received  from  the  sheriff  the  usual  certificate.  The  defendants  claim 
under  the  mortgage  and  foreclosure. 

The  case  turns  mainly  on  the  question,  in  whom  was  the  legal  title 
to  the  mortgage;  that  is,  who  was  in  law  the  mortgagee?  Was  it 
D.  B.  Dorman,  or  was  it  the  partnership  or  the  parties  doing  business 
under  the  name  D.  B.  Dorman  &  Co.  ?  A  mortgage  of  real  estate, 
though  it  is  in  effect  but  a  lien  or  security,  is  in  form  a  conveyance  of 
an  estate  or  interest  in  land  (Morrison  v.  Mendenhall,  18  Minn,  232 
[Gil.  212]),  and  must  be  governed  by  the  same  rules  as  to  its  execu- 
tion and  validity,  and  the  capacity  of  the  parties,  and  their  proper  des- 
ignation, as  are  applied  to  a  conveyance.  It  has  been  affirmed  in  sev- 
eral cases  in  this  court  that  the  legal  title  to  real  estate  can  be  held  only 
by  a  person,  or  a  corporate  entity,  which  is  deemed  such  in  law ;  and 
that,  therefore,  a  partnership  cannot,  as  such,  take  and  hold  such  legal' 
title.  Thus,  in  German  Land  Ass'n  v.  Scholler,  10  Minn.  331  (Gil. 
2G0),  it  was  decided  that  the  plaintiff,  being  only  a  voluntary  associa- 
tion of  persons,  unincorporated,  had  no  legal  capacity  to  take  or  hold 
real  property.  The  rule  was  recognized  in  ]\Iorrison  v.  Mendenhall ; 
and  in  Tidd  v.  Rines,  26  Minn.  201,  2  N.  W.  497,  it  was  decided  that 
a  conveyance  to  a  partnership  by  its  first  name  did  not  vest  in  it  any 
legal  title  or  estate,  because  a  partnership,  as  such,  is  not  recognized 
in  law  as  a  person ;  so  that  even  had  it  been  stated  in  the  mortgage 
that  the  name  inserted  as  the  mortgagee  was  that  of  a  partnership,  it 
would  not  have  made  the  partnership  mortgagee.  Nor,  as  we  think, 
would  the  individual  partners  (other  than  the  one  named)  be  the 
mortgagee. 

It  is  true  that  the  grantee  in  a  conveyance  need  not  be  named,  pro- 
vided he  be  described  with  sufficient  definiteness  and  certainty,  as 
where  he  is  indicated  by  a  title,  or  an  office,  and  there  is  but  one  such; 
as  in  Lady  Superior  v.  McNamara,  3  Barb.  Ch.  (N.  Y.)  375,  49  Am. 
Dec.  181,  where  a  conveyance  to  the  "Lady  Superior"  of  a  designated 
convent  was  held  good  to  vest  the  title  in  a  person  then  lady  superior; 
but  the  court  referred  with  approval  to  Duncan  v.  Beard,  2  Xott  & 
McC.  (S.  C.)  400,  in  which  it  was  held  that  a  conveyance  to  one  and 
his  "associates"  vested  title  in  none  but  the  person  named,  the  term 


192  NATURE   AND   CHARACTERISTICS   OF   A   PARTNERSHIP,  (Cll.  3 

'"associates"  being  too  indefinite  to  carry  the  title  to  the  persons  intend- 
ed by  it.  There  are  some  authorities  which  seem  to  hold  that  such  a 
conveyance  would  be  good  to  the  persons  so  designated,  and  that  it 
may  be  proved  by  parol  who  they  are ;  but  we  think  these  cases  go  a 
great'  way  towards  holding  that  a  conveyance  of  real  estate  may  vest 
partly  in  parol,  and  when  we  consider  the  infinite  confusion  in  titles 
to  real  estate — in  which  there  ought  to  be  great  definiteness  and  cer- 
tainty— such  a  rule  might  let  in,  we  do  not  hesitate  to  decide  that  the 
proposition  that  such  a'  designation  is  too  indefinite  and  uncertain  rests 
in  better  reason  and  authority.  Where  the  style  of  a  partnership  is 
inserted  as  a  grantee,  and  it  contains  the  name  or  names  of  one  or 
more  of  the  partners,  there  is  no  reason  why  the  title  should  not  vest 
in  the  partners  so  named;  and  the  authorities  are  to  the  effect  that  it 
would. 

The  legal  title  to  the  mortgage  in  question  was,  then,  in  D.,B.  Dor- 
man.  He  was  the  only  person  through  whom  legal  title  could  be 
made,  under  the  mortgage.    *    *    * 

Judgment  affirmed.^ 

1  In  Krin-le  v.  Rhomberg  et  al.,  120  Iowa.  472.  94  N.  W.  1115  (1908),  It  Is 
held  that,  "where  title  to  real  property  purchased  in  a  partnership  trans- 
action is  taken  in  the  name  of  one  of  the  partners,  there  is  a  resulting  trust 
in  favor  of  the  partnership,  which  may  be  established  by  parol  evidence,  so 
that  the  title  in  the  one  partner  may  be  charged  with  the  interest  of  the 
partnership." 

In  Barber  v.  Crowell  et  al„  55  Neb.  571,  75  N.  W,  1109  (1898),  In  deciding, 
what  effect  shoiild  be  given  to  a  mortgage  executed  to  the  "Western  Trust  & 
Security  Company,"  the  court  said:  "On  the  assumption  that  the  mortgagee 
was  a '  partnership  or  unincorporated  association,  it  is  contended  that  It 
could  not  take  title  to  real  estate,  and  that  the  mortgage  Is  therefore  a  nullity. 
It  Is  undoubtedly  true  that  a  conveyance  of  land  will  be  ineffectual  to  pass 
the  legal  title,  unless  made  to  a  grantee  having  capacity  to  receive  it;  and 
it  is  also  true  that  a  partnership  possesses  no  such  capacity.  But  a  mortgage 
Is  not  a  conveyance.  It  is  a  mere  security  in  the  form  of  a  conditional  con- 
veyance, and  the  interest  which  it  vests  in  the  mortgagee  is  not  essentially 
different  from  that  created  by  a  mechanic's  lien  or  an  ordinary  .iudgment. 
Davidson  v.  Cox,  11  Neb.  250,  9  N.  W.  95 ;  Buchanan  v,  Griggs,  18  Neb.  121, 
24  N.  W.  452.  In  the  former  case  it  was  said:  'In  this  state,  a  mortgage  of 
real  estate  is  a  mere  pledge  or  collateral  security  creating  a  lien  upon  the 
mortgaged  property,  but  conveying  no  title  nor  vesting  any  estate,  either 
before  or  after  condition  broken.'  That  a  lien  on  real  estate  to  secure  an 
indebtedness  may  accrue  to  a  partnership  in  its  firm  name  has  been  de- 
cided in  Foster  v,  Johnson,  39  Minn.  380,  40  N.  W.  255,  and  in  Chicago 
Lumber  Co.  v.  Ashworth,  26  Kan.  212." 


Sec.  5)        CONVERSION   OF   FIRM    REALTY    INTO    PERSONALTY.  103 

SECTION  5.— CONVERSION  OF  FIRM  REALTY  INTO  PER- 
SONALTY. 


DARBY  V.  DARBY  et  al. 

(High  Court  of  Chancery,  1856.    3  Drew.  495.) 

Alfred  Darby  and  Abraham  Darby  embarked  in  a  joint  specula- 
tion as  partners  in  the  purchase  of  real  estate,  to  be  laid  out  in  build- 
ing- sites  and  resold  for  their  joint  profit.  There  was  no  actual  deed 
or  written  instrument  of  partnership.  While  the  arrangement  con-  , 
tinued,  and  while  a  large  portion  of  the  land  thus  bought  remained  un- 
sold. Alfred  Darby  died. 

This  was  a  bill  filed  by  his  administratrix  for  the  administration  of 
his  estate.  The  principal  question  was  whether  Alfred  Darby's  share 
of  the  unrealized  real  estate  descended  to  his  heir  at  law,  or  whether 
it  passed  as  personal  estate  to  his  personal  representative. 

Sir  R.  T.  KiNDi^RSivEY,  V.  C.  [after  reviewing  the  English  cases.] 
The  result,  then,  of  the  authorities  may  be  thus  stated:  'Lord  Thurlow 
was  of  opinion  that  a  special  contract  was  necessary  to  convert  the 
land  into  personalty;  and  Sir  W.  Grant  followed  that  decision.  Lord 
Eldon  on  more  than  one  occasion  strongly  expressed  his  opinion  that 
Lord  Thurlow's  decision  was  wrong.  ,  Sir  J.  Leach  clearly  decided  in 
three  cases  that  there  was  conversion  out  and  out;  and  Sir  L.  Shad- 
well,  in  the  last  case  before  him,  clearly  decided  in  the  same  way. 
That  is  the  state  of  the  authorities. 

No\v  it  appears  to  me  that,  irrespective  of  authority,  and  looking  at 
the  matter  with  reference  to  principles  well  established  in  this  court, 
if  partners  purchase  land  merely  for  the  purpose  of  their  trade,  and  pay 
for  it  out  of  the  partnership  property,  that  transaction  makes  the  prop- 
erty personalty,  and  effects  a  conversion  out  and  out. 

What  is  the  clear  principle  of  this  court  as  to  the  law  of  partnership? 
It  is  that  on  the  dissolution  of  the  partnership  all  the  property  belong- 
ing to  the  partnership  shall  be  sold,  and  the  proceeds  of  the  sale,  after 
discharging  all  the  partnership  debts  and  liabilities,  shall  be  divided 
among  the  partners  according  to  their  respective  shares  in  the  capital. 
That  is  the  general  rule.  It  requires  no  special  stipulation.  It  is  in- 
herent in  the  very  contract  of  partnership.  That  the  rule  applies  to  all 
ordinary  partnership  property  is  beyond  all  question,  and  no  one  part- 
ner has  a  right  to  insist  that  any  particular  part  or  item  of  the  part- 
nership property  shall  remain  unsold,  and  that  he  shall  retain  his  own 
share  of  it  in  specie.  This  principle  is  clearly  laid  down  by  Lord  Eldon 
in  Crawshay  v.  Collins,  15  Ves.  218,  and  by  Sir  W.  Grant,  inFeather- 
stonhaugh  v.  Fenwick.  17  Ves.  298,  and  the  right  of  each  partner  to 
insist  on  a  sale  of  all  the  partnership  property,  which  arises  from 
Gil. Part.— 13 


194      NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHIP.    (Ch.  3  ' 

Avhat  is  implied  in  the  contract  of  partnership,  is  just  as  stringent  as 
a  special  contract  would  be.  If,  then,  this  rule  applies  to  ordinary 
stock  in  trade,  why  should  it  not  apply  to  all  kinds  of  partnership 
property?  Suppose  that  partners,  for  the  purpose  of  carrying  on  their 
business,  purchase  out  of  the  funds  of  the  .partnership  leasehold  estate, 
or  take  a  lease  of  land,  paying  the  rent  out  of  the  partnership  funds ; 
can  it  be  doubted  that  the  same  rule  which  applies  to  ordinary  chattels 
would  apply  to  such  leasehold  property?  I  do  not  think  it  was  ever 
questioned  that,  on  a  dissolution,  the  right  of  each  partner  to  have  the 
partnership  effects  sold  applies  to  leasehold  property  belonging  to  the 
partnership  as  much  as  to  any  other  stock  in  trade.  No  one  partner 
can  insist  on  retaining  his  share  unsold.  Nor  would  it  make  any  dif- 
ference in  whom  the  legal  estate  was  vested,  whether  in  one  of  the 
partners  or  in  all.  This  court  would  regulate  the  matter  according  to 
the  equities.  And  Sir  W.  Grant  so  decided  in  Featherstonhaugh  v. 
Fenwick. 

If,  then,  the  rule  applies,  not  only  to  ordinary  stock  in  trade,  but 
also  to  a  lease  for  years,  suppose,  next,  that  the  partnership,  instead  of 
purchasing  a  term  of  years,  were  (whether  from  necessity  or  choice) 
to  purchase  land  in  fee ;  if  the  land  is  necessary  for  the  partnership 
business,  and  bought  with  the  partnership  assets,  v/hat  difference  can 
it  make  whether  the  real  estate  bought  is  leasehold  or  in  fee?  Let  it 
be  once  established  that  the  property  purchased  is  partnership  property 
and  it  then  comes  under  the  operation  of  those  principles  which  arise 
out  of  the  partnership  contract;  and  there  seems  to  be  no  reason  why 
the  operation  of  those  principles  is  to  be  restricted  to  any  particular 
class  or  species  of  partnership  property.  The  observations  of  Lord 
Eldon  in  Crawshay  v.  Maule  [1  Swanst.  495],  show  that  in  his  opin- 
ion the  right  to  a  sale  on  a  dissolution  of  partnership  does  not  in  any 
degree  depend  on  the  nature  of  the  property.  Nor  could  it  be  material 
in  this  case,  any  more  than  on  the  purchase  of  a  leasehold  interest,  in 
whom  the  legal  estate  was  vested. 

I  should,  therefore,  feel  no  hesitation  in  coming  to  this  conclusion : 
That  the  mere  contract  of  partnership,  without  any  express  stipulation, 
involves  in  it  an  implied  contract,  quite  as  stringent  as  if  it  were  ex- 
pressed, that  at  the  dissolution  of  the  partnership  all  the  property  then 
belonging  to  the  partnership,  whether  it  be  ordinary  stock  in  trade,  or 
a  leasehold  interest,  or  a  fee-simple  estate  in  land,  shall  be  sold,  and 
the  net  proceeds,  after  satisfying  all  the  partnership  debts  and  lia- 
bilities, be  divided  among  the  partners,  and  that  each  partner,  and  the 
representatives  of  any  deceased  partner,  have  a  right  to  insist  on  this 
being  done. 

Next,  what  is  the  doctrine  of  this  court  as  to  conversion?  If  a 
testator  seised  of  real  estate  devises  it  for  sale^  and  directs  that  the 
proceeds  of  the  sale  shall  be  divided  among  certain  persons,  so  that 
each  of  the  cestuis  que  trustent  is  entitled  to  say  he  will  have  it  sold 
and  will  take  his  share  of  the  proceeds,  that  real  estate  is  in  equity 


Sec.  5)         CONVERSION    OF    FIRM    REALTY    INTO    PERSONALTT.  195 

converted  into  personalty;  and  so,  if  three  persons  contract  that  certain 
real  property  belonging  to  them  shall  be  sold,  and  the  proceeds  be  di- 
vided among  them,  so  that  each  one  of  them  has  a  right  to  insist  that 
it  shall  be  sold,  and  that  he  shall  have  his  share  of  the  proceeds  as 
money,  that  real  property  is  in  equity  converted  into  personalty,  and 
if  any  one  of  them  dies  while  the  property  remains  unsold  his  share 
is  personalty,  as  between  his  heir  and  his  personal  representatives. 

Now,  if  it  be  established  that  by  the  contract  of  partnership  all  the 
partnership  property  is  to  be  sold  at  the  dissolution  of  the  partner- 
ship, then  any  real  property  which  has  become  the  property  of  the  part- 
nership becomes,  by  force  of  the  partnership  contract,  converted  into 
personalty;  and  that,  not  merely  as  between  the  partners,  to  the  ex- 
tent of  discharging  the  partnership  debts,  but  as  between  the  real  and 
personal  representatives  of  any  deceased  partner. 

That  this  is  so  I  should,  in  the  absence  of  all  authority,  have  decided 
upon  the  principle;  and  when  I  find,  notwithstanding  the  decision  of 
Lord  Thurlow,  followed  by  Sir  W.  Grant,  that  Lord  Eldon  was  clearly 
of  opinion  that  real  property  purchased  by  a  partnership  for  the  part- 
nership purposes  and  with  the  partnership  funds  becomes  personalty, 
that  Sir  J.  Leach  repeatedly  so  decided  without  any  doubt,  and  that 
Sir  L.  Shadwell  also  decided  the  last  case  in  the  same  way,  I  can  have 
no  difiiculty  in  coming  to  the  conclusion  that,  whenever  a  partnership 
purchase  real  estate  for  the  partnership  purposes  and  with  the  partner- 
ship funds,  it  is,  as  between  the  real  and  personal  representatives  of  the 
partners,  personal  estate. 

Now,  this  case  is  not  the  ordinary  case  where  persons  carr}-ing  on 
the  ordinary  business  of  a  commercial  or  manufacturing  partnership 
have  found  it  necessary  to  purchase  real  estate  for  partnership  pur- 
poses. That  is  not  the  -case.  Here  they  bought  land  as  ,the  stock  in 
trade,  by  the  sale  of  which  they  were  to  make  their  profits.  The  land 
was  not  in  the  nature  of  plant,  but  was  the  very  subject-matter  of 
their  trade.  Docs  that  make  any  difference?  If  it  does,  I  think  it  is 
in  favor  of  treating  it  as  converted,  because  the  real  estate  is  here  clear- 
ly put  in  the  same  position  as  ordinary  stock  in  trade;  and  it  appears 
to  me  that,  if  I  entertained  more  doubt  than  I  do  on  the  general  ques- 
tion, that  doubt  would  in  this  case  be  very  much  diminished  by  the 
circumstance  that  here  the  real  estate  is  itself  bought  for  the  very  pur- 
pose of  -selling  it  again.  The  very  intention  of  the  partnership  \\;as 
to  buy  land  to  resell  it.  That  is  their  very  contract,  and  without  sell- 
ing the  land  again  there  would  be  no  partnership  business.  The  part- 
nership was  for  the  purpose  of  buying  land  to  parcel  it  out  in  plots, 
and  to  sell  them  again,  and  each  partner  had  a  right  to  say  he  would 
have  that  contract  carried  out.  We  have  here  what  Lord  Thurlow 
wanted  in  Thornton  v.  Dixon,  an  actual  contract  that  the  land  shall 
be  sold. 

I  must,  therefore,  decide  that  the  share  of  A.  Darby  was  personal 
estate,  and  passed  to  his  personal  representatives. 


196  NATUliK  AND   CDARACTERISTICS  OF   A   rARTNEUSUlP.  (Ch.  3 


DYER  V.  CLARK  et  al. 

(Supreme  Jncli'^ial  Court  of  Massachusetts,  1843.     5  Mete.  562.  39  Am.  Dec. 

697.) 

Bill  in  equity.  The  plaintiff  is  surviving  partner  of  the  firm  of  Bur- 
leigh &  Dyer,  and  the  defendants  are  tjie  administrator,  tlie  widow, 
and  the  minor  children  of  the  deceased  partner,  Stevens  Burleigh. 
The  case  was  heard  on  the  bill,  the  answer,  and  a  master's  report. 

Shaw,  C.  J.  This  is  a  suit  in  equity  by  the  surviving  partner  of  ' 
the  firm  of  Burleigh  &  Dyer,  established  by  articles  of  copartnership 
under  seal,  for  the  purpose  of  carrying  on  the  business  of  distillers. 
The  priiicipal  question  is  one  which  has  arisen  in  several  other  cases, 
and  is  this :  Whether  real  estate,  purchased  by  copartners  from  part- 
nership funds,  to  be  held,  used,  and  occupied  for  partnership  purposes, 
is  to  be  deemed  in  all  respects  real  estate  in  this  commonwealth,  to 
vest  in  the  partners  severally  as  tenants  in  common,  so  that,  on  the 
decease  of  either,  his  share  will  descend  to  his  heirs,  be  chargeable 
with  his  wife's  dower,  and  in  all  respects  held  and  treated  as  real  es- 
tate, held  by  the  deceased  partner  as  a  tenant  in  common ;  or  whether 
it  shall  be  regarded  as  quasi  personal  property,  so'  as  to  be  held  and 
appropriated  as  personal  property,  first,  to  the  liquidation  and  discharge 
of  the  partnership  debts,  and  to  the  adjustment  of  the  partnership  ac-  ■ 
count,  and  payment  of  the  amount  due,  if  any,  to  the  surviving  partner, 
before  it  shall  go  to  the  widow  and  heirs  of  the  deceased  partner. 
This  is  a  new  question  here,  and  comes  now  to  be  decided  for  the 
first  time. 

There  are  some  principles,  bearing  upon  the  result,  which  seem  to 
be  well  settled,  and  may  tend  to  establish  the  grounds  of  equity  and 
law  upon  which  the  decision  must  be  made.  It  is  considered  as  estab- 
lished law  that  partnership  property  must  first  be  applied  to  the  pay- 
ment of  partnership  debts,  and  therefore  that  an  attachment  of  part- 
nership property  for  a  partnership  debt,  though  subsequent  in  time, 
will  take  precedence  of  a  prior  attachment  of  the  same  property  for 
the  debt  of  one  of  the  partners.  It  is  also  considered  that,  however 
extensive  the  partnership  may  be,  though  the  partners  may  hold  a 
large  amount  and  great  variety  of  property,  and  owe  many  debts,  the 
real  and  actual  interest  of  each  partner  in  the  partnership  stock  is  the 
net  balance  which  will  be  coming  to  him  after  payment  of  all  the  part- 
nership debts  and  a  just  settlement  of  the  account  between  himself 
and  his  partner  or  partners.    1  Ves.  Sr.  242. 

The  time  of  the  dissolution  of  a  partnership  fixes  the  time  at 
which  the  account  is  to  be  taken,  in  order  to  ascertain  the  relative 
rights  of  the  partners  and  their  respective  shares  in  the  joint  fund. 
The  debts  may  be  numerous,  and  the  funds  widely  dispersed  and  diffi- 
cult of  collection;-  and  therefore  much  time  may  elapse  before  the  af- 
fairs can  be  wound  up,  the  debts  paid,  and  the  surplus  put  in  a  condi- 


Sec.  5)         CONVERSION    OF    FIRM    REALTY    INTO    PERSONALTY.  197 

tion  to  be  divided.  But,  whatever  time  may  elapse  before  the  final 
seulement  can  be  practically  made,  that  settlement,  when  made,  must 
relate  baCk  to  the  time  when  the  partnership  was  dissolved,  to  deter- 
mine the  relative  interests  of  the  partners  in  the  fund. 

When,  therefore,  one  of  the  partners  dies,  which  is  de  facto  a  dis- 
solution of  the  partnership,  it  seems  to  be  the  dictate  of  natural  equity 
that  the  separate  creditors  of  the  deceased  partner,  the  widow,  heirs, 
legatees,  and  all  others  claiming  a  derivative  title  to  the  property  of 
the  deceased  and  standing  on  his  rights,  should  take  exactly  the  same 
measure  of  justice  as  such  partner  himself  would  have  taken,  had  the 
partnership  been  dissolved  in  his  lifetime;  and  such  interest  would 
be  the  net  balance  of  the  account,  as  above  stated. 

Such,  indeed,  is  the  result  of  the  application  of  the  well-known  rules 
of  law,  when  the  partnership  stock  and  property  consist  of  personal 
estate  only;  and,  as  partnerships  were  formed  mainly  for  the  promo- 
tion of  mercantile  transactions,  the  stock  commonly  consisted  of  cash, 
merchandise,  securities,  and  other  personal  property,  and  therefore  the 
rules  of  law  governing  that  relation  would  naturally  be  framed  with 
more  especial  reference  to  that  species  of  property.  It  is  therefore 
held  that  on  the  decease  of  one  of  the  partners,  as  the  surviving  partner 
stands  chargeable  with  the  whole  of  the  partnership  debts,  the  inter- 
est of  the  partners  in  the  chattels  and  choses  in  action  shall  be  deemed 
so  far  a  joint  tenancy  as  to  enable  the  surviving  partner  to  take  the 
property  by  survivorship,  for  all  purposes  of  holding  and  administer- 
ing the  estate,  until  the  effects  are  reduced  to  money  and  the  debts 
paid,  though,  for  the  purpose  of  encouraging  trade,  it  is  held  that  the 
harsh  doctrine  of  the  jus  accrescendi,  which  is  an  incident  of  joint 
tenancy  at  the  common  law,  as  well  in  real  as  in  personal  estate,  shall 
not  apply  to  such  partnership  property ;  but,  on  the  contrary,  when  the 
debts  are  all  paid,  the  effects  of  the  partnership  reduced  to  money, 
aiid  the  purposes  of  the  partnership  accomplished,  the  surAaving  partner 
shall  be  held  to  account  with  the  representatives  of  the  deceased  for 
his  just  share  of  the  partnership  funds. 

Then  the  question  is  whether  there  is  anything  so  peculiar  in  the 
nature  and  characteristics  of  real  estate  as  to  prevent  these  broad  prin- 
ciples of  equity  from  applying  to  it.  So  long  as  real  estate  is  governed 
by  the  strict  rules  of  the  common  lav/,  there  would  be,  certainly,  great 
difficulty  in  shaping  the  tenure  of  the  legal  estate  in  such  form  as  to 
accomplish  these  objects.  Should  the  partners  take  their  conveyance 
in  such  mode  as  to  create  a  joint  tenancy,  as  they  still  may,  though 
contrary  to  the  policy  of  our  law,  still  it  would  not  accomplish  the  pur- 
poses of  the  parties,  first,  because  either  joint  tenant  might,  at  his  op- 
tion, break  the  joint  tenancy  and  defeat  the  right  of  survivorship  by 
an  alienation  of  his  estate,  or  (what  Avould  be  still  more  objectionable) 
the  right  of  survivorship  at  the  common  law  would  give  the  whole 
estate  to  the  survivor,  without  liability  to  account,  and  thus  whoUy  de- 


198  NATURE   AND   CHARACTERISTICS   OF   A   PARTNKRSHIP.  (Ch.  3 

feat  the  claims  of  the  separate  creditors,  and  of  the  widow  and  heirs  of 
the  deceased  partner. 

But  we  are  of  opinion  that  the  object  may  be  accomplished  in  equity, 
so  as  to  secure  all  parties  in  their  just  rights,  by  considsring  the  legal 
estate  as  held  in  trust  for  the  purpose  of  the  partnership;  and,  since 
this  court  has  been  fully  empowered  to  take  cognizance  of  all  implied 
as  well  as  express  trusts  and  carry  them  into  effect,  there  is  no  diffi- 
culty, but,  on  the  contrary,  great  fitness,  in  adopting  the  rules  of 
equity  on  the  subject  which  have  been  adopted  for  the  like  purpose  in 
England  and  in  some  of  our  sister  states.  And  it  appears  to  us  that, 
considering  the  nature  of  a  partnership  and  the  mutual  confidence  in 
each  other  which  that  relation  implies,  it  is  not  putting  a  forced  con- 
struction upon  their  act  and  intent  to  hold  that,  when  property  is  pur- 
•chased  in  the  name  of  the  partners  out  of  partnership  funds  and  for 
partnership  use,  though  by  force  of  the  common  law  they  take  the 
legal  estate  as  tenants  in  common,  yet  that  each  is  under  a  conscien- 
tious obligation  to  hold  that  legal  estate  until  the  purposes  for  which  it 
was  so  purchased  are  accomplished,  and  to  appropriate  it  to  those  pur- 
poses, by  first  applying  it  to  the  payment  of  the  partnership  debts,  for 
which  both  his  partner  and  he  himself  are  liable,  and  until  he  has  come 
to  a  just  account  with  his  partner.  Each  has  an  equitable  interest  in 
that  portion  of  the  legal  estate  held  by  the  other  until  the  debts  ob- 
ligatory on  both  are  paid  and  his  own  share  of  the  outlay  for  partner- 
ship stock  is  restored  to  him.  This  mutual  equity  of  the  parties  is 
greatly  strengthened  by  the  consideration  that  partners  may  have  con- 
tributed to  the  capital  stock  in  unequal  proportions,  or,  indeed,  that  one 
may  have  advanced  the  whole.  Take  the  case  of  a  capitalist,  v^^ho  is 
willing  to  put  in  money,  but  wishes  to  take  no  active  concern  in  the 
conduct  of  business,  and  a  man  who  has  skill,  capacity,  integrity,  and 
industry  to  make  him  a  most  useful  active  partner,  but  without  prop- 
erty, and  they  form  a  partnership.  Suppose  real  estate,  necessary  to 
the  carrying  on  of  the  business  of  the  partnership,  should  be  purchased 
out  of  the  capital  stock  and  on  partnership  account,  and  a  deed  taken 
to  them  as  partners,  without  any  special  provisions.  Credit  is  obtained 
for  the  firm,  as  well  on  the  real  estate  as  the  other  property  of  the 
firm.  What  are  the  true  equitable  rights  of  the  partners,  as  resulting 
from  their  presumed  intentions,  in  such  real  estate?  Is  not  the  share 
of  each  to  stand  pledged  to  the  other,  and  has  not  each  an  equitable 
lien  on  the  estate,  requiring  that  it  shall  be  held  and  appropriated,  first 
to  pay  the  joint  debt,  then  to  repay  the  partner  who  advanced  the  cap- 
ital, before  it  shall  be  applied  to  the  separate  use  of  either  of  the 
partners?  The  creditors  have  an  interest,  indirectly,  in  the  same  ap- 
propriation, not  because  they  have  any  lien,  legal  or  equitable  (2  Story 
on  Eq.  §  1253),  upon  the  property  itself,  but  on  the  equitable  prin- 
ciple which  determines  that  the  real  estate  so  held  shall  be  deemed  to 
constitute  part  of  the  fund  from  which  their  debts  are  to  be  paid  be- 
fore it  can  legally  or  honestly  be  diverted  to  the  private  use  of  the 


Sec.  O)         CONVEKSION    OF    FIKM    REALTY    INTO    PERSONALTY.  109 

partners.  Suppose  this  trust  is  not  implied;  what  would  be  the  con- 
dition of  the  parties,  in  the  case  supposed,  in  the  various  contingencies 
which  might  happen  ?  Suppose  the  elder  and  wcallhy  partner  were 
to  die.  The  legal  estate  descends  to  his  heirs,  clothed  with  no  trust 
in  favor  of  the  surviving  partner.  The  latter,  without  property  of  his 
own,  and  relying  on  the  joint  fund,  which,  if  made  liable,  is  sufficient 
for  the  purpose,  is  left  to  pay  the  whole  of  the  debt,  whilst  a  portion, 
and  perhaps  a  large  portion,  of  the  fund  bound  for  its  payment  is 
withdrawn.  Or  suppose  the  younger  partner  were  to  die,  and  his 
share  of  the  legal  estate  should  go  to  his  creditors,  wife,  or  children, 
and  be  withdrawn  from  the  partnership  fund ;  it  would  work  mani- 
fest injustice  to  him  who  had  furnished  the  fund  from  which  it  was 
purchased.  But  treating  it  as  a  trust,  the  rights  of  all  parties  wjll  be 
preserved.  The  legal  estate  will  go  to  those  entitled  to  it,  subject 
only  to  a  trust  and  equitable  lien  to  the  surviving  partner,  by  which 
so  much  of  it  shall  stand  charged  as  may  be  necessary  to  accomplish 
the  purposes  for  which  they  purchased  it.  To  this  extent,  and  no  fur- 
ther, will  it  be  bound;  and  subject  to  this  all  those  will  take  who  are 
entitled  to  the  property,  namely,  the  creditors,  widow,  heirs,  and  all 
others  standing  on  the  rights  of  the  deceased  partner,     *     *     * 

On  the  facts  of  the  present  case,  we  are  of  opinion  that  the  real 
estate  in  question  was  a  part  of  the  capital  stock,  purchased  out  of  the 
partnership  funds,  for  the  partnership  use,  and  for  the  account  of  the 
firm. 

The  plaintiff  has  received  a  sum  in  rents  and  profits  that  have  ac- 
crued since  his  partner's  death.  The  defendant  Clark,  as  administrator 
of  Burleigh,  the  deceased  partner,  has  sold  an  undivided  half  of  the 
property  as  his,  under  a  license,  and  with  the  assent  of  the  plaintiff. 
The  widow  joined  to  release  her  dower,  for  a  nominal  sum.  But  we 
cannot  perceive  that  the  right  pi  the  widow  is  distinguishable  from 
that  of  the  creditors  and  heirs  of  the  deceased  partner.  As  far  as  this 
estate  was  held  in  trust  by  her  deceased  husband,  she  was  not  entitled 
to  dower.  For  all  beyond  that  she  will  be  entitled,  because  he  held 
it  as  legal  estate,  imless  she  is  barred  by  her  release,  of  which  we  give 
no  opinion. 

The  plaintiff  is  entitled  to  a  decree  charging  the  amount  of  rents 
and  profits  in  his  hands,  and  so  much  of  the  proceeds  of  the  sale  made 
by  the  administrator,  as  will  be  Sufficient  to  discharge  the  balance  of 
the  partnership  account ;  and  the  rest  of  the  proceeds  will  remain  in 
the  hands  of  Clark,  the  administrator  of  Burleigh,  to  be  distributed 
according  to  law,^ 

1  Hubbard  et  a!,  v.  Winsor  et  al.,  lo  Mich.  147  (ISOO),  Carupbell,  J.:  "Bill 
to  restrain  the  collection  of  certain  taxes.  *  *  *  The  prouuds  set  up  fox- 
relief  are  that  real  estate  belonging  to  the  complainants  was  assessed  to  the 
partnership.  *  *  *  We  think  the  objections  concerning  the  mode  of  as- 
sessing real  estate  are  not  tenable.  It  apponrs  that  the  land  was  all  handed 
in  on  one  list  with  other  property  belonging  to  the  firm,  and,  as  it  is  alleged 
in  the  bill  to  be  held  in  joint  tenancy,  there  could  be  no  assessment  of  shares 


200  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

HUSTON  et  al.  v.  NEIL. 
(Supreme  Court  of  Indiana,  1873.    41  Ind.  504.) 

BusKiRK,  J.  This  was  an  action  by  the  appellee  against  the  appel- 
lants to  obtain  a  partition  of  certain  real  estate.  The  complaint  alleges 
that  the  plaintiff  was  a  tenant  in  common  with  the  defendants  in  lot  51 
of  Conner's  first  plat  in  the  original  plat  of  the  town  of  Connersville, 
Fayette  county,  Ind.;  that  on  the  27th  day  of  April,  1855,  one  Joshua 
Bates  and  one  Edward  Neil  purchased  said  real  estate  from  the  Junc- 
tion Railroad  Company,  which  company,  by  proper  deed,  conveyed  said 
property  to  Bates  &  Neil ;  that  at  the  time  said  conveyance  was  made 
to  said  Bates  &  Neil  she  was  the  lawful  wife  of  the  said  Edward  Neil, 
and  continued  to  be  such  until  the  4th  day  of  January,  1870,  when 
the  said  Neil  departed  this  life  intestate;  that  on  the  30th  day  of  April. 
1855,  the  said  Bates  and  Neil,  by  a  mortgage  duly  and  lawfully  exe- 
cuted, mortgaged  said  lot  to  the  defendants ;  that  on  the  17th  day  of 
March,  1859,  the  said  mortgage  was  foreclosed,  and  said  real  estate 
was  ordered  to  be  sold;    that  in  pursuance  of  said  decree  and  order 

of  sale  the  said  property  was  on  the  7th  day  of  ,  1859,  sold, 

and  was  purchased  by  the  said  defendants,  to  whom  a  proper  convey- 
ance was  made,  and  they  are  now  the  owners  of  the  undivided  five- 
sixths  thereof;  that  she  did  not  join  with  her  husband  in  the  execu- 
tion of  said  mortgage;  that  she  has  not  parted  with  her  interest  in 
said  property;  that  as  the  widow  of  said  Edward  Neil,  deceased,  she 
is  the  owner  of,  and  entitled  to,  the  one  undivided  sixth  of  said  real 
estate ;  and  that  the  defendants  are  the  owners  of,  and  entitled  to,  the 
one  undivided  five-sixths.-  There  was  a  prayer  for  partition  and  other 
proper  relief. 

There  was  issue,  trial  by  the  court,  finding  for  the  plaintiff,  motion 
for  a  new  trial  made,  overruled,  and  excepted  to,  and  judgment  on  the 
finding. 

The  appellants  have  assigned  for  error  the  sustaining  of  a  demurrer 
to  the  second  paragraph  of  the  answer  and  the  overruling  of  the  mo- 
tion for  a  new  trial. 

•  The  substance  of  the  answer  is  that  the  property  in  controversy  was 
purchased  by  partners,  with  partnership  means,  for  partnership  pur- 
poses, and  that  it  was  mortgaged  to  secure  a  partnership  debt,  and 
was  sold  on  a  foreclosure  of  such  mortgage,  and  purchased  by  the 
partnership  creditors,  leaving  a  balance  of  their  judgment  unpaid; 
the  firm  and  the  members  composing  it  being  insolvent. 

It  is  insisted  by  counsel  for  appellants  that  property  thus  acquired 
and  held  is  regarded  and  treated  as  personal  property  and  goes  to  pay 
the  debts  of  the  partnership,  and  only  after  they  have  been  paid  does 
it,  or  what  is  left  of  it,  become  the  individual  property  of  the  partners, 

In  it  individually  to  the  owners  severally,  because  their  estate,  as  set  out,  is 
indivisible." 


Sec.  5)         CONVERSION    OF    FIRM    REALTY    INTO    PERSONALTY.  201 

and  that  as  it  was  applied  to  the  payment  of  partnership  debts,  leaving 
a  balance  of  such  debts  due  and  unpaid,  the  firm  and  individual  mem- 
bers thereof  being  insolvent,  the  same  was  never  held  and  owned  by 
the  said  Bates  &  Neil  as  real  estate,  and  that  consequently  no  portion 
thereof  descended  to,  or  is  owned  by,  the  plaintiff  by  virtue  of  her 
marital  rights. 

There  is  an  irreconcilable  conflict  between  the  English  and  American 
doctrine  on  this  subject,  and  there  is  much  conflict  in  the  rule  of  de- 
cision adoptefl  in  the  different  states. 

We  find  the  law  stated  with  great  clearness  and  accuracy  by  Par- 
sons in  his  work  on  Partnership.  After  speaking  of  the  English  doc- 
trine, he  says :  "In  this  country  the  rule  is  otherwise.  There  is  not, 
and  we  know  no  reason  why  there  should  be,  any  reluctance  to  recog- 
nize as  partnership  property  any  real  estate  which  should  be  so  con- 
sidered;' and  when  it  has  fulfilled  all  its  functions  as  personal  prop- 
erty, in  respect  of  the  partnership,  the  partners,  and  the  creditors,  and 
is  no  longer  wanted  for  these,  it  may  now  become,  in  their  hands  who 
have  the  legal  title,  real  estate,  and  subject  to  all  incidents  as  such, 
because  the  same  persons  with  us  take  the  personalty  and  inherit  the 
realty,  and  it  will  be  much  simpler  and  easier  for  them  to  take  at  once 
as  realty  that  which  is  realty.  The  following,  then,  is  the  American 
rule :  Real  estate,  purchased  and  held  as  partnership  property,  is  so 
treated  in  equity,  and  subjected  to  all  the  incidents  of  partnership  prop- 
erty. If  there  be  death,  the  surviving  partner,  whether  he  hold  the 
whole  title,  or  hold  it  in  part,  or  hold  none  of  it,  if  he  be  a  creditor 
of  the  partnership,  has  the  same  right  against  the  real  estate,  and 
only  the  same,  which  any  other  creditor  has.  But  real  estate  goes  to 
pay  the  debts  of  the  partnership,  and  only  after  they  are  paid  does  it, 
or  what  is  left  of  it,  become  the  property  of  the  partners,  or  their  rep- 
resentatives, free  from  all  claims ;  and  then  it  is  divided  between  them 
just  as  so  much  money  capital  would  be.  But  it  then  becomes  at  once 
real  estate,  or,  rather,  all  the  incidents  and  qualities  of  real  estate  re- 
vive. This  rule  gees  upon  the  ground  of  a  trust  imposed  upon  all  who 
hold  the  legal  title,  in  behalf  of  all  partnership  objects;  and,  that  trust 
once  discharged,  the  residue  resumes  its  former  character." 

The  same  author,  in  speaking  of  the  right  of  dower  in  such  real 
estate,  says:  "The  English  rule  would  seem  to  cut  this  off.  But  in 
this  country  it  is  quite  well  settled  that  while  dower  yields  to  the 
claims  of  partnership  creditors,  whether  they  are  of  the  firm  or  stran- 
gers, and  therefore  cannot  be  granted  until  all  the  partnership  debts 
are  paid  or  secured,  yet,  when  this  is  accomplished,  as  the  land  is  treat- 
ed in  the  same  way  as  if  it  had  never  entered  into  partnership  prop- 
erty, dower  revives," 

The  previous  rulings  of  this  court  are  in  harmony  with  the  prin- 
ciple abx)ve  enunciated.  ^^latlock  v.  Matlock,  5  Ind.  403;  Hale  v. 
Plummer,  6  Ind,  121;  Roberts  v,  McCarty,  9  Ind,  16,  68  Am.  Dec. 
604 ;   Patterson  v.  Blake,  12  Ind,  436 ;   Holland  v.  Fuller,  13  Ind.  195  ; 


202  NATURE   AND   CHARACTERISTICS   OF   A   PARTNERSHIP.  (Ch.  3 

Dean  v.  Phillips,  17  Ind.  406 ;  Schaeffer  v.  Fithian,  17  Ind.  463 ;  Kist- 
ner  v.  Sindlinger,  33  Ind.  114. 

It  is  also  insisted  by  counsel  for  appellee  that  she  was  a  proper  and 
necessary  party  to  the  proceeding  to  foreclose  said  mortgage,  and  that, 
as  she  was  not  made  a  party,  her  rights  cannot  be  and  are  not  affected 
by  such  foreclosure  and  the  sale  made  in  pursuance  thereof. 

If  the  property  in  controversy  was  partnership  property,  then  the  in- 
terest of  Neil  was  but  the  surplus  remaining  after  the  payment  of  the 
debts  of  the  firm  and  the  final  accounting  between  the  partners.  If 
there  was  no  surplus,  Neil  was  never  seised  of  the  property,  as  real 
estate,  at  any  time  prior  to  his  death,  and  consequently  his  wife  had 
no  interest  in  such  property  which  would  make  her  a  necessary  party 
to  the  suit  to  foreclose.  Those  only  are  necessary  parties  defendant 
who  have  or  claim  an  interest  in  the  controversy  adverse  to  the  plain- 
tiflf,  or  who  are  necessary  parties  to  a  complete  determination  or  set- 
tlement of  the  questions  involved.  Section  18  of  the  Code;  2  Gav. 
&  H.  Rev.  St.  1870,  p.  46. 

The  case  of  Fletcher  v.  Holmes,  33  Ind.  497,  is,  upon  the  point 
under  examination,  much  in  point,  and  conclusively  settles  the  ques- 
tion against  the  appellee. 

In  the  quotation  hereinbefore  made  from  Parsons  on  Partnership 
the  author  speaks  of  dower.  Our  statute  has  abolished  dower,  and 
substituted  in  its  place  one-third  in  fee  simple;  but  the  same  prin- 
ciples of  law  will  apply  to  both  alike. 

We  are  very  clearly  of  the  opinion  that  the  facts  stated  in  the  sec- 
ond paragraph  of  the  answer  constituted  a  complete  defense  to  the 
action,  and  that  the  court  erred  in  sustaining  the  demurrer  thereto, 
for  which  error  the  judgment  must  be  reversed. 

The  judgment  is  reversed,  with  costs ;  and  the  cause  is  remanded, 
with  directions  to  the  court  below  to  overrule  the  demurrer  to  the 
second  paragraph  of  the  answer,  and  for  further  proceedings  in  ac- 
cordance with  this  opinion.^ 

1  In  Wallinji  et  al.  v.  Eiirgess  et  al.,  122  Ind.  299,  22  N.  E.  419,  23  N.  E. 
107G,  7  L.  R.  A.  481  (1880),  after  holding  that  a  surviving  partner  can 
convey  an  equitable  title  to  partnership  realty  to  pay  firm  debts,'  without 
making  the  wife  or  representatives  of  the  deceased  partner  parties  to  the 
deed,  it  is  said:  "Suppose,  for  instance,  that,  Immediately  before  the  death 
of  Burgess.  Burgess  &  Hildreth  had  sold  and  conveyed  their  real  estate 
without  the  wife  of  Burgess  joining,  and  the  purchase  money  had  been  paid 
to  the  members  of  the  firm  and  become  a  part  of  the  partnership  assets,  it 
would  seem  clear  that  the  widow  and  heirs  could  not  have  claimed  and 
held  any  interest  in  the  real  estate  so  sold  and  conveyed.  One  of  the  pun- 
poses  and  objects  of  treating  the  partnership  real  estate  as  personal  property 
in  equity  is  that  it  may  be  sold  and  conveyed  by  the  members  of  the  firm  in 
the  usual  course  of  business  without  the  wives  of  the  individual  members 
joining  in  the  conveyance.  Were  it  otherwise,  the  business  of  the  firm 
might  be  stopped,  and  the  -partners  unable  to  refalize  on  the  assets  of  the 
firm,  by  reason  of  tlie  wife  of  one  of  the  members  refusing  to  join  in  a  con- 
veyance of  the  real  estate."  But  see  Fairchild  v.  JTairchild,  64  N.  Y.  471,  and 
Pugh  V.  CuiTie,  5  Ala.  446. 


Sec.  5)         CONVERSION    OF   FIRM    REALTY   INTO   PERSONAl,TT. 


203 


DARROW  et  al.  v.  CALKINS  et  al. 

(Court  of  Appeals  of  New  York,  1897.     3G4  N.  Y.  503.  49  N.  E.  CI,  48  L.  U.  A. 
299,  61  Am.  St.  liep.  G37.) 

Action  by  Alfred  Lyman  Darrow  and  Fanny  Gay  Darrow  against 
Lyman  Darrow  Calkins  and  others.  From  an  order  of  the  Appellate 
Division  (G  App.  Div.  28,  39  N.  Y.  Supp.  537)  vacating  and  setting 
aside  an  interlocutory  judgment  rendered  in  favor  of  plaintiffs,  and 
granting  a  new  trial,  plaintiffs  appeal. 

The  action  was  for  partition  of  certain  lands  in  the  city  of  Brook- 
lyn, The  plaintiffs,  as  children  and  heirs  at  law  of  one  Edwin  J.  Dar- 
row, who  died  intestate  November  13,  18Gi,  claimed  title  to  one  un- 
divided half  of  such  land,  subject  to  the  dower  right  of  two  of  the 
defendants,  as  set  forth  in  the  complaint.  The  defendants  Calkins 
are  the  widow  and  three  children  of  one  Daniel  O.  Calkins,  who  died 
intestate  July  20,  1887.  It  is  alleged  in  the  complaint  that  Edwin  J. 
Darrow,  at  the  time  of  his  death,  "was  seised  in  fee  simple"  of  the 
undivided  one-half  part  of  the  premises  sought  to  be  partitioned,  and 
Daniel  O.  Calkins  of  the  other  undivided  one-half.  It  alleges  that  on 
the  25th  day  of  September,  1861,  the  said  Edwin  J.  Darrow,  together 
with  his  wife,  Lucy  P.  Darrow,  made  and  executed  "a  certain  deed 
in  trust"  bearing  date  on  that  day,  which  was  recorded  in  the  county 
of  Kings  January  19,  1865,  whereby  the  said  Edwin  J.  Darrow  and 
his  wife  conveyed  all  their  estate  in  the  aforesaid  real  property  to  the 
said  Daniel  O.  Calkins,  "to  have  and  to  hold,  to  control  and  manage, 
sell  and  convey,  the  whole  or  any  part  of  said  premises  as  part  of  the 
partnership  property  of  the  aforesaid  Calkins  and  Darrow,  and  to  pay 
over  to  the  said  Darrow,  his  heirs  and  assigns,  or  other  legal  repre- 
sentatives, such  portion  thereof  as  shall,  at  the  closing  of  the  partner- 
ship business  of  said  Calkins  and  Darrow,  belong  to  or  be  due  or 
coming  to  the  said  Darrow,  his  heirs,  executors,  assigns,  or  other  legal 
representatives."  It  alleges,  in  substance,  that  a  copartnership  had 
existed  up  to  the  death  of  Darrow,  in  1864,  between  him  and  Calkins, 
under  the  firm  name  of  Calkins  &  Darrow ;  that  the  trust  upon  which 
the  deed  of  September  25,  1861,  was  made  had  not  been  performed; 
that  no  accounting  had  been  had  to  "these  plaintiffs,  or  to  any  court 
having  jurisdiction  in  the  matter";  that  the  copartnership  had  long 
since  ceased  and  terminated ;  that  there  were  no  outstanding  debts  of 
the  firm ;  and  that  the  purpose  of  the  said  trust  had  ceased  to  exist, 
and  the  trust,  if  ever  operative,  had  terminated.  The  interests  of  the 
respective  parties,  as  claimed  by  the  plaintiffs,  are  set  forth,  in  sub- 
stance, that  the  plaintiifs  are  each  entitled  to  an  undivided  fourth  part 
of  the  premises,  and  the  children  of  Calkins  to  the  other  one-half  part, 
subject  to  dower  interests  as  stated.  The  complaint  further  states 
that  a  "certain  pretended"  judgment  was  entered  on  the  31st  day  of 
October.  1867,  in  the  Supreme  Court  of  the  state  of  New  York,  in 


204  NATURE   AND   CHARACTERISTICS   OF  A   PARTNERSHIP.  (Ch.  3 

an  action  brought  .by  Lucy  P.  Darrow  (the  widow  of  Edwin  J.  Dar- 
rowj,  as  administratrix  of  his  estate,  against  Daniel  O.  Calkins  and 
others,  for  the  purpose  of  ascertaining  "what  interest  such  adminis- 
irairix  had,  if  any,  in  the  copartnership  effects  of  the  firm  of  Calkins 
tS:  Darrow,"  by  which  judgment  it  was  decreed  that  the  plaintiffs  (in 
th^s  action)  had  no  title  or  interest  in  the  lands  or  real  estate  described 
in  the  complaint  in  that  action,  which  included  the  premises  sought 
to  be  partitioned  in  this  action ;  that  the  present  plaintiffs  were  infants, 
and  nonresidents  of  the  state,  when  the  former  action  was  brought;  and 
that  they  were  not  legally  brought  in  as  parties  to  that  action,  and  were 
not  bound  by  the  appearance  of  the  guardian  ad  litem  for  them  therein ; 
and  that  the  judgment' as  to  them  was  without  jurisdiction,  and  void. 
The  complaint  prayed  judgment  for  partition  according  to  the  interests 
as  set  forth  in  the  complaint. 

•The  defendants  Calkins  answered  the  complaint,  and,  among  other 
things,  alleged  that  Daniel  O.  Calkins,  at  the  time  of  his  death,  was  the 
sole  owner  of  the  lands  described  in  the  complaint,  and  that  prior  to 
his  death  he  had  fully  performed  all  the  terms  and  conditions  con- 
tained in  the  deed  of  September  25,  ISGl,  and  that  upon  his  death  the 
lands  descended  to  his  children  and  heirs  at  law,  subject  to  the  dower 
right  of  his  widow.  The  defendants  Calkins  further  set  up  the  judg- 
ment rendered  in  the  action  brought  by  the  administratrix  of  Edwin 
J.  Darrow  against  Daniel  O.  Calkins  in  bar  of  the  present  action,  and 
also  the  statute  of  limitations.  [Here  follows  a  statement  of  the  evi- 
dence, and  a  resume  of  the  action  begun  in  1867.] 

Thereafter  on  the  31st  of  October,  the  final  decree  was  entered.  By 
this  decree  it  was,  among  other  things,  adjudged  that  the  interest  of 
Edwin  J.  Darrow  in  the  lands  and  real  estate  and  the  proceeds  there- 
of was  personal  estate,  and  belonged  to  the  plaintiff,  as  administratrix ; 
that  the  infant  defendants  (the  present  plaintiffs)  had  no  title  or  in- 
terest therein  as  heirs  of  Edwin  J.  Darrow ;  that  the  assets  of  the  co- 
partnership of  Calkins  &  Darrow,  including  contracts  for  the  sale  of 
real  estate,  were  worth  about  $28,000 ;  and  that,  the  "plaintiff  and  de- 
fendant Daniel  O.  Calkins,  on  a  full  accounting  between  them  as  to 
said  estate,  having  agreed  upon  the  sum  of  $14,000  as  the  present  ac- 
tual value  of  the  interest  of  the  estate  of  the  said  Edwin  J.  Darrow 
in  the  said  copartnership  property,"  therefore,  etc.  The  decree  fur- 
ther provided  that  the  said  Calkins  pay  the  plaintiff,  as  administratrix, 
said  sum  of  $14,000,  and  that  "thenceforward  all  the  estate,  rights, 
interests,  property,  and  assets  of  the  said  firm  shall  belong  to  and  be 
the  property  of  the  said  Daniel  O.  Calkins  as  his  own  proper  goods 
and  chattels  and  credits,  lands  and  tenements."  Calkins  paid  the  $14,- 
000  as  required  by  the  judgm.ent,  and  entered  into  possession  of  all 
the  real  estate  embraced  in  the  deed  of  September  25,  1861,  not  pre- 
viously sold. 

Andrews,  C.  J.  We  are  relieved  on  this  appeal  from  the  inquiry 
which  frequently  arises  betv/een  copartners  and  copartnership  and  in- 


Sec.  5)         CONVERSION    OF    FIRM    REALTY   INTO    PERSONALTY.  205 

dividual  creditors,  whether  real  estate  purchased  and  conveyed  to  the 
copartners  during  the  existence  of  the  firm  by  a  conveyance  which 
in  form  created  a  tenancy  in  common  is  to  be  regarded  as  belonging 
to  them  collectively  as  partnership  property,  or  as  the  individual  prop- 
erty of  each  according  to  the  interests  disclosed  on  the  face  of  the  deed. 
The  finding  of  the  trial  court,  which  is  not  assailed  by  any  exception, 
is  express  that  the  lands  purchased  by  Daniel  O.  Calkins  and  Edwin  J. 
Darrow  were  purchased  by  them  as  copartners  out  of  the  funds  of  the 
firm  of  Calkins  &  Darrow,  and  the  deed  executed  by  Darrow  to  Calk- 
ins on  the  25th  of  September,  18G1,  upon  which  both  the  plaintiffs  and 
the  defendants  rely  as  determining  the  character  of  the  ownership,  ex- 
pressly declares  in  the  habendum  that  the  lands  were  partnership  prop- 
erty of  Calkins  &  Darrow.  We  are  to  assume,  therefore,  that  the 
lands  were  originally  purchased  out  of  partnership  funds,  with  the 
intention  on  the  part  of  each  partner  that  they  should  be  held  as  part- 
nership property,  subject  to  administration  under  the  rules  governing 
the  rights  and  interests  of  copartners  in  lands  purchased  by  them  to 
be  held  as  the  property  of  the  partnership.  The  partners,  as  between 
themselves,  made  the  lands  partnership  property,  and  the  rights  of 
creditors  of  the  firm  or  of  the  individual  partners  are  not  involved. 
The  only  question  here  is  between  the  plaintiffs,  as  heirs  of  Darrow, 
and  the  children  of  Calkins,  and  it  turns  mainly  on  the  question  wheth- 
er, upon  the  death  of  Darrow,  in  1864,  an  undivided  half  part  of  the 
lands  to  which  he  acquired  the  legal  title  by  the  deeds  running  jointly 
to  himself  and  Calkins,  executed  between  1850  and  1854,  descended 
to  and  vested  in  the  plaintiffs  as  his  heirs  at  law.  The  plaintiffs,  at 
the  death  of  Darrow,  were  infants ;  and,  although  this  action  was  not 
commenced  until  30  years  after  his  death,  nor  until  15  years  after  the 
younger  of  the  plaintiffs  became  of  age,  it  seems,  under,  the  case  of 
Howell  v.  Leavitt,  95  N.  Y.  617,  the  plaintiffs,  although  they  have 
slumbered  upon  their  rights  during  an  adverse  possession  27  years, 
were  not  barred  by  the  statute  of  limitations.  So,  also,  we  think  it 
must  be  held  that  they  were  not  barred  by  the  adjudication  in  the  de- 
cree of  October  31,  1867,  in  the  action  brought  by  the  administratrix 
Darrow  against  Calkins  for  the  settlement  of  the  partnership  affairs, 
which  declared  that  "they  had  no  title  or  interest  in  the  said  lands  and 
real  estate  as  heirs  of  the  said  Edwin  J.  Darrow,  deceased,  or  other- 
wise." The  service  of  the  summons  on  the  infants  by  publication  was 
not  completed  when  the  judgment  was  entered,  and.  until  the  period 
of  publication  had  expired,  the  court  could  acquire  no  jurisdiction  to 
appoint  a  guardian  ad  litem,  or  to  render  a  judgment  binding  upon 
them  as  parties  to  the  action.  Brooklvn  Trust  Co.  v.  Bulmer,  49  N. 
Y.  84;   Crouter  v.  Crouter,  133  N.  Y.  55.  30  N.  E.  726. 

The  legal  nature  and  incidents  of  land  purchased  by  a  copartnership 
with  copartnership  funds  is  a  subject  upon  which  great  diversity  of 
opinion  exists  in  different  jurisdictions.  The  English  rule,  after  many 
fluctuations,  has,  as  we  understand  the  cases,  come  to  be  that  lands  so 


206  NATURE  AND   CHARACTERISTICS  OF  A  PARTNERSHIP.  (Ch.  3 

purchased,  whether  purchased  for  or  used  for  partnership  purposes 
or  not,  provided  only  that  they  were  intended  by  the  partners  to  con- 
stitute a  part  of  the  partnership  property,  become  ipso  facto,  in  the 
view  of  a  court  of  equity,  converted  into  personalty  for  all  purposes, 
as  well  for  the  purpose  of  the  adjustment  of  the  partnership  debts  and 
the  claims  of  the  partners  inter  se  as  for  thje  purpose  of  determining 
the  succession  as  between  the  personal  representatives  of  a  deceased 
partner  and  the  heir  at  law.  Darby  v.  Darby,  3  Drew.  495 ;  Essex  v. 
Essex,  20  Beav.  442;  Undl.  Partn.  (3d  Ed.)  681  et  seq.  This  doc- 
trine had  its  origin  in  England,  and  is  said  to  have  grown  out  of  the 
peculiar  law  of  inheritance  there,  and  to  remedy  the  hardship  of  the 
rule  which  excludes  all  but  the  eldest  child  from  the  inheritance,  and 
of  the  other  rule  which  exempts  real  estate  in  the  hands  of  the  heir  from 
all  but  the  specialty  debts  of  the  ancestor.^  Fairchild  v.  Fairchild,  64 
N.  Y.  471;  Shearer  v.  Shearer,  98  Mass.  114.  Lindley,  in  his  work 
on  Partnership,  bases  the  rule  on  the  nature  of  the  interest  of  each 
partner  in  the  partnership  property.  lie  says  (page  687)  :  "From 
the  principle  that  a  share  of  a  partner  is  nothing  more  than  his  pro- 
portion of  the  partnership  assets  after  they  have  been  turned  into  mon- 
ey and  applied  in  liquidation  of  the  partnership  debts,  it  necessarily 
follows  that  in  equity  a  share  in  a  partnership,  whether  its  property 
consists  of  land  or  not,  must,  as  between  the  real  and  personal  repre- 
sentatives of  a  deceased  partner,  be  deemed  to  be  personal,  and  not 
real,  estate,  unless,  indeed,  such  conversion  is  inconsistent  with  the 
agreement  between  the  parties."  The  concluding  words  of  the  para- 
graph quoted  concede  that  the  intention  of* the  parties  will  prevent  a 
conversion  where  that  intention  is  manifested.  The  general  doctrine 
of  "out  and  out"  conversion  adopted  by  the  English  courts  has  not  been 
followed  to  its  full  extent  in  this  and  many  other  American  states. 
There  is  no  policy  growing  out  of  our  laws  of  inheritance  or  the  ex- 
emption of  lands  from  liability  for  simple^  contract  debts,  which  re- 
quires the  application  of  such  a  doctrine  here.  The  lands  of  the  an- 
cestor are  assets  for  the  payment  of  all  debts,  and  the  persons  who 
take  by  descent  and  under  the  statute  of  distribution  are  substantially 
the  same.  The  necessity  for  an  absolute  conversion,  supposed  to  be 
found  in  the  nature  of  a  partnership  interest,  seems  hardly  sufficient, 
to  justify  a  fiction  which  should  deprive  real  estate  of  a  partnership 
of  its  descendible  quality,  when  it  is  admitted  on  all  hands  that  part- 
nership real  estate,  if  the  necessity  arises,  is  first  subject  to  be  ap- 

1  A  better  statement  of  the  reason  for  the  doctrine  is  as  follows:  "From 
the  principle  that  a  share  of  a  partner  is  nothing  more  than  liis  proportion 
of  the  partnership  assets  after  they  have  been  turned  into  money  and  applied 
in  liquidation  of  the  partnership  debts,  it  necessarily  follows  that,  in  equity, 
a  share  in  a  partnership,  whether  its  property  consists  of  land  or  not,  must 
as  between  the  real  and  personal  representatives  of  a  deceased  partner,  be 
deemed  to  be  personal,  and  not  real,  estate,  unless,  indeed,  such  conversion  is 
Inconsistent  with  the  agreement  between  the  parties."    Lindley,  Partn.  *343. 


Sec    5)         CONVERSION    OF    FIUM    REALTY    INTO    PEBSONALTT.  2»)7 

propriatcd  in  equity  to  the  discharge  of  partnership  obligations  and  the 
adjustment  of  the  equities  between  the  parties. 

The  clear  current  of  the  American  decisions  supports  the  rule  that, 
in  the  absence  of  any  agreement,  express  or  implied,  between  the  part- 
ners to  the,  contrary,  partnership  real  estate  retains  its  character  as 
realty  with  all  the  incidents  of  that  species  of  property  between  the 
partners  themselves,  and  also  between  a  surviving  partner  and  the  real 
and  personal  representatives  of  a  deceased  partner,  except  that  each 
share  is  impressed  with  a  trust  implied  by  law  in  favor  of  the  other 
[partner  that,  so  far  as  is  necessary,  it  shall  be  first  applied  to  the  ad- 
justment of  partnership  obligations  and  the  payment  of  any  balance 
found  to  be  due  from  the  one  partner  to  the  other  on  winding  up  the 
partnership  affairs.  To  the  extent  necessary  for  these  purposes  the 
character  of  the  property  is,  in  equity,  deemed  to  be  changed  into  per- 
sonalty. On  the  death  of  either  partner,  where  the  title  is  veslcl  in 
*both,  the  share  of  the  land  standing  in  the  name  of  the  deceased  part- 
ner descends  as  real  estate  to  his  heirs,  subject  to  the  equity  of  the 
surviving  partner  to  have  it  appropriated  to  accomplish  the  trust  to 
which  it  was  primarily  subjected.  The  working  out  of  the  mutual 
rights  which  grew  out  of  the  partnership  relation  does  not  seem  to  re- 
quire that  the  character  of  the  property  should  be  changed  until  the 
occasion  arises  for  a  conversion  and  then  only  to  the  extent  required. 
The  American  rule  commends  itself  for  its  simplicity.  It  makes  the 
legal  title  subservient  in  equity  to  the  original  trust.  It  disturbs  it 
no  further  than  is  necessary  for  this  purpose.  The  portion  of  the  land 
not  required  for  partnership  equities  retains  its  character  as  realty, 
and  it  leaves  the  laws  of  inheritance  and  descent  to  their  ordinary 
operation.  It  would  be  useless  to  review  in  detail  the  authorities  which 
seem  to  us  to  maintain  what  has  been  called  the  "American  Rule." 
We  refer  to  a  very  few  of  them.  Buchan  v.  Sumner,  2  Barb.  Ch. 
(N.  Y.)  167,  47  Am.  Dec.  305;  Collumb  v.  Read,  2-i  N.  Y.  505;  Fair- 
child  v.  Fairchild,  supra;  Shearer  v.  Shearer,  supra;  Shanks  v.  Klein, 
10-1  U.  S.  18,  26  L.  Ed.  635.  If,  as  sometimes  happens,  the  title  to 
partnership  real  estate  is  in  the  name  of  one  of  the  partners  only,  on 
the  death  of  the  other  partner  his  equitable  title  descends  to  his  heirs 
or  goes  to  his  devisees,  but  subject  to  the  primary  claims  growing  out 
of  the  partnership  relation.  Fairchild  v.  Fairchild,  supra;  T.  Pars. 
Partn.  §  272.  But  the  general  principles  to  which  we  have  adverted 
are  those  applied  by  courts  of  equity  in  determining  the  character  and 
incidents  of  partnership  real  estate,  in  the  absence  of  any  agreement, 
express  or  implied,  between  the  partners  on  the  subject.  It  is,  however, 
generally  conceded  that  the  question  whether  partnership  real  estate 
shall  be  deemed  absolutely  converted  into  personalty  for  all  purposes, 
or  only  converted  pro  tanto  for  the  purpose  of  partnership  equities, 
may  be  controlled  by  the  express  or  implied  agreement  of  the  partners 
themselves,  and  that  where,  by  such  agreement,  it  appears  that  it  was 


208  NATURE   AND   CHARACTERISTICS   OF   A   rARTXEUSllIP.  (Cll    3 

the  intention  of  the  partners  that  the  lands  should  be  treated  and  ad- 
ministered as  personalty  for  all  purposes,  effect  will  be  given  thereto. 
In  respect  to  real  estate  purchased  for  partnership  purposes  with  part- 
nership funds,  and  used  in  the  prosecution  of  the  partnership  business, 
the  English  rule  of  "out  and  out"  conversion  may  be  regarded  as 
properly  applied  on  the  ground  of  intention,  even  in  jurisdictions  which 
have  not  adopted  that  rule  as  applied  to  partnership  real  estate  ac- 
quired under  different  circumstances,  and  where  no  specific  intention 
appeared.  The  investment  of  partnership  funds  in  lands  and  chattels 
for  the  purpose  of  a  partnership  business,  the  fact  that  the  two  species 
of  property  are  in  most  cases  of  this  kind  so  commingled  that  they  can- 
not be  separated  w'ithout  impairing  the  value  of  each,  has  been  deemed 
to  justify  the  inference  that  under  such  circumstances  the  lands  as 
w^ell  as  the  chattels  were  intended  by  the  partners  to  constitute  a  part 
of  the  partnership  stock,  and  that  both  together  should  take  the  charac- 
ter of  personalty  for  all  purposes ;  and  Judge  Denio,  in  Collumb  v.  Read, 
supra,  expressed  the  opinion  that  to  this  extent  the  English  rule  of 
conversion  prevailed  here.  That  paramount  consideration  should  be 
given  to  the  intention  of  the  partners  when  ascertained,  is  conceedd  by 
most  of  the  cases.  See  Hoxie  v.  Carr,  1  Sumn.  (U.  S.)  183,  Fed. 
Cas.  No.  6.802;  Fall  River  Whaling  Co.  v.  Borden,  10  Cush.  (Mass.) 
462:  Collumb  v.  Read,  supra;  T.  Pars.  Partn.  §  267.  The  legal  title 
to  the  real  estate  which  the  heirs  of  Edwin  J.  Darrow  asked  to  have 
partitioned  in  this  action  was  vested  in  Daniel  O.  Calkins  at  the  time 
of  the  death  of  Darrow,  in  November,  1864.  The  plaintiffs,  on  the 
death  of  their  father,  took  no  legal  estate  in  the  lands.  The  legal 
estate  which,  prior  to  the  25th  day  of  September,  1861,  Darrow  held 
in  the  undivided  one-half  of  the  premises,  was  by  the  deed  executed 
bv  him  on  that  day  conveyed  to  Calkins.  That  this  was  the  effect  of 
the  deed,  we  have  no  doubt.  The  deed  is  in  terms  full  and  ample  to 
convey  in  fee  the  interest  of  Darrow  to  his  grantee.  It  was  coupled, 
however,  with  the  declaration  on  the  face  of  the  deed  that  it  was  to  be 
held  by  Calkins  as  partnership  property,  and  the  deed  contained  a  pow- 
er of  management  and  sale,  and  this  was  followed  by  the  significant 
clause,  "And  to  pay  over  to  the  said  Darrow,  his  heirs  and  assigns,  or 
other  legal  representatives,  such  portion  thereof  as  shall,  at  the  closing 
of  the  partnership  business  of  said  Calkins  and  Darrow,  belong  to  or 
be  due  or  coming  to  said  Darrow,  his  heirs,  executors,  assigns,  or  other 
legal  representatives."  The  suggestion  that  the  deed  attempted  to- 
create  an  express  trust  in  lands,  not  within  the  enumerated  trusts  per- 
mitted by  section  55  of  our  statute  of  "Uses  and  Trusts"  (1  Rev.  St. 
728),  and  was,  therefore,  void  as  a  conveyance,  is  not  w^ell  founded. 
It  recognized  a  pre-existing  trust  imposed  upon  the  lands,  implied  by 
law,  and  arising  out  of  the  partnership  relation,  and  that  the  trust  was 
to  continue  notwithstanding  the  conveyance  of  the  legal  title.  This 
was  not,  we  think,  in  contravention  of  the  statute  which  contemplated 
the  creation  of  original' trusts,  and  not  the  abrogation  of  existing  trusts 


Sec.  5)         CONVERdlON    OF    FIRM    UKALTY    INTO    FEKSONALTY.  209 

resulting  from  or  implied  by  operation  of  law ;  nor  did  it  rer/der  in- 
operative the  subsequent  recognition  of  such  an  existing  trust  in  con- 
nection with  a  conveyance  of  the  lethal  title.  We  think  the  legal  title 
to  the  one-half  part  of  the  land  passed  by  Darrow's  deed,  subject  to 
the  performance  by  Calkins  of  the  trust  therein  declared.  The  im-, 
portant  question  is  whelher  it  operated  to  convert  the  partnership  lands 
into  personalty,  and  to  change  the  interest  of  Darrow,  or  his  repre- 
sentatives, from  an  interest  in  the  land  as  realty  into  an  interest  in 
the  proceeds  of  the  lands,  after  a  sale  thereof  by  Calkins  under  the 
power  contained  in  the  deed.  We  are  of  opinion  that  it  was  the  in- 
tention of  the  partners,  disclosed  on  the  face  of  the  deed  and  by  the 
surrounding  circumstances,  to  substitute  in  place  of  Darrow's  prior" 
interest  in  the  lands,  as  such,  an  interest  in  him  and  his  representatives 
in  any  surplus  which  should  remain  after  a  sale  by  Calkins,  and  the 
adjustment  of  the  partnership  affairs.  It  is  not  necessary  to  decide 
whether  the  surplus,  when  ascertained,  would  go  to  the  real  or  per- 
sonal representatives  of  Darrow.  As  between  Darrow  and  his  repre- 
sentatives and  Calkins  and  his  representatives,  the  deed  operated  as 
a  conversion  of  the  lands  into  personalty.  The  personal  representa- 
tives of  Darrow  were  entitled  to  enforce,  in  an  action  for  an  account- 
ing and  an  adjustment  of  the  partnership  affairs,  the  claims  of  Dar- 
row's estate.  This  was  the  purpose  of  the  action  which  resulted  in 
the  decree  of  October  31,  1867,  and  we  think  that  decree  was  binding 
upon  the  plaintiffs,  not  on  the  ground  that  they  were  parties,  but  for 
the  reason  that,  no  controversy  existing  as  to  the  original  character 
of  the  property  as  partnership  property,  or  as  to  the  subsequent  deal- 
ing between  the  partners  in  respect  to  it,  the  heirs  of  Darrow  were 
not  necessary  parties  to  a  final  adjustment  of  the  partnership  affairs, 
including  the  interest  of  the  Darrow  estate  growing  out  of  his  rela- 
tion to  the  lands  under  the  deed  of  September  25,  18G1.  It  was  open 
to  the  plaintiffs,  en  an  accounting  by  the  administratrix  of  the  Darrow 
estate,  to  claim  that  the  $14,000  received  by  her  under  the  decree  in 
the  action  for  an  accounting  should  be  regarded  as  real,  and  not  per- 
sonal, assets,  and  that  they  were  entitled  to  it  in  their  character  as 
heirs,  and  not  as  distributees.  We  think  the  order  of  the  court  below 
reversing  the  judgment  at  special  term  was  correct,  and  it  should 
therefore,  be  affirmed,  and  judgment  absolute  entered  for  the  defend- 
ants on  the  stipulation,  with  costs. 
Order  affirmed. 

GlL.PAliT.— 14 


210  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

SECTION  6.— NATURE  OF  PARTNER'S  INTEREST  IN 
PARTNERSHIP  PROPERTY. 


TAYLOR  et  al.  v.  FIELDS. 
(Court  of  Exchequer,  1799.     4  Ves.  396.) 

The  point  in  this  cause  depended  upon  the  general  question  whetli- 
€r  a  separate  creditor  of  one  partner  can  hold  the  partnership  effects 
taken  under  an  execution  for  his  separate  debt  against  the  joint  cred- 
itors of  the  partnership. 

At  the  time  the  execution  took  place  the  partnership  was  insolvent; 
but  a  commission  of  bankruptcy  had  not  then  issued. 

The  court  having  taken  some  time  to  consider,  the  Lord  Chief  Baron 
delivered  their  opinion : 

The  right  of  the  separate  creditor  under  the  execution  depends  up- 
on the  interest  each  partner  has  in  the  joint  property.  With  respect 
to  that  we  are  of  opinion  that  the  corpus  of  the  partnership  effects  is 
joint  property,  and  neither  partner  separately  has  anything^  in  that 
corpus,  but  the  interest  of  each  is  only  his  share  of  what  remains  after 
the  partnership  accounts  are  taken. 

In  Skipp  V.  Harwood,  1  Ves.  239  (sub  nom.  West  v.  Skip),  we 
see  that,  whatever  the  right  of  the  partnership  may  be,  it  is  not  af- 
fected by  what  may  happen  between  the  individual  partners.  There 
is  a  distinction  between  the  rights  of  the  partners  and  the  rights  of 
the  partnership.  As  between  one  partner  and  the  separate  creditors 
of  the  other,  they  cannot  affect  the  joint  stock  any  farther  than  that 
partner  whose  creditors  they  are  could  have  affected  it.  In  Fox  v. 
Hanbury,  Cowp.  445,  Lord  Mansfield  was  led  to  the  consideration 
of  a  point  that  bears  much  upon  this  case ;  and,  adverting  to  the  case 
of  Skipp  v.  Plarwood,  he  states  a  passage  of  Lord  Plardwicke's  judg- 
ment from  his  own  note  rather  stronger  than  it  appears  in  the  report: 
"If  a  creditor  of  one  partner  takes  out  execution  against  the  partner- 
ship effects,  he  can  only  have  the  undivided  share  of  his  debtor,  and 
must  take  it  in  the  same  manner  the  debtor  himself  had  it,  and  sub- 
ject to  the  rights  of  the  other  partner." 

What  is  the  manner  in  which  the  debtor  himself  had  it?  He  had 
that  which  w^as  undivided,  and  could  only  be  divided  by  first  deliver- 
ing the  effects  from  the  partnership  debts.  He  who  comes  in  as  his 
<:ompanion,  as  joint-tenant  with  him,  according  to  this  doctrine  of 
Lord  Hardwicke,  must  take  it  in  the  same  manner  the  debtor  himself 
had  it,  subject  to  the  rights  of  the  other  partners. 

Lord  Mansfield  having  stated  what,  according  to  the  course  of  the 
■common  law,  as  far  as  it  respects  trade  between  partners,  is  the  rule, 
that  a  creditor  taking  out  execution  against  a  partner  is  directly  in  the 


Sec.  6)  NATURE   OF   PARTNER'S   INTEREST.  211 

place  of  the  partner  debtor,  proceeds  to  show  that  by  the  same  rule, 
where  a  partner  becomes  bankrupt,  the  assignees  are  put  in  the  place 
of  the  partner,  in  whose  right  they  come  in,  and  by  no  means,  as  was 
argued  by  Mr.  Plumer,  by  any  rule  arising  out  of  the  bankrupt  laws ; 
for  nothing  is  said  in  any  one  of  those  acts  as  to  the  creditors  of  a 
partnership  and  the  separate  creditors  of  one  partner,  but  they  only 
provide  for  the  case  of  mutual  debts  and  accelerating  a  debt  upon  a 
security  payable  at  a  future  day.  But  the  same  common  law,  applied 
in  the  case  where  one  partner  becomes  a  bankrupt,  provides  that  the 
assignee  of  the  bankrupt  shall  be  in  the  same  situation  as  that  in  which 
a  creditor  taking  out  execution  stood  before  those  acts.  This  intro- 
duces all  the  cases  of  bankruptcy,  which  Mr.  Plumer  wished  to  ex- 
clude, as  not  applicable  to  a  case  in  which  there  was  no  bankruptcy ; 
and  this  case  is  to  be  considered  as  if  no  bankruptcy  had  taken  place, 
as  the  execution  was  before  the  bankruptcy.  In  law  there  are  three 
relations:  First,  if  a  person  chooses  for  valuable  consideration  to 
sell  his  interest  in  the  partnership  trade,  for  it  comes  to  that;  or  if 
his  next  of  kin  or  executors  take  it  upon  his  death ;  or  if  a  creditor 
takes  it  in  execution,  or  the  assignees  under  a  commission  of  bank- 
ruptcy. The  mode  makes  no  difference;  but  in  all  those  cases  the  ap- 
plication takes  place  of  the  rule  that  the  party  coming  in  the  right  of 
the  partner  comes  into  nothing  more  than  an  interest  in  the  partner- 
ship, which  cannot  be  tangible,  cannot  be  made  available,  or  be  de- 
livered, but  under  an  account  between  the  partnership  and  the  part- 
ner, and  it  is  an  item  in  the  account  that  Enough  must  be  left  for  the 
partnership  debts.  *  *  *  The  question,  therefore,  recurs  to  the 
consideration,  what  it  was  that  partner  had,  for  the  creditor  cannot  be 
entitled  to  any  more.  It  therefore  argues  nothing  to  say  he  has  the 
merit  of  diligence,  till  we  see  upon  what  that  merit  can  attach.  If 
the  partner  himself,  therefore,  had  nothing  more  than  an  interest^  in 
the  surplus  beyond  the  debts  of  the  partnership  upon  a  division,  if  it 
turns  out  that  at  common  law  that  is  the  whole  that  can  be  delivered 
to,  or  taken  by,  the  assignee  of  a  partner,  the  executor,  the  sheriff,  or 
the  assignee  under  a  commission  of  bankruptcy,  all  that  is  delivered  to 
the  creditor  taking  out  the  execution  is  the  interest  of  the  partner  in 
the  condition  and  state  he  had  it;  and  nothing  was  due  to  this  part- 
ner separately,  the  partnership  being  insolvent.  The  whole  property 
was  due  to  the  partnership  creditors,  and  not  to  either  partner. 


STAATS  V.  BRISTOW. 

(Court  of  Appeals  of  New  York,  1878.    73  N.  Y.  204.) 

FoLGER,  J.  The  defendant  had  the  possession  of  certain  personal 
property,  to  which  the  plaintiff  claims  that  he  was  entitled.  It  was, 
of  course,  incumbent  upon  the  plaintiff  to  show  and  establish  his  title. 
He  showed  that  he  was  the  purchaser  at  a  sherift"s  sale.     The  certi- 


212  NATURE   AND   CHARACTERISTICS   OF   A    rATlTNERSHIP.  (Ch.  3 

ficate  given  by  the  sheriff  does  not  say  that  the  plaintiff  bought  the 
property  itself.  It  says  that  he  bought  only  all  the  right,  title,  and  in- 
terest which  Joseph  Stockbridge  had  in  it  on  the  30th  of  November, 
1874.  The  sheriff's  return  on  the  execution  upon  which  he  sold  is  the 
same.  The  execution  on  which  the  sale  took  place  directed  a  sale  of 
the  property  of  the  defendants  therein  named,  who  were  the  Stock- 
bridge  above  named  and  his  copartner,  Martin ;  but  the  property  point- 
ed at  was  what  they  owned,  or  either  of  them  owned,  on  a  day  named, 
to  wit,  on  the  9th  of  December,  1874,  and  before  that  day,  to  wit,  on 
the  4th  day  of  that  month,,  the  defendants  in  the  execution  had  as- 
signed the  property  to  the  defendant  in  this  action  in  trust  for  all  of 
their  creditors. 

So  it  is  apparent  that  the  plaintiff  did' not  buy  the  property  itself 
specifically,  but  only  the  interest,  right,  and  title  which  Stockbridge  had 
in  it.  Now  the  interest  which  he  had  in  it  was  that  of  one  of  two  part- 
ners, as  the  property  was  part  of  the  assets  of  a  copartnership  firm  of 
which  he  was  a  member.  The  interest  of  a  member  of  such  a  firm  in 
the  assets  of  it  is  the  share  to  which  he  is  entitled  by  the  terms  of  the 
copartnership,  in  the  surplus  of  those  assets  remaining  after  all  part- 
nership debts  are  fully  paid.  It  appears  in  this  case  that  the  firm  was 
insolvent,  that  its  debts  much  exceeded  its  assets,  and  that  there  never 
could  arise  a  surplus.  So  the  interest  of  Stockbridge,  as  an  individual, 
in  this  property  was  nothing;  and  so  the  plaintiff  got  nothing  by  his 
purchase. 

Judgment  for  the  defendant  affirmed. 


PRATT    v.    McGUINNESS    et    al. 

^Supreme  Judicial  Court  of  Massachusetts,  1899.    173  Mass.  170,  53  N.  E.  380.) 

Morton,  J.  This  case  was  heard  upon  the  pleadings  and  the  mas- 
ter's report.  There  was  a  final  decree  and  an  appeal,  and  a  request  to 
the  justice  who  heard  the  case  to  report  the  same,  under  St.  1883,  c. 
223,  §  7.  The  case  may  be  treated  as  here  on  appeal,  and  the  report 
may  be  regarded  as  a  finding  under  that  statute  of  all  the  facts  on 
which  the  decree  was  founded,  namely,  those  stated  in  the  master's 
report  and  those  admitted  by  the  pleadings.  It  is  not  necessary,  to 
determine  the  power  of  a  single  justice,  independently  of  the  statute 
of  1883,  to  report  a  case  to  the  full  court  after  the  entering  of  a  final 
decree.  The  bill,  as  brought,  alleges  that  the  plaintiff  is  a  half  owner 
as  tenant  in  common  of  certain  personal  property,  and  asks  that  the 
property  be  sold,  and  the  proceeds  divided,  that  a  mortgage  put  upon 
the  property  by  one  of  the  defendants  be  declared  void,  and  that  he  be 
required  to  account  for  certain  rents  and  profits  received  from  the 
property.  The  master  has  found  that  the  person  from  whom  the  plain- 
tiff derived  his  title  had  only  an  equitable  interest  in  the  property  as  a 


Sec.  6)  NATURE    OF    PARTNEU'S    INTEREST.  21.*? 

member  of  a  firm  for  which  the  legal  title  to  it  was  held  by  one  of  the 
defendants  as  a  part  of  the  assets  of  the  partnership.  None  of  the 
plaintiff's  exceptions  to  the  master's  report  in  regard  to  his  fin'lings  of 
fact  can  be  considered,  because  tlie  evidence  is  not  reported.  It  appears- 
that  at  most  the  plaintiff  has  only  an  equitable  interest  in  such  assets 
of  the  partnership  as  may  remain,  if  any,  after  settlement  of  the  affairs 
of  the  partnership.  He  has  nothing  but  that  which  he  acquired  from 
one  of  the  partners,  and,  if  the  legal  title  to  the  chattels  had  been  in 
the  firm,  he  would  not  have  acquired  an  ownership  in  the  articles  them- 
selves. The  title  to  personal  property  of  a  partnership  is  not  in  the 
individual  members  of  tl.c  firm,  so  that  they  can  convey  an  undivided 
share  in  any  specific  articles  to  another ;  but  it  is  in  the  firm  as  an  en- 
tirety, subject  to  the  equities  of  the  different  members,  and  their  right 
to  have  it  applied  to  the  payments  of  the  debts  of  the  partnership.  San- 
born V.  Royce,  132  Mass.  594 ;  Pelle^ier  v.  Couture,  148  Mass.  2G9, 
19  N.  E.  400,  1  L.  R.  'A.  863;Lovejoy  v.  Bowers,  11  N.  H.  404; 
Fourth  Nat.  Bank  v.  Railroad  Co.,  11  Wall.  (U.  S.)  624,  20  L.  Ed. 
82;  Menagh  v.  Whitwcll,  o2  N.  Y.  146,  11  Am.  Rep.  683;  Tarbell 
V.  West,  86  N.  Y.  280;  Beecher  v.  Stevens,  43  Conn.  587;  Sirrine  v. 
Briggs,  31  Mich.  443.  It  is  questionable,  upon  the  authorities,  whether, 
upon  a  conveyance  of  an  interest  in  only  a  part  of  the  partnership  prop- 
erty, a  plaintiff  could  maintain  a  bill  in  equity  for  a  Settlement  of  the 
partnership  affairs  and  an  accounting.  Assuming  that  he  could,  this 
bill  was  not  brought  for  that  purpose.  *  *  *  It  is  plain  that  this 
bill  cannot  be  maintained. 
Decree  affirmed. 


McKEE  v.  COVALT.    BUCHER  v.  SAME. 

(Supreme  Court  of  Kansas,  1905.    71  Kan.  772,  81  Pac.  475.) 

C.  A.  Smith,  J.  The  undisputed  evidence  in  this  case  shows  that 
the  defendants  Bucher  and  Mark  were  copartners  prior  to  the  purchase 
of  the  land  in  question,  and  that  the  land  was  purchased  in  a  partner- 
ship transaction,  and,  so  far  as  paid  for,  was  paid  for  by  an  exchange 
of  partnership  property;  that  the  firm  continued  doing  an  active  busi- 
ness until  about  1893  or  1S94,  when  it  ceased,  but  there  was  no  formal 
dissolution  of  the  firm,  and  no  accounting  or  settlement  of  the  firm 
affairs.  The  firm  property,  including  the  land  in  question,  was  re- 
sponsible for  the  debts  of  the  firm,  and  was  turned  over  to  Bucher  to 
settle  and  adjust.  He  rented  the  land  for  a  time,  and  applied  the  rent 
on  the  firm's  indebtedness;  and  when  Covalt  took  the  quitclaim  deed 
from  ^lark  he  had  knowledge  of  the  fact,  or  at  least  sufficient  infor- 
mation to  put  him  upon  his  inquiry,  that  the  land  was  partnership  as?ets. 
and  he  was  bound  to  take  notice  of  the  rights  of  the  parties  as  well 
as  of  the  rights  of  the  creditors  of  the  firm.  The  partners  jointly  held 
the  land  in  trust  for  the  firm,  and  neither  owned  an  undivided  one-half   ^ 


214  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

interest  therein  individually,  and  neither  had  a  right  to  sell  the  land  or 
his  interest  therein  except  for  the  purpose  of  paying  the  obligations  of 
the  firm,  until  all  of  the  firm  debts  had  been  paid  and  the  affairs  of  the 
copartnership  wound  up. 

[The  judgment  of  the  district  court,  quieting  the  title  of  the  grantee 
of  the  partner  attempting  to  convey  a  one-half  interest  in  tlie  firm 
property,  was  reversed.] 


PENNYBACKER  v.  LEARY. 
(Supreme  Court  of  Iowa,  18S4.    65  Iowa,  220,  21  N.  W   575.) 

Action  in  chancery.  Upon  a  trial  on  the  merits,  plaintiff's  petition 
was  dismissed.    He  now  appeals  to  this  court. 

Beck,  >].  1.  The  petition  alleges  that  the  parties  entered  into  a 
parol  contract  of  partnership  for  the  purchase  and  sale  of  certain  tracts 
of  land,  containing  together  400  acres ;  that  in  pursuance  of  this  con- 
tract the  lands  were  purchased  and  the  title  conveyed  to  defendant,  and 
that  thereby  they  each  became  the  owner  of  an  undivided  one-half  there- 
of. The  special  relief  prayed  for  is  that  the  interest  of  the  parties  be 
confirmed,  and  that  the  lands  be  partitioned  accordingly.  The  petition 
also  asks  for  general  relief.  The  answer  of  the  defendant  denies  the 
contract  of  partnership,  and  the  interest  claimed  by  plaintiff  in  the 
lands.  Other  allegations  of  the  pleadings  need  not  be  recited  here. 
*     *     * 

3.  But  defendant  insists  and  pleads  as  a  defense,  in  his  answer,  that 
as  the  contract  was  for  the  purchase  of  an  interest  in  lands,  and  was 
wholly  oral,  it  cannot  be  enforced  under  the  statute  of  frauds.  The 
contract,  to  be  truly  stated,  amounted  to  a  parol  agreement  for  the 
creation  of  a  partnership,  the  object  of  which  was  to  acquire  and  sell 
certain  lands.  The  part  of  the  agreement  obligating  the  parties  to  pur- 
chase the  land  was  but  an  incident  of  the  contract  of  partnership.  It 
provided  for  the  subject  and  manner  of  investment  of  the  capital  of 
the  firm.  It  was  simply  an  agreement  that  the  firm  would  biiy  the 
lands.  By  this  agreement  neither  party  bought  or  sold  lands.  It  was 
not  an  agreement  for  the  purchase  and  sale  of  lands.  It  was  nothing 
more  than  an  agreement  that  the  firm  should  buy  lands  of  another 
which  should  be  held  as  firm  property.  It  was  not,  therefore,  an  agree- 
ment or  contract  under  which  an  interest  in  or  title  to  lands  was  at- 
tempted to  be  transferred.  It  simply  provides  what  interest  the  par- 
ties shall  have  therein  when  the  lands  shall  be  acquired  as  provided  by 
the  contract.  Surely,  if  two  persons  agree  to  enter  into  a  partnership 
for  the  purchase  and  sale  erf  dry  goods,  and  therein  specify  the  manner 
of  the  contribution  of  the  capital  of  the  firm  and  the  goods  to  be  pur- 
chased therewith,  and  the  persons  of  whom  they  shall  be  purchased, 
the  contract  could  not  be  regarded  as  creating  or  transferring  any  prop- 


Sec.  6)  NATURE    OF    PARTNER'S   INTEREST.  215 

erty  or  interest  in  the  goods  intended  to  be  purchased.  There  is  no 
distinction  in  principle  between  that  case  and  this.  We  conclude  th.at 
the  contract  in  question  is  not  within  the  contemplation  of  our  statute 
of  frauds,  which  provides  that  no  evidence  of  a  contract  "for  the  crea- 
tion or  transfer  of  an}-  interest  in  lands,  except  leases  for  a  term  not 
exceeding  one  year,"  is  competent,  "unless  it  be  in  writing  and  signed 
by  the  party  to  be  charged,  or  by  his  lawfully  authorized  agent." 
Code,  §  3G63.     *     *     * 

4.  It  will  be  observed  that  the  lands,  as  we  have  before  stated,  were 
not  purchased  by  the  contract  for  the  copartnership,  but  by  a  subse- 
quent purchase  made  in  pursuance  thereof.  The  case  then  assumes 
the  aspect  of  the  purchase  of  lands  by  a  copartnership.  While  the  title 
of  the  lands  was,  under  this  purchase,  vested  in  defendant,  they  were 
really  held  by  him  in  trust  as  partnership  property.  Plaintiff's  interest 
in  the  lands  is  that  of  a  partner,  as  prescribed  by  the  contract  of  co- 
partnership. It  is  plain  that  plaintiff  is  not  entitled  to  a  partition  of 
the  lands,  as  he  specially  prays  in  his  petition.  Defendant  furnished 
the  money  to  purchase  the  lands,  and  under  the  contract  of  copartner- 
ship he  is  to  be  allowed  a  return  thereof,  with  10  per  centum  interest. 
-A-fter  the  sale  of  the  lands  and  the  repayment  of  the  sum  he  advanced, 
with  interest  and  taxes,  the  lands  or  the  profits,  if  a  sale  shall  be  made, 
are  to  be  divided  between  the  parties.  Plaintiff  is  entitled  to  no  part 
of  the  lands  or  profits  until  defendant  be  paid  and  the  partnership  be 
settled.  It  is  not  made  to  appear  that  plaintiff  is  entitled  now  to  en- 
force a  sale  of  the  lands  and  the  final  settlement  of  the  partnership,  if 
such  relief  could  be  granted  under  the  general  prayer  of  his  petition. 
He  is  surely  not  entitled  to  a  partition  of  the  lands  for  which  he  special- 
ly prays.  We  therefore  think  that  his  petition  ought  to  be  dismissed, 
but  he  ought  not  to  be  precluded  from  seeking  In  a  proper  action  the 
settlement  of  the  partnership  and  the  recovery  of  his  interest  as  a 
partner  in  the  lands,  or  the  profits  thereof,  whenever  he  may  be  able  to 
establish  his  right  to  enforce  such  a  settlement  of  the  partnership.  The 
petition  is  therefore   dismissed,  without  prejudice  to  such  an  action. 

Affirmed. 


^TOTJNEAUX  v.  RAYNOLDS  et  al. 

(Court  of  Chanrery  of  New  Jei-soy,  1806.    54  X.  J.  Eq.,  559.  .35  .\tl.  .5.36.)  _ 

Rekd.  V.  C.  This  bill  is  filed  for  a  partition  of  a  tract  of  land,  upon 
which  is  a  factory,  at  Bergen  Point,  N.  J.  It  is  admitted  that  the  pres- 
ent owners  of  the  property  are  Charles  T.  Raynolds,  Thoma?  B.  Hid- 
den, the  two  defendants,  and  Gen.  IMolineaux,  the  complainant.  It  is 
also  admitted  that  they  own  it  as  partners.  It  is  admitted  by  counsel 
that,  if  the  property  is  subject  to  a  partition  suit,  it  should  be  sold,  r.nd 


216  NATURE   AND   CnARACTEIilSTICS   OF   A   I'AKi  NERSHIP.  (Cll.  3 

not  divided.  Two  questions  "are  presented  for  solution:  The  first  is 
whether  the  suit  for  partition  is  well  brought.  If  it  is  properly  brought 
then  the  second  question  is,  what  are  the  proportionate  interests  of  the 
owners  in  the  property?     *     *     * 

The  first  question  mooted  springs  out  of  the  existence  of  the  De 
Floras  suit.  The  counsel  for  the  defendants  insist  that,  so  long  as  any 
claim  against  the  old  firm  remains  unsatisfied,  so  long  each  partner 
has  a  right  to  have  the  firm  assets  held  as  such  to  be  applied  in  liqui- 
dation of  the  claim;  that  until  ^11  such  claims  are  satisfied  no  partner 
has  a  right  to  demand  a  division  of  the  firm  property.  The  equitable 
rule  thus  invoked  is  entirely  settled.  The  property  of  a  firm,  whether 
personal  or  real,  is  a  fund  to  be  primarily  applied  to  the  payment  of  its 
debts;  and  each  partner  has  a  right  to  have  it  so  appropriated,  to  the 
end  that  he  himself  may  be  relieved  from  any  personal  liability  to  an- 
swer for  the  firm  debts.  In  England,  land  as  well  as  personalty,  be- 
longing to  a  firm  is  regarded  as  personal  assets.  Liiidl.  Partn,  par. 
343.  In  this  country  the  land  is  held  to  be  personal  assets  so  far  only  as 
it  may  be  needed  to  pay  firm  creditors.  National  Bank  of  Metropolis 
v.  Sprague,  20  N.  J.  Eq.  13 ;  Freem.  Co-Ten.  par.  118.  Out  of  this 
equity  of  each  partner  to  have  the  firm  property  applied  to  the  payment 
of  firm  debts,  in  order  that  he  may  be  discharged  from  personal  lia- 
bility, has  emerged  the  rule  that  the  partition  of  the  real  property  of  a 
firm  will  not  be  decreed,  so  long  as  debts  of  the  partnership  remain 
unliquidated.  Pennybacker  v.  Leary,  G5  Iowa,  220,  21  N.  W.  575; 
Kruschke  v.  Stefen,  83  Wis.  373,  53  N.  W.  683 ;  Mendenhall  v.  Ben- 
bow,  84  N.  C.  646 ;  Freem.  Co-Ten.  par.  443.  By  the  rule  laid  down 
in  these  cases,  the  only  method  by  which  a  partner,  under  such  condi- 
tions, can  compel  a  division  of  the  firm  property,  is  by  a  bill  to  ad- 
minister and  settle  the  partnership  affairs.  It  is  apparent,  however, 
that,  inasmuch  as  the  ground  for  refusing  partition  is  that  partners 
may  be  protected  from  future  calls  to  pay  firm  debts,  therefore,  if  it 
should  be  made  to  appear  that  the  property  involved  in  the  application 
for  partition  will  not  be  needed  to  meet  such  obligations,  the  objection 
to  the  distribution  of  the  property  disappears.  Now,  it  appears  in  this 
case  that  there  is  other  real  estate  in  Brooklyn,  belonging  to  this  firm, 
of  the  value  of  $150,000.  It  also  appears  that  the  De  Floras  suit  is 
pending  in  the  courts  of  New  York.  The  property  and  the  pending 
suit  are  therefore  both  in  the  state  of  the  firm's  domicile.  It  is  beyond 
the  realms  of  probability  that  the  final  judgment  in  the  De  Floras  suit, 
which  suit  has  been  dragging  along  for  20  years,  can  reach  an  amount 
which  will  begin  to  exhaust  the  Brooklyn  property.  Although  it  ap- 
pears that  a  proceeding  for  partition  of  that  property  also  had  been 
commenced  in  the  courts  of  New  York,  that  proceeding  has  not  gone 
to  a  decree,  and  it  is  in  that  suit  that  the  defense  set  up  here  can  be 
more  appropriately  interposed.  Under  these  conditions,  I  do  not  see 
any  substantial  ground  for  thinking  that  the  interest  of  any  member 


Sec.  7)  TRANSFER  OF  PARTNERSHIP  PROPERTY.  217 

of  the  firm  will  be  menaced  by  the  severance  of  the  title  to  this  prop- 
erty as  is  proposed  by  this  suit.     *     *     * 

I  will  advise  a  decree  in  conformity  to  these  views. 


SECTION   7.— TRANSFER   OF    PARTNERSHIP   PROPERTY. 
I.    By  Act  of  the  Firm. 


Ex  parte  RUFFIN. 
(In  Chancery,  before  Lord  Eldon,  C,  ISOl.    6  Yes.  119.) 

In  June,  1797,  Thomas  Cooper,  of  Epsom,  brewer,  took  James  Coop- 
er into  partnership.  That  partnership  was  dissolved  by  articles  dated 
the  3d  of  November,  1798,  under  which  the  buildings,  premises,  stock 
in  trade,  debts,  and  effects  were  assigned  to  James  Cooper  by  Thomas 
Cooper,  who  retired  from  the  trade.  Upon  the  2d  of  April,  ISOO,  a 
coi;nmissi6n  of  bankruptcy  issued  against  James  Cooper,  under  which 
the  joint  creditors  attempted  to  prove  their  debts,  but  the  commission- 
ers refused  to  permit  them,  upon  which  a  petition  was  presented  to 
Lord  Rosslyn,  who  made  an  order  that  the  joint  creditors  should  be 
at  liberty  to  prove,  with  the  usual  directions  for  keeping  distinct  ac- 
counts, and  an  application  of  the  joint  estate  to  tlie  joint  debts  and  of 
the  separate  estate  to  the  separate  debts.  At  a  meeting  for  the  purpose 
of  declaring  a  dividend,  the  commissioners  postponed  the  dividend,  in 
order  to  give  an  opportunity  of  applying  to  the  Lord  Chancellor,  in 
consequence  of  which,  this  petition  was  presented,  praying  that  the 
partnership  effects  remaining  in  specie  and  possessed  by  the  assign- 
ees may  be  sold,  and  that  the  outstanding  debts  may  be  accounted 
joint  estate. 

By  the  articles  of  dissolution  the  parties  covenanted  to  abide  by  a 
valuation  to  be  made  of  the  partnership  property,  and  James  Cooper 
covenanted  to  pay  the  partnership  debts  then  due  and  to  indemnify 
Thomas  Cooper  against  them,  and  Thomas  Cooper  convenanted  not  to 
carry  on  the  trade  of  brewer  for  20  years  within  20  miles  of  Epsom. 
A  bond  for  i3,000,  the  calculated  value  of  the  partnership  property  as- 
signed, was  given  to  Thomas  Cooper  by  James  Cooper  and  his  father, 
as  surety.  In  pursuance  of  the  covenant,  the  partnership  property,  con- 
sisting of  leases,  the  premises  where  the  trade  had  been  carried  on, 
stock,  implements,  outstanding  debts,  and  other  effects,  were  valued 
by  arbitrators  at  £2,030,  after  charging  all  the  partnership  debts  then 
due.  James  Cooper,  by  his  affidavit,  staled  that  all  the  joint  creditors 
knew  of  the  dissolution  and  the  assignment  of  the  property,  that  ad- 


218      NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHIP.    (Ch.  3 

vertisements  were  published,  and  the  deponent,  after  the  dissolution, 
received  many  debts  due  to  the  partnership,  but  paid  more  on  account 
of  the  partnership.  His  father,  by  affidavit,  stated  that  he  paid  the 
interest  of  the  bond  regularly,  and  intended  to  pay  the  principal  when 
due. 

Eldon,  L.  C.  This  case  is  admitted,  unless  Ex  parte  Burnaby,  1 
Cooke's  Bank.  Law  (4th  Ed.)  253,  applies  to  it,  to  be  new  in  its  cir- 
cumstances. Therefore,  if  I  was  of  opinion  that  the  petition  could  be 
supported,  I  should  be  very  unwilling  to  express  that  in  bankruptcy, 
where  my  opinion  would  not  be  subject  to  review.  If  the  case  I  have 
mentioned  has  decided  the  point,  there  is  the  authority  of  Lord  Hard- 
wicke  upon  it,  which  would  weigh  down  the  most  considerable  doub^ 
that  I  could  be  disposed  to  entertain.  I  feel  great  difficulty  in  comply- 
ing with  the  prayer  of  the  petition,  and,  when  I  read  it,  was  struck 
with  it  as  a  new  case,  and  as  one  upon  which  I  do  not  clearly  see  my 
way  to  the  relief  prayed.  It  is  the  case  of  two  partners  who  owed 
several  joint  debts  and  had  joint  effects.  Under  these  circumstances 
their  creditors,  who  had  a  demand  upon  them  in  respect  of  those  debts, 
had  clearly  no  lien  whatsoever  upon  the  partnership  effects.  They 
had  the  power  of  suing,  and  by  process  creating  a  demand  that  would 
directly  attach  upon  the  partnership  effects.  But  they  had  no  lien 
upon  or  interest  in  them  in  point  of  law  or  equity.  If  any  creditor  had 
brought  an  action,  the  action  would  be  joint.  His  execution  might  be 
either  joint  or  several.  He  might  have  taken  in  execution  both  joint 
and  separate  effects.  It  is  true  that  the  separate  creditors  of  each,  by 
bringing  actions,  might  acquire  a  certain  interest  even  in  the  partner- 
ship effects,  taking  them  in  execution  in  the  way  in  which  separate 
creditors  can  effect  such  property.     But  there  was  no  lien  in  either. 

The  partnership  might  dissolve  in  various  ways:  First,  by  death; 
secondly,  by  the  act  of  the  parties,  that  act  extending  to  nothing  more 
than  mere  dissolution,  without  any  special  agreement  as  to  the  dis- 
position of  the  property,  the  satisfaction  of  the  debts,  much  less  any 
agreement  for  an  assignment  from  either  of  the  partners  to  the  others. 
The  partnership  might  also  be  dissolved  by  the  bankruptcy  of  one  or 
both  and  by  effluxion  of  time.  If  it  dissolved  by  death,  referring 
to  the  law  of  merchants  and  the  well-known  doctrine  of  this  court,  the 
death  being  the  act  of  God,  the  legal  title  in  some  respects,  in  all  the 
equitable  title,  would  remain  notwithstanding  the  survivorship;  and 
the  executor  would  have  a  right  to  insist  that  the  property  should  be 
applied  to  the  partnership  debts.  I  do  not  know  that  the  partnership 
creditors  would  have  that  right,  supposing  both  remained  solvent.  So, 
upon  the  bankruptcy  of  one  of  them,  there  would  be  an  equity  to 
say  the  assignees  stand  in  the  place  of  the  bankrupt,  and  can  take  no 
more  than  he  could,  and,  consequently,  nothing  until  the  partnership 
debts  are  paid.  So,  upon  a  mere  dissolution  without  a  special  agree- 
ment, or  a  dissolution  by  effluxion  of  time,  to  wind  up  the  accounts, 
the  debts  must  be  paid,  and  the  surplus  be  distributed  in  proportion  to 


Sec.  7)  TRANSFER  OF  PARTNERSHIP  PROPERTY.  21!) 

the  different  interests.  In  all  these  ways  the  equity  is  not  that  of  the 
joint  creditors,  but  that  of  the  partners  with  rej^ard  to  each  other,  that 
operates  to  the  payment  of  the  partnership  debts.  The  joint  creditors 
must  of  necessity  be  paid,  in  order  to  the  administration  of  justice  to 
the  partners  themselves.  When  the  bankruptcy  of  both  takes  place, 
it  puts  an  end  to  the  partnership  certainly.  But  still  it  is  verv  possible, 
and  it  often  happens  in  fact,  that  the  partners  may  have  different  in- 
terests in  the  surplus,  and  out  of  that  a  necessity  arises  that  the  part- 
nership debts  must  be  paid ;  otherwise,  the  surplus  cannot  be  distribut- 
ed according  to  equity,  and  no  distinction  has  been  made  with  reference 
to  their  interests,  whether  in  different  proportions  or  equally.  Many 
cases  have  occurred  upon  the  distribution  between  the  separate  and 
joint  estates,  and  the  principle  in  all  of  them,  from  the  great  case  of 
Mr.  Fordyce,  has  been  that,  if  the  court  should  say  that  what  has  ever 
been  joint  or  separate  property  shall  always  remain  so,  the  consequence 
would  be  that  no  partnership  could  ever  arrange  their  affairs.  There- 
fore a  bona  fide  transmutation  of  the  property  is  understood  to  be 
the  act  of  men  acting  fairly,  winding  up  the  concern,  and  binds  the 
creditors ;  and  therefore  the  court  always  let  the  arrangements  be  as 
they  stand,  not  at  the  time  of  the  commission,  but  of  the  act  of  bank- 
ruptcy. 

Thomas  Cooper  is  admitted  to  be  solvent.  He  certainly  has  no  such 
equity  as  if  the  partnership  had  been  dissolved  by  bankruptcy,  death, 
effluxion  of  time,  or  any  other  circumstance  not  his  own  act.  But  he 
dissolves  the  partnership  a  year  and  a  half  ago,  and,  instead  of  calling 
upon  these  effects  according  to  his  equity  at  the  dissolution  to  pay  the 
partnership  debts,  he  assigns  his  interest  to  the  other,  to  deal  as  he 
thinks  fit  with  the  property,  to  act  with  the  world  respecting  it,  desiring 
only  a  bond  to  pay  a  given  value  in  three  or  four  years.  Therefore 
he  or  his  executors  could  not  sue.  If  it  was  necessary  for  the  creditors 
to  operate  their  relief  through  his  equity,  he  has  no  equity.  It  is  then 
said,  and  the  circumstance  had  struck  me,  that  all  the  property  is  not 
assignable  at  law — for  instance,  the  debts ;  but,  as  between  the  two 
Coopers  they  were  the  property  of  the  bankrupt,  for  debts  are  within 
the  statute  of  King  James,  and,  if  left  in  the  order  and  disposal  of 
the  bankrupt,  he  is  proprietor  of  the  debt.  Therefore  Thomas  Cooper 
could  never  set  up  the  insufficiency  of  the  legal  operation  of  the  assign- 
ment against  his  own  deed.  The  assignment  was  not  made  subject 
to  the  payment  of  the  debts,  but  in  consideration  of  a  covenant,  leav- 
ing no  duty  upon  the  property,  but  attaching  a  personal  obligation  upon 
the  assignee  to  pay  the  debts.  The  creditors,  therefore,  cannot  rest 
upon  the  equity  of  the  partner  going  out.  I  was  struck  with  the  argu- 
ment of  inconvenience.  The  inconvenience  on  all  sides  is  great.  To 
say  this  seems  to  me  a  monstrous  proposition :  That  which,  at  any- 
time during  the  partnership,  has  been  part  of  the  partnership  effects, 
shall  in  all  future  time  remain  part  of  the  partnership  effects,  notwith- 
standing a  bona  fide  act.    Suppose,  an  inprobable  case,  that  the  partners 


220  NATURE   AND   CHARACTERISTICS   OF   A   PAIiTNICRSHIP.  (Ch.  3 

in  Child's  house  chose  to  shift  their  shop  from  Temple  B.ar  to  the 
west  end  of  town ;  and  that  house,  now  the  property  of  the  partner- 
ship, was  bona  fide  bought  by  one  of  the  partners,  and  the  money  was 
invested  in  the  purchase  of  the  new  house  in  which  they  were  going 
to  reside;  suppose,  a  still  more  improbable  case,  that  a  year  and  a 
half  or  ten  years  afterwards  they  became  bankrupt — would  that  house 
be  part  of  the  partnership  effects  ?  It  would  be  so,  if  it  remained  with- 
out legal  interest  being  passed,  or  without  any  equitable  claim,  taking 
it  out  of  the  reach  of  a  legal  execution ;  but  where  the  effect  is  a 
bona  fide  transaction  of  this  sort,  if  it  were  held  at  any  time  after- 
wards to  be  partnership  property,  not  for  the  purpose  of  satisfying 
demands  of  the  partners,  or  of  any  creditor  who  cannot  otherwise  be 
satisfied,  but  to  enable  them  to  undo  all  the  intermediate  equities,  com- 
mercial transactions  could  not  go  on  at  all.  It  would  be  much  less  in- 
convenience to  examine  the  bona  fides  of  each  transaction  than  to  say 
such  transactions  shall  never  take  place. 

The  case  of  West  v.  Skip,  1  Ves.  237,  falls  within  some  of  the  ob- 
servations I  have  made.  Heath  v,  Percival,  1  P.  Wms.  682,  does  not 
apply  at  all.  The  bond  in  that  case  was  not  given  up;  and  therefore 
the  creditor  keeping  the  best  security,  and  refusing  to  part  with  it, 
no  inference  can  be  made  against  the  conclusion  arising  from  that. 
Hankey  v.  Garratt,  1  Ves.  236,  is  also  very  different.  There  the  part- 
nership was  dissolved  by  bankruptcy  or  by  death,  and  there  was  no 
actual  transfer  of  the  property  to  take  it  out  of  the  reach  of  legal  ex- 
ecution. I  am  unwilling  to  make  any  observation  upon  Burnaby's  Case. 
1  do  not  know  how  to  understand  it.  Whether  there  was  anything 
special  in  the  assignment,  I  cannot  find  out  from  the  report.  I  shall 
endeavor  to  find  the  papers.  It  looks  very  like  this  case.  If  it  is  in 
specie  this  case,  as  an  authority  I  should  think  myself  bound  to  sub- 
mit to  it.  But,  if  it  is  not  in  specie  this  case,  there  is  so  much  doubt 
whether  this  relief  can  be  given  that  I  am  satisfied  it  ought  to  be  given, 
if  at  all,  in  a  jurisdiction  where  my  opinion  would  be  subject  to  review. 
My  present  inclination  is  that  the  creditors  have  not  this  equity.  I 
have  considerable  doubt,  also,  whether,  if  they  have  it,  Thomas  Cooper 
would  be  benefited  by  it;  and  a  further  subject  of  grave  and  serious 
doubt  is,  whether,  if  the  joint  creditors  disturb  the  arrangement,  the 
separate  creditors  would  not  have  a  right  to  set  the  arrangement  right 
at  his  expense. 

I  now  think  there  is  a  circumstance  which  distinguishes  Burnaby's 
Case.  The  assignment  was  rtot  by  one  to  tfie  other  two,  but  by  one 
to  one  of  the  other  two,  which  may  be  very  different.  I  think  that 
circumstance  distinguishes  the  case  so  much  that  I  shall  consult  the 
interest  of  the  parties  better  by  saying  they  may  file  a  bill,  if  they 
think  proper,  than  by  further  delay. 

The  petition  was  dismissed. 


Sec.  7)  TEANSI  EK   OF   PARTNEIiSUIP   PROPEUTY.  221 


DARBY  et  al.  v.  GILLIGAN  et  al. 

(Supreme  Court  of  Appeals  of  West  Virgiuia.  1889.    33  W.  Va.  246,  10  S.  B. 

400,   6  L.    R.   A.   740.) 

Snyder,  P.  Appeal  from  a  decree  of  the  circuit  court  of  Taylor 
county,  pronounced  March  28,  1887,  in  the  suit  of  Darby  &  Co.  and 
others  against  John  J.  Gilligan  and  others.  The  suit  was  brought  to 
set  aside  a  trust  deed  made  by  said  Gilligan  to  John  T.  McGraw,  trus- 
tee; to  enjoin  said  trustee  from  disposing  of  the  property  thus  con- 
veyed to  him;  and  to  have  the  same  applied  to  the  payment  of  the 
plaintiffs'  debts.  On  September  17,  1883,  the  said  Gilligan  and  James 
Burns  entered  into  an  agreement  in  writing,  whereby  they  agreed  to 
form  a  partnership  for  conducting  a  general  merchandising  business  in 
the  town  of  Grafton,  Taylor  county,  Gilligan  having  prior  to  that 
time  been  merchandising  al  the  same  place,  and  having  then  on  hand 
a  stock  of  goods,  which  he  put  into  the  firm  at  the  value  of  $2,000, 
and  Burns  paid  into  the  firm  $1,000.  Upon  this  capital  stock,  they 
agreed  that  GiUigan  should  have  a  two-thirds  and  Burns  a  one-third 
interest  in  the  assets,  business,  and  profits  of  the  partnership.  At  the 
time  this  partnership  was  formed,  Gilligan  was  indebted  to  the  First 
National  Bank  of  Grafton  and  others  in  the  sum  of  $1,100,  for  money 
borrowed  and  put  into  the  mercantile  business  while  he  was  conduct- 
ing it  alone.  During  the  carrying  on  of  the  business  by  the  firm,  the 
firm  contracted  debts  to  the  plaintiffs  and  others,  and  the  partners  so 
managed  the  business  that  they  and  the  firm  became  indebted,  to  in- 
solvency. Afterwards,  on  February  27,  1885,  by  a  contract  in  writ- 
ing, the  partnership  was  dissolved,  upon  the  terms  that  in  considera- 
tion of  $1,000,  for  which  Gilligan  executed  to  Burns  his  note,  payable 
one  year  from  that  date,  Burns  withdrew  from  the  firm,  and  Gilligan 
assumed,  and  agreed  to  pay,  all  the  then  existing  indebtedness  of  the 
firm.  About  two  months  after,  on  April  24,  1885,  Gilligan  conveyed 
to  John  T.  McGraw  the  whole  of  the  assets  of  the  late  firm,  in  trust, 
to  secure  all  his  debts,  including  the  debts  due  the  plaintiffs  and  others 
by  said  firm;  but  in  said  conveyance  he  preferred  the  aforesaid  $1,- 
100  due  to  the  Grafton  Bank  and  others,  the  note  for  $1,000  given  to 
Burns  as  aforesaid,  which  had  been  assigned  by  him  to  Anna  Burns, 
and  other  individual  debts,  amounting  in  the  aggregate  to  more  than 
the  value  of  the  assets  conveyed.  Upon  these  facts  the  plaintiffs,  the 
appellants  here,  contend  that  this  attempt  of  Gilligan  to  prefer  and  pay 
his  individual  debts  out  of  the  said  assets  is  a  fraud  upon  the  firm 
creditors,  which,  according  to  well-settled  principles,  a  court  of  equity 
will  not  permit.  Ordinarily  the  partnership  estate  is  liable  for  the 
payment  of  the  firm  debts,  in  preference  to  the  individual  debts  of  the 
partners.  This  is  the  right  of  the  partners  inter  se.  The  creditors 
of  the  partnership  have  no  such  right  of  priority  over  the  creditors 
of  the   partners   individually,   otherwise   than   by    substitution   to   the 


222  NATURE   AND   CHARACTERISTICS  OF  A   PARTNERSHIP,  (Ch.  3 

rights  of  the  partners  inter  se.  The  partners  may  release  this  right, 
and,  if  they  do  so  bona  fide,  the  creditors  of  the  partnership  cannot 
complain;  for  it  is  not  their  right,  except  subject  to  the  proper  dis- 
position and  control  of  the  partners  themselves,  to  whom  it  belongs. 
This  right  is  generally  called  the  "partner's  lien."  It  differs  from  a 
common-law  lien  in  that  it  is  not  dependent  on  possession,  and  any 
single  partner  can  convey  a  good  title  to  specific  chattels  by  a  bona 
fide  sale  in  the  course  of  trade ;  and  a  lien  does  not  involve  the  right 
to  deal  with  the  property,  whereas  the  partner's  equity  is  a  right  to 
have  it  applied  for  certain  purposes,  and  the  one  partner  cannot  assert 
the  lien  as  a  sole  plaintiff.  The  existence  of  this  equity  may  be  ex- 
plained in  a  variety  of  ways,  as  on  an  implied  contract  that  the  as- 
sets shall  not  be  used  for  private  purposes ;  on  the  doctrine  of  sure- 
tyship, since  each  partner  is  liable  in  solido  for  the  debts,'  and  there- 
fore, inter  se,  virtually  a  surety  for  the  copartners  for  their  propor- 
tions, and  entitled  to  have  the  assets  applied  so  as  to  relieve  him.  The 
partners  have  jointly  the  same  right  of  absolute  disposition  of  their 
joint  property  that  any  individual  has.  They  may  sell  it,  pledge  it, 
convert  it  into  other  forms,  divide  it  up  among  themselves,  devote 
it  to  the  payment  of  all  or  part  of  the  debts,  or  exercise  other  owner- 
ship over  it,  subject  only  to  each  other's  rights,  and  to  the  operation 
of  statutes  forbidding  voluntary  or  fraudulent  conveyances,  to  hinder, 
delay,  and  defraud  creditors.  It  is  clear  from  what  has  preceded  that 
while  the  partnership  is  solvent  and  going  on  the  partners  may,  by 
unanimous  assent  or  joint  act,  do  what  they  please  with  the  assets,  if 
the  act  is  bona  fide.  Where,  in  such  case,  one  partner  sells  or  assigns  his 
interest  to  the  other,  bona  fide,  for  a  valuable  consideration,  or  an 
agreement  to  pay  the  debts  of  the  firm,  and  indemnify  against  them, 
this  will  change  the  joint  into  a  separate  property.  The  only  question 
is  upon  the  bona  fides  of  the  transaction.  If  such  an  arrangement 
could  not  be  made,  a  partner  never  could  retire.  Bates,  Partn.  §§  559, 
820,  824;  Story,  Partn.  §§  97,  3G0.  On  the  other  hand,  according 
to  the  better  reason  and  the  weight  of  authority,  if  the  firm  is  insol- 
vent, or  on  the  eve  of  insolvency,  and  both  of  the  partners  are  insol- 
vent, a  purchase  by  one  partner  of  the  interest  of  the  other,  in  con- 
sideration of  the  former's  assumption  of  all  the  debts  of  the  firm,  will 
be  regarded  as  a  purchase  upon  a  consideration  which  is  of  no  value 
whatever;  and,  no  equivalent  having  been  given,,  the  transfer  is  in 
effect  vohmtary,  and  its  only  effect,  if  sustained,  would  be  to  hinder 
partnership  creditors,  and  hence  is  deemed  ineffectual  to  convert  the 
joint  property  into  separate  property,  as  against  the  firm  creditors.  Ex 
parte  Mayou,  4  De  Gex,  J.  &  S.  664,  11  Jur.  (N.  S.)  433,  12  Law  T. 
(N.  S.)  254;  Sanderson  v.  Stockdale,  11  Md.  563;  Phelps  v.  Mc- 
Neely,  66  Mo.  554,  27  Am.  Rep.  378;  Tenney  v.  Johnson,  43  N.  H. 
144;  Marsh  v.  Bennett,  5  McLean  (U.  S.)  117,  Fed.  Cas.  No.  9,110; 
Roop  V.  Herron,  15  Neb.  73,  17  N.  W.  353;   In  re  Cook,  3  Biss.  122, 


Sec.  7)  TUANSFBR  OF  PARTNERSHIP  PROPERTY.  223 

Fed.  Cas.  No.  3,150;  Conroy  v.  Woods,  13  Cal.  G2G,  73  Am.  Dec. 
COO;  Ransom  v.  Van  Deventer,  41  Barb.  (N,  Y.)  307;  Menagh  v. 
Whitwell,  52  N.  Y.  146,  163,  11  Am.  Rep.  683;  Shackelford  v.  Shack- 
elford, 32  Grat.  (Va.)  503;  Farmers'  Bank  v.  Smith,  26  W.  Va.  541. 
In  the  case  at  bar  the  firm  as  well  as  the  individual  partners  were 
indebted,  to  insolvency,  at  the  time  the  contract  of  dissolution  was 
made,  by  the  terms  of  which  Gilligan  assumed  to  pay,  not  only  the 
debts  of  the  firm,  but  $1,000  to  Burns.  As  the  firm  and  Gilligan  were 
then  both  insolvent,  there  was  no  valuable  consideration  for  either 
this  assumption  of  the  firm  debts  or  said  $1,000.  Less  than  two 
months  after  this  transaction,  Gilligan,  without  paying  a  single  firm 
debt,  so  far  as  the  record  shows,  a5.signed  all  the  assets  in  such  a  man- 
ner as  to  devote  the  whole  of  them  to  the  payment  of  his  individual 
debts.  It  seems  to  me  plain  that  to  uphold  this  scheme,  against  the 
rights  of  the  social  creditors,  would  violate,  not  only  the  general 
principles  of  equity,  but  the  express  provisions  of  our  statute  against 
voluntary  and  fraudulent  conveyances.  It  is,  however,  claimed  for 
the  appellees  that  if  this  transaction  is  held  void  ^s  to  the  firm  cred- 
itors, then,  for  the  like  reasons,  the  act  of  Gilligan  in  putting  his  own 
stock  of  goods  into  the  firm  must  be  held  void  as  to  his  individual 
creditors.  But  there  is  no  analogy  in  the  two  transactions.  It  does 
not  appear  that  either  Burns  or  Gilligan  was  insolvent  at  that  time, 
and  it  does  appear  that  Burns  paid  into  the  concern  $1,000,  and  also 
that  the  debts  due  the  plaintiffs  and  others  were  contracted  by  the  firm 
on  the  faith  of  the  social  assets.  For  these  reasons  the  decree  of  the 
circuit  court  is  reversed,  and  the  cause  remanded. 


ARNOLD  V.  HAGERMAN  et  al. 

(Court  of  Errors  and  Appeals  of  New  .Tersey,  1SS9.    45  N.  J.  Eq.  ISG,  17  Atl. 
93.  14  Am.  St.  Rep.  712.) 

On  July  17,  1883,  John  C.  Farr,  having  a  lumber  business  in  Ho- 
boken  and  a  wood  manufacturing  business  in  Asbury  Park,  formed 
a  copartnership  in  the  latter  business  with  John  H.  Hagerman  and 
John  S.  Fielder,  under  the  name  of  J.  C.  Farr  &  Co.  Hagerman  and 
Fielder  each  gave  to  Farr  his  notes  for  $7,500,  and  thereupon  property 
already  in  the  business  at  Asbury  Park  became  the  capital  of  the  new 
firm.  On  October  29,  18S3,  the  new  firm,  being  embarrassed,  dissolv- 
ed, and  Hagerman  and  Fielder  assigned  all  their  interest  in  the  business 
and  property  of  the  partnership  to  Farr;  Farr  returning  to  them  the 
notes  aforesaid,  and  agreeing  to  pay  the  debts  of  the  firm.  On  No- 
vember 30,  1883,  Farr  assigned  all  his  property  to  Benjamin  W.  Ar- 
nold for  the  purpose  of  securing  to  his  creditors  an  equal  distribution 
of  his  property  and  effects,  pursuant  to  the  statute.  In  January,  Feb- 
ruary, and  March,  1884,  the  Second  National  Bank  of  Red  Bank  re- 
covered several  judgments  against  the  members  of  the  firm  of  J.  C. 


224  NATURE   AMD   CHARACTERISTICS   OF   A   PARTNERSHIP..  (Ch.  3 

Farr  &  Co.  for  partnership  debts,  and  caused  executions  thereon  to 
be  levied  upon  what  had  been  the  property  of  said  firm.  On  March 
10,  1884,  the  bank  filed  its  bill  against  Farr,  Hagerman,  Field,  Arnold, 
and  others  to  have  said  assignments  by  Hagerman  and  Fielder  to 
Farr,  and  by  Farr  to  Arnold,  set  aside  as  fraudulent  against  the  cred- 
itors of  J.  C.  Farr  &  Co.  The  court  below  held  the  assignments  by 
Hagerman  and. Fielder  to  Farr  to  be  void.^ 

Dixon,  J.     *     *     *     In  equity  a  partnership  is  for  some  purposes 
deemed  a  single  entity.    Thus,  when  the  property  involved  in  the  busi- 
ness of  a  partnership  is  to  be  applied  by  a  court  of  equity  to  the  pay- 
ment of  debts,  that  property  is  treated  as  belonging,  not  to  the  persons 
composing  the  firm,  but  to  a  distinct  debtor,  the  partnership,  and  is 
used  first  to  liquidate  the  debts  contracted  in  the  business  of  that  debt- 
or, and  only  the  surplus,  if  any,  is  surrendered  to  the  individual  part- 
ners.    This  equitable  practice  rests  upon  the  presumed  intention  of 
the  partners  themselves,  and  hence  is  primarily  considered  as  their 
equitable  right  against  each  other.     Consequently,  since  the  decision 
of  Lord  Eldon  in  Ex  parte  Ruffin,  6  Ves.  119,  it  has  been  generally 
held  that  the  partners  could  put  an  end  to  this  right,  and  that  if,  by 
their  agreement,  the  partnership  is  dissolved,  and  its  property  is  as- 
signed to  one  of  their  number,  or  to  a-  stranger,  as  his  own,  without 
reservation  of  the  right,  the  right  to  have  partnership  debts  paid  out 
of  that  property  is  extinct.    Growing  out  of  this  right  of  partners  has 
arisen  a  corresponding  equity  in  partnership  creditors  to  have  their 
debts  first  satisfied  out  of  the  firm  property,  which  is  now  deemed  a 
substantial  element  of  their  demands.     Generally  it  may  be  said  that 
this  equity  of  creditors  continues  only  so  long  as  the  right  of  the- 
partners  against  each  other  subsists,  and  perishes  when  that  termi- 
;iates;    but  this  is  not  universally  true,  for  this  equity  may  survive 
the  right  to  which,  ordinarily,  it  is  attached.     In  this  respect  it  re- 
sembles the  claim  which  the  general  creditors  of  an  individual  have 
upon  his  property.    It  is  neither  an  estate  nor  a  lien.    It  is,  ordinarily, 
but  a  right  by  lawful  procedure  to  acquire  a  lien  during  the  owner- 
ship of  the  debtor;   yet,  under  certain  circumstances,  that  lien  may  be 
acquired  after  the  debtor's  ownership  has  ended.     This  results  from 
the  provisions  of  the  ancient  statute  for  the  prevention  of  frauds  and 
perjuries,  by  force  of  which,  when  a  person  has  alienated  his  property 
with  intent  to  hinder,  delay,  or  defraud  his  creditors,  the  rights  of 
those   creditors   remain  as  if  no  alienation  had  taken  place,   except 
against  the  claims  of  bona  fide  purchasers,   for  good  consideration, 
without  notice.    Equity  applies  this  statute  to  a  partnership,  its  prop- 
erty and  creditors,  just  as   it  would  in  case  of  an  individual,   and 
therefore,  Vv'hile  generally  it  is  true  that  a  partnership  may  defeat  the 
equity  of  its  creditors  by  the  alienation  of  its  property  and  consequent 

1  A  bill  by  Hagerman  anrl  Fielder  against  Parr  to  sot  aside  their  assignment 
to  liim  because  procaired  by  fraud  was  considered  in  this  case  and  dismissed. 
The  portion  of  the  opinion  dealing  with  this  bill  is  ouiitted. 


Sec.  7)  TUANSl'LIt   OF   PAKTNi:USllIP   rUOI'ERTY.  225 

extinguishment  of  t'le  right  of  its  partners  inter  scse,  yet,  if  the  alien- 
ation be  effected  with  intent  to  hinder,  delay,  or  defraud  the  firm  cred- 
itors by  defeating  their  equit\-,  the  claims, of  creditors  will  be  unim- 
paired, and  the  property  will  be  treated  as  partnership  assets,  unless 
it  shall  have  passed  into  the  hands  of  those  whom  the  statute  pro- 
tects. This  doctrine  has  repeatedly  been  recognized  in  the  courts  of 
New  Jersey.  [After  reviewing  New  Jersey  cases,  the  opinion  con- 
tinues:] 

The  case  before  us  comes  clearly  within  the  reach  of  this  principle. 
At  the  time  of  the  transfer  by  Hagerman  and  Fielder  to  Farr  the  in- 
solvency of  each  of  these  persons,  and  of  the  firm  of  J.  C.  Farr  &  Co., 
was  patent' to  them  all,  and,  indeed,  was  the  moving  cause  of  the  trans- 
fer. They  all  knew  that,  in  the  condition  of  affairs  then  existing,  none 
of  them  could  meet  maturing  obligations,  and  it  was  in  the  hope  of 
facilitating  an  extension  or  compromise  with  creditors  that  the  trans- 
fer was  made.  The  transfer  embraced  all  the  partnership  property. 
If  valid  in  all  respects,  it  appropriated  the  shares  of  Hagerman  and 
Fielder  to  the  payment  of  the  debts  of  Farr,  for  which  those  shares 
were  previously  not  liable,  and  left  Hagerman  and  Fielder  without 
any  property  whatever,  as  we  gather  from  the  testimony,  to  pay  their 
debts.  Inevitably,  therefore,  by  defeating  the  equity  of  the  partnership 
creditors,  it  would  hinder  them  in  the  collection  of  their  just  claims. 
It  is  a  reasonable  inference  that  these  partners  intended  this  manifest 
effect  of  their  act,  and  consequently  the  assignment  by  Hagerman  and 
Fielder  to  Farr  must,  according  to  the  terms  of  the  statute,  be  deemed 
void  as  against  the  partnership  creditors.  Not  only  upon  the  ground 
of  a  common  intent  to  hinder  partnership  creditors,  thus  inferred  from 
the  knowledge  which  all  parties  must  have  had  of  the  necessary  con- 
sequences of  the  transfer  itself,  but  also  upon  the  ground  that  the  trans- 
fer was  jnade  without  valuable  consideration — was  voluntary  in  the 
legal  sense — it  should  be  decreed  invalid  against  the  partnership  cred- 
itors, all  of  whose  debts  were  then  in  existence.  Haston  v.  Castner, 
31  N.  J.  Eq.  697.  The  consideration  nominally  given  by  Farr  to  Hag- 
erman and  Fielder  was  the  surrender  of  their  notes  and  his  covenant 
to  indemnify  them  against  firm  creditors.  But  according  to  the  testi- 
mony those  notes  were  payable  only  out  of  the  profits  accruing  to  Hag- 
erman and  Fielder  from  the  firm  of  J.  C.  Farr  &  Co.,  and  as  that  firm 
had  failed,  and  was  dissolved  without  realizing  any  profits,  the  notes 
had  become  absolutely  valueless.  Farr's  covenant  to  indemnify  does 
not  constitute  a  valuable  consideration,  since  he  may  be  relieved  there- 
from on  the  total  failure  of  the  transfer  for  which  it  was  made.  2 
Pom.  Eq.  Jur.  §§  751,  9G9 ;  notes  to  Basset  v.  Nosworthy.  2  Lead. 
Cas.  Eq.  82 ;  Haughwout  v.  Tvlurphy,  22  N.  J.  Eq.  531.  It  thus  ap- 
pearing that,  notwithstanding  this  transfer,  all  the  rights  and  remedies 
of  the  creditors  of  J.  C.  Farr  &  Co.  remained  against  the  firm  property 
in  the  hands  of  Farr,  we  are  brought  to  consider  the  assignment  to 
Arnold  for  the  benefit  of  Farr's  creditors.  [The  remainder  of  the  opin- 
Gil.Paut. — 15 


226  NATURE   AND   CHARACTERISTICS  OF  A  PARTNERSHIP.  (Ch.  3 

ion  holding  the  assignment  by  Farr  to  Arnold  to  be  valid,  the  creditors 
of  J.  C.  Farr  &  Co.  being  given  priority  in  the  distribution  of  the  as- 
sets of  J.  C.  Farr  &  Co.  in  the  hands  of  Arnold,  is  omitted,  as  is  also 
the  dissenting  opinion  of  Magie,  J.] - 


CASE  V.  BEAUREGARD. 

(Supreme  Court  of  the  United  States,  1878.    99  U.  S.   119,  25  L.  Ed,  370.) 

Strong,  J.  The  object  of  this  bill  is  to  follow  and  subject  to  the 
payment  of  a  partnership  debt  property  which  formerly  belonged  to 
the  partnership,  but  which,  before  the  bill  was  filed,  had  been  transfer- 
red to  the  defendants.  There  is  little,  if  any,  controversy  respecting 
the  facts,  and  little  iri  regard  to  the  principles  of  equity  invoked  by  the 
complainant.  The  important  question  is  whether  those  principles  are 
applicable  to  the  facts  of  the  case. 

No  doubt  the  effects  of  a  partnership  belong  to  it  so  long  as  it  con- 
tinues in  existence,  and  not  to  the  individuals  who  compose  it.  The 
right  of  each  partner  extends  only  to  a  share  of  what  may  remain 
after  payment  of  the  debts  of  the  firm  and  the  settlement  of  its  ac- 
counts. Growing  out  of  this  right,  or  rather  included  in  it,  is  the 
right  to  have  the  partnership  property  applied  to  the  payment  of  the 
partnership  debts  in  preference  to  those  of  any  individual  partner. 
This  is  an  equity  the  partners  have  as  between  themselves,  and  in  cer- 
tain circumstances  it  inures  to  the  benefit  of  the  creditors  of  the  firm. 
The  latter  are  said  to  have  a  privilege  or  preference,  sometimes  loose- 
ly denominated  a  "lien,"  to  have  the  debts  due  to  them  paid  out  of  the 
assets  of  a  firm  in  course  of  liquidation,  to  the  exclusion  of  the  cred- 
itors of  its  several  members.  Their  equity,  however,  is  a  derivative 
one.     It  is  not  held  or  enforceable  in  their  own  right.     It  is  practical- 

20n  the  question  whether  a  chattel  mortsiage  by  an  insolveijt  partnership  to 
secure  the  debts  of  its  members  was  fraudulent  as  to  firm  creditors,  the  court 
in  Bergman  v.  .Tones,  10  N.  D.  520,  88  N.  W.  284,  88  Am.  St.  Rep.  739  (1901) 
said:  "The  mortgage  in  question  is  void  as  to  creditors  for  another  reason. 
When  the  mortgage  was  given  the  partnership  was  insolvent.  The  mortgage 
covered  practically  all,  if  not  all,  of  the  partnership  property,  and  it  undertook 
to  secure  the  individual  debts  of  the  partners,  which  debts  the  partnership 
was  under  no  legal  or  moral  obligation  to  pay.  In  short,  it  was  an  attempted 
gift  by  an  insolvent  partnership  of  all  of  its  property.  This  cannot  be  done. 
There  is  entire  harmony  in  the  authorities  on  this  point.  'A  partnership, 
paying  the  private  debt  of  one  of  its  members,  is  paying  what  it  is  not 
liable  for  in  law,  equity,  or  morals,  and  is,  in  effect,  giving  away  its  property"; 
and  such  conveyance,  no  bona  fide  rights  intervening,  is  fraudulent  and  void 
as  to  existing  creditors  if  they  are  prejudiced  thereby,  as  well  as  to  the 
separate  creditor  of  the  other  partner,  whoso  individual  interest  in  the  firm 
Is  thus  given  away.'  1  Bates  on  Partnership.  §  5G6.  See,  also.  Ransom  v. 
Vandeventer.  41  Barb.  (N.  Y.)  307;  Keith  v.  Fink,  47  111.  272;  Heineman  v. 
TIart,  5.5  Mich.  64,  20  N.  W.  792;  Cron  v.  Cron,  56  Mich.  8.  22  N,  W.  9-1; 
Wilson  V.  Robertson,  21  N.  Y,  .587 ;  Ferson  v.  Monroe,  21  N.  II.  462 :  Patter- 
son V.  Seaton,  70  Iowa,  689,  28  N.  W.  598;  Menagh  v.  Whitwell,  52  N.  Y. 
147,  11  Am.  Rep.  GSIJ ;  Keith  v.  Armstrong,  65  Wis.  225,  26  N.  W.  445." 


Sec  7)         TRANSFER  OF  PARTNERSHIP  PROPERTY.  227 

ly  a  subrogation  to  the  equity  of  the  individual  partner,  to  be  made 
effective  only  through  him.  Hence,  if  he  is  not  in  a  condition  to  en- 
force it,  the  creditors  of  the  firm  cannot  be.  Rice  v.  Barnard  et  al.,  20 
Vt.  479,  50  Am.  Dec.  54;  Appeal  of  York  County  Bank,  32  Pa.  446. 
But  so  long  as  the  equity  of  the  partner  remains  in  him,  so  long  as  he 
retains  an  interest  in  the  firm  assets  as  a  partner,  a  court  of  equity  will 
allow  the  creditors  of  the  firm  to  avail  themselves  of  his  equity,  and  en- 
force, through  it,  the  application  of  those  assets  primarily  to  payment 
of  the  debts  due  them,  whenever  the  property  comes  under  its  admin- 
istration. 

It  is  indispensable,  however,  to  such  relief,  when  the  creditors  are, 
as  in  the  present  case,  simple  contract  creditors,  that  the  partnership 
property  should  be  within  the  control  of  the  court  and  in  the  course 
of  administration,  brought  there  by  the  bankruptcy  of  the  firm,  or  by 
an  assignment,  or  by  the  creation  of  a  trust  in  some  mode.  This  is 
because  neither  the  partners  nor  the  joint  creditors  have  any  specific 
lien,  nor  is  there  any  trust  that  can  be  enforced  until  the' property  has 
passed  in  custodiam  legis.  Other  property  can  be  followed  only  after 
a  judgment  at  law  has  been  obtained  and  an  execution  has  proved 
fruitless. 

So,  if  before  the  interposition  of  the  court  is  asked  the  property 
has  ceased  to  belong  to  the  partnership,  if  by  a  bona  fide  transfer  it 
has  become  the  several  'property  either  of  one  partner  or  of  a  third 
person,  the  equities  of  the  partners  are  extinguished,  and  consequently 
the  derivative  equities  of  the  creditors  are  at  an  end.  It  is,  therefore, 
always  essential  to  any  preferential  right  of  the  creditors  that  there 
shall  be  property  owned  by  the  partnership  when  the  claim  for  pref- 
erence is  sought  to  be  enforced.  Thus,  in  Ex  parte  Ruffin,  G  Ves.  119. 
vi^here  from  a  partnership  of  two  persons  one  retired,  assigning  the 
partnership  property  to  the  other,  and  taking  a  bond  for  the  value  and 
a  covenant  of  indemnity  against  debt,  it  was  ruled  by  Lord  Eldon  that 
the  joint  creditors  had'  no  equity  attaching  upon  the  partnership  ef- 
fects, even  remaining  in  specie;  and  such  has  been  the  rule  generally 
accepted  ever  since,  with  the  single  qualification  that  the  assignment 
of  the  retiring  partner  is  not  mala  fide.  Kimball  v.  Thompson,  13 
Mete.  (:\Iass.)  283;  Allen  v.  Valley  Co.  et  al.,  21  Conn.  130,  54  Am. 
Dec.  333 ;  Lad'd  v.  Griswold,  9  111.  25,  46  Am.  Dec.  443 ;  Smith  v.  Ed- 
wards, 7  Humph.  (Tenn.)  106,  46  Am.  Dec.  71;  Robb  v.  Mudge.  14 
Gray  (Mass.)  534;  Baker's  Appeal,  21  Pa.  76,  59  Am.  Dec.  752; 
Sigler  &  Richey  v.  Bank,  8  Ohio  St.  511;  Wilcox  v.  Kellogg,  11  Ohio, 
394. 

The  joint  estate  is  converted  into  the  separate  estate  of  the  assignee 
by  force  of  the  contract  of  assignment;  and  it  makes  no  difference 
whether  the  retiring  partner  sells  to  the  other  partner  or  to  a  third 
person,  or  whether  the  sale  is  made  by  him  or  under  a  judgment  against 
him.  In  either  case  his  equity  is  gone.  These  principles  are  settled 
by  very  abundant  authorities.     It  remains,  therefore,  only  to  consider 


228      NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHIP.    (Ch.  3 

whether,  in  view  of  the  rules  thus  settled  and  of  the  facts  of  this  case, 
the  complainant,  through  any  one  of  the  partners,  has  a  right  to  fol- 
low the  specific  property  which  formerly  belonged  to  the  partnership, 
and  compel  its  application  to  the  payment  of  the  debt  due  from  the 
firm  to  the  bank  of  which  he  is  the  receiver. 

The  partnership,  while  it  was  in  existence,  was  composed  of  three 
persons,  I\Iay,  Graham,  and  Beauregard;  but  it  had  ceased  to  exist 
before  this  suit  was  commenced.  It  was  entirely  insolvent,  and  all 
the  partnership  effects  had  been  transferred  to  others  for  valuable  con- 
siderations. None  of  the  property  was  ever  within  the  jurisdiction  of 
the  court  for  administration. 

On  the  8th  of  I^Iay,  1867,  Graham,  one  of  the  partners,  assigned 
all  his  right  and  interest  in  any  property  and  effects  of  the  partnership, 
and  whatever  he  might  be  entitled  to  under  the  articles  thereof,  to- 
gether with  all  debts  due  to  him  from  the  partnership  or  any  member 
thereof,  to  the  Fourth  National  Bank  of  the  City  of  New  York.  By, 
subsequent  assignments,  made  on  the  14th  and  16th  of  May,  1869, 
May,  the  second  partner,  transferred  all  his  interest  in  the  partnership 
property  to  the  United  States,  and  by  the  same  instruments  transfer- 
red to  the  United  States,  by  virtue  of  a  power  of  attorney  which  he 
held,  the  interest  of  Graham.  On  the  21st  of  August,  1867,  the  United 
States  sold  and  transferred  their  interest  obtained  from  May  and  Gra- 
ham in  all  the  partnership  property,  including  real  estate,  to  Alexander 
Bonneval,  Joseph  Hernandez,  and  George  Binder.  On  the  15th  of 
October  next  following  an  act  of  fusion  was  executed  between  the 
New  Orleans  &  Carrollton  Railroad  Company,  Beauregard,  Bonne- 
val, Hernandez,  and  Binder,  by  which  the  rights  of  all  the  parties 
became  vested  in  the  railroad  company,  subject  to  the  debts  and  lia- 
bilities of  the  company,  whether  due  or  claimed  from  the  lessee  or  the 
stockholders. 

The  effect  of  these  transfers  and  act  of  fusion  was  very  clearly  to 
convert  the  partnership  property  into  property  held  in  severalty,  or, 
at  least,  to  terminate  the  equity  of  any  partner  to  require  the  applica- 
tion thereof  to  the  payment  of  the  joint  debts.  Hence  if,  as  we  have 
seen,  the  equity  of  the  partnership  creditors  can  be  worked  out  only 
through  the  equity  of  the  partners,  there  was  no  such  equity  of  the 
partners,  or  any  one  of  them,  as  is  now  claimed,  in  1869,  when  this 
bill  was  filed.  No  one  of  the  partners  could  then  insist  that  the  prop- 
erty should  be  applied  first  to  the  satisfaction  of  the  joint  debts,  for 
his  interest  in  the  partnership  and  its  assets  had  ceased.  Baker's  Ap- 
peal, 21  Pa.  76,  59  Am.  Dec.  752.  That  was  a  case  where  a  firm  had 
consisted  of  five  brothers.  Two  of  them  withdrew,  disposing  of  their 
interest  in  the  partnership  estate  and  effects  to  the  other  three;  the 
latter  agreeing  to  pay  the  debts  of  the  firm.  Some  time  after  one  of 
the  remaining  sold  his  interest  in  the  partnership  property  to  one  of 
the  remaining  two  partners.  The  two  remaining,  after  contracting 
debts,  made  an  assignment  of  their  partnership  property  td  pay  the 


Sec,  7)         TRANSFER  OF  PARTNERSHIP  PROPERTY. 


229 


debts  of  the  la:5t  firm  composed  of  the  two;  and  it  was  held  that  the 
creditors  of  the  first  two  firms  had  no  right  to  claim  any  portion  of 
the  fund  last  assigned,  and  that  it  was  distributable  exclusively  among 
the  creditors  of  the  last  firm.  So  in  McNutt  v.  Strayhorn,  39.  Pa. 
269,  it  was  ruled  that,  though  the  general  rule  is  that  the  equities  of 
the  creditors  are  to  be  worked  out  through  the  equities  of  the  partners, 
\  et  where  the  property  is  parted  with  by  sale  severally  made,  and  nei- 
ther partner  has  dominion  or  possession,  there  is  nothing  through 
which  the  equities  of  the  creditors  can  work,  and  therefore  there  is 
no  case  for  the  application  of  the  rule.  See,  also,  Coover's  Appeal,  29 
Pa.  9,  70  Am.  Dec.  149.  Unless,  therefore,  the  conveyances  of  the 
partners  in  this  case  and  the  act  of  fusion  were  fraudulent,  the  bank  of 
which  the  complainant  is  receiver  has  no  claim  upon  the  property  now 
held  by  the  New  Orleans  &  Carrollton  Railroad  Company,  arising  out 
of  the  facts  that  it  is  a  creditor  of  the  partnership,  and  was  such  a 
creditor  when  the  property  belonged  to  the  firm. 

The  bill,  it  is  true,  charges  that  the  several  transfers  of  the  part- 
ners were  illegal  and  fraudulent,  without  specifying  wherein  the  fraud 
consisted.  The  charge  seems  to  be  only  a  legal  conclusion  from  the 
fact  that  some  of  the  transfers  were  made  for  the  payment  of  the  pri- 
vate debts  of  the  assignors.  Conceding  such  to  have  been  the  case, 
it  was  a  fraud  upon  the  other  partners,  if  a  fraud  at  all,  rather  than 
upon  the  joint  creditors— a  fraud  which  those  partners  could  waive, 
and  which  was  subsequently  waived  by  the  act  of  fusion.  Besides, 
that  act  made  provision  for  some  of  the  debts  of  the  partnership ;  and 
it  has  been  ruled  that  where  one  of  two  partners,  with  the  consent  of 
the  other,  sells  and  conveys  one  half  of  the  effects  of  the  firm  to  a 
third  person,  and  the  other  partner  afterwards  sells  and  conveys  the 
other  half  to  the  same  person,  such  sale  and  conveyances  are  not  prima 
facie  void  as  against  creditors  of  the  firm,  but  are  prima  facie  valid 
against  all  the  world,  and  can  be  set  aside  by  the  creditors  of  the  firm 
only  by  proof  that  the  transactions  were  fraudulent  as  against  them. 
Kimball  v.  Thompson,  13  Mete.  (Mass.)  283;  Flack  et  al.  v.  Charron 
et  al.,  29  Md.  311.  A  similar  doctrine  is  asserted  in  some  of  the 
other  cases  we  have  cited.  And  see  Allen  v.  Valley  Co.,  21  Conn.  130. 
54  Am.  Dec.  333.  In  the  present  case  we  find  no  such  proof.  We 
discover  nothing  to  impeach  the  bona  fides  of  the  transaction,  by  which 
the  property  became  vested  in  the  railroad  company. 

Thus  far  we  have  considered  the  case  without  reference  to  the  pro- 
visions of  the  Louisiana  Code,  upon  which  the  appellant  relies.  Ar- 
ticle 2823  of  the  Revised  Civil  Code  is  as  follows :  "The  partnership 
property  is  liable  to  the  creditors  of  the  partnership  in  preference  to 
those  of  the  individual  partner."  We  do  not  perceive  that  this  pro- 
vision differs  materially  from  the  general  rule  of  equity  we  have  stated. 
It  creates  no  specific  lien  upon  partnership  property,  which  continues 
after  the  property  has  ceased  to  belong  to  the  partnership.  It  docs  not 
forbid  bona  fide  conversion  by  the  partners  of  the  joint  property  into 


230  NATURE   AND   CHARACTERISTICS   OF   A   PARTNERSHIP.  (Cll.  3 

rights  in  severalty,  held  by  third  persons.  It  relates  to  partnership 
property  alone,  and  gives  a  rule  for  marshaling  such  property  between 
creditors.  Concede  that  it  gives  to  joint^  creditors  a  privilege  while 
the  property  belongs  to  the  partnership,  there  is  no  subject  upon  which 
it  can  act  when  the  joint  ownership  of  the  partners  has  ceased.  Article 
32-14  of  the  Revised  Civil  Code  declares  that  privileges  become  ex- 
tinct "by  the  extinction  of  the  thing  subject  to  the  privilege." 

What  we  have  said  is  sufficient  for  a  determination  of  the  case.  If 
it  be  urge'd,  as  was  barely  intimated  during  the  argument,  that  the 
property  sought  to  be  followed  belongs  in  equity  to  the  bank,  or  is 
clothed  with  a  trust  for  the  bank,  because  it  was  purchased  with  the 
bank's  money,  the  answer  is  plain.  There  is  no  satisfactory  evidence 
that  it  was  thus  purchased.  It  cannot  be  identified  as  the  subject  to 
the  acquisition  of  which  money  belonging  to  the  bank  was  applied. 

The  bank  has,  therefore,  no  specific  claim  upon  the  property,  nor 
is  there  any  trust  which  a  court  of  equity  can  enforce;  and  it  was  well 
said  by  the  Circuit  Justice  that,  without  some  constituted  trust  or  lien, 
"a  creditor  has  only  the  right  to  prosecute  his  claim  in  the  ordinary 
courts  of  law,  and  have  it  adjudicated  before  he  can  pursue  the  prop- 
erty of  his  debtor  by  a  direct  proceeding"  in  equity. 

Decree  affirmed. 


II.     By  Act  of  Single  Partner. 
LAMBERT'S  CASE. 

(Court  of  Common  Pleas,  1G14.     Godb.  244.) 

Two  men  were  partners  in  goods :  the  one  of  the  partners  sold  unto 
J.  S.,  at  several  times,  goods  to  the  value  of  £100,  and  for  the  goods 
at  one  time  bought  he  paid  the  money  according  to  the  time;  after- 
wards an  action  was  brought  by  one  of  the  partners  for  the  rest  of 
the  money,  and  the  plaintiff  declared  upon  one  contract  for  the  whole 
goods,  whereas  in  truth  they  were  sold  upon  several  contracts  made, 
and  the  defendant  in  that  case  would  have  waged  his  law.  But  the 
court  advised  the  plaintiff  to  be  nonsuit,  and  to  bring  a  new  action, 
because  that  action  was  not  well  brought,  for  it  ouglit  to  have  been  a 
several  action  upon  the  several  contract.  And  in  this  case  it  was 
agreed  by  the  court,  that  the  sale  of  one  partner  is  the  sale  of  them 
both;  and  therefore  although  that  one  of  them  selleth  the  goods  or 
merchandiseth  with  them,  yet  the  action  must  be  brought  in  both  their 
names;  and  in  such  case  the  defendant  shall  not  be  received  to  wage 
his  law,  that  the  other  partner  did  not  sell  the  goods  unto  him,  as  is 
supposed  in  the  declaration. 


Sec.  7)         TRANSFER  OF  PARTNERSHIP  PROPERTY.  231 

SLOAN  V.  AIOORE. 

(Supreme  Court  of  IVnusylvunia,  ISGO.     37  Pa.  217.) 

This  was  an  appeal  by  Mortimer  M.  ]\Ioore  from  the  decision  of 
the  common  pleas  of  Erie  county  appointing  a  receiver  of  the  assets 
of  M.  M.  Moore  and  B.  F.  Sloan,  late  partners  doing  business  as  Sloan 
&  Moore,  and  enjoining  said  Moore  from  interfering  therewith. 

The  bill,  supplemental  bill,  and  answer  show  that  Sloan,  the  com- 
plainant, and  Moore,  the  defendant,  were  equal  copartners  in  the 
ownership  and  publication  of  the  Erie  Observer,  a  weekly  newspaper. 
By  the  articles  of  copartnership  it  was  agreed  that  it  should  continue 
until  the  1st  day  of  January,  1859.  Shortly  before  its  termination  dif- 
ferences arose  between  the  partners,  and  fruitless  attempts  were  made 
to  adjust  the  business  of  the  firm  and  arrange  the  ownership  of  the 
property,  in  view  of  its  approaching  close.  The  property  was  of  such 
a  character  that  its  value  would  have  been  greatly  impaired  by  stopping 
the  issue  of  the  newspaper,  and  yet  neither  of  the  parties  could  carry 
on  the  business  singly,  for  each  had  equal  rights,  not  only  in  the  prop- 
erty, but  in  the  business  of  the  firm.  No  settlement  having  been  effect- 
ed, and  no  arrangements  having  been  made  for  continuing  the  publica- 
tion of  the  paper  and  prosecuting  the  business  of  the  firm,  the  com- 
plainant filed  his  bill  on  the  15th  of  December,  1859,  praying  for  the 
apppointment  of  a  receiver  and  for  an  injunction  against  the  defend- 
ant; and  a  subpoena  was  issued,  returnable  on  the  23d  of  December, 
1859.  With  the  subpoena  a  certified  copy  of  the  bill  was  served.  On 
the  29th  day  of  December,  1859,  before  any  further  action  was  taken 
upon  the  bill,  and  two  days  before  the  expiration  of  the  partnership  by 
its  own  limitation,  the  defendant  sold  the  Erie  Observer  printing  es- 
tablishment, including  the  presses,  type,  tools,  fixtures,  and  good  will, 
and  all  the  property  of  the  firm  in  the  newspaper,  to  a  certain  J.  J. 
Lints.  A  small  part  of  the  purchase  money  was  paid  in  cash,  and  the 
defendant  took  the  notes  of  the  purchaser  for  the  remainder,  payable 
at  different  periods,  some  of  them  postponed  for  18  month's.  A  sup- 
plemental bill  was  then  filed  by  the  complainant,  charging  the  ^ale  so 
made,  and  renewing  the  prayer  for  a  receiver  and  an  injunction.  It 
was  on  this  state  of  facts  that  the  court  granted  a  special  injunction, 
and  subsequently  made  it  perpetual,  and  appointed  a  receiver. 

Here  the  partnership  was  about  to  close  when  the  original  bill  was 
filed,  and  had  actually  ceased  when  the  supplemental  bill  was  present- 
ed. The  partners  could  not  agree  as  to  the  disposition  of  the  property. 
The  custody  of  right  belonged  to  one  as  much  as  to  the  other,  and  there 
was  a  gross  breach  of  duty  by  the  defendant.  The  attempt  by  Moore  to 
sell  the  entire  property  of  the  firm,  and  thus  exclude  the  complainant 
from  any  control  over  it,  was  utterly  unjustifiable,  and  it  imperiously 
demanded  the  appointment  of  a  receiver.  It  was,  indeed,  ruled  in  Deck- 
ard  v.  Case,  5  Watts.  22,  30  Am.  Dec.  287.  that  one  partner  might  as- 


232  NATURE   AND    CDARACTERISTICS   OF   A    PARTNERSHIP.  (Cll.  3 

sign  the  whole  partnership  property  in  trust  for  the  payment  of  credi- 
tors, and  the  same  has  been  held  in  some  other  cases,  though  it  has 
been  also  doubted.  In  most,  if  not  all,  of  the  cases  in  which  this  doc- 
trine has  been  asserted,  there  were  peculiar  circumstances.  iThus,  in 
Deckard  v.  Case,  the  partner  who  did  not  join  in  the  assignment  had 
run  away.  He  was,  of  course,  not  at  hand  to  be  consulted,  and,  as  the 
assignment  was  for  the  liquidation  of  partnership  debts,  his  assent  was 
presumed.  So,  in  Harrison  v.  Sterry,  5  Cranch  (U.  S.)  300,  3  L. 
Ed.  104,  the  assignment  was  only  a  partial  one,  and  it  was  made  by  the 
only  managing  partner  residing  in  the  United  States ;  the  others  being 
resident  in  England.  So,  in  Anderson  v.  Tompkins,  1  Brock.  (U.  S.) 
456,  Eed.  Cas.  No.  365,  the  partner  who  did  not  join  in  the  assignment 
had  left  for  Europe,  and  the  instrument  was  made  by  the  partner  who 
remained  when  the  firm  had  failed  in  business.  But  none  of  the  cases 
decided  that  a  partner  can  make  a  general  assignment  in  trust  for  the 
benefit  of  creditors  against  the  consent,  or  without  the  concurrence 
of  his  copartner ;  the  latter  being  present,  and  capable  of  acting  in  the 
matter.  The  contrary  was  directly  decided  in  Hays  v.  Heyer  and  Dem- 
ing  V.  Colt,  3  Sandf.  (N.  Y.)  2S4,  296.  And,  indeed,  this  must  be  so; 
for,  while  the  contract  of  partnership  constitutes  each  of  its  members 
an  agent  for  the  others,  it  is  only  for  the  purpose  of  carrying  on  the 
partnership,  not  for  destroying  it.  Denuding  the  firm  of  all  its  prop- 
erty is  a  thing  not  contemplated,  and  consequently  no  agency  for  such 
a  purpose  was  intended  to  be  created.  When,  therefore,  one  partner 
is  at  hand,  and  might  assent,  but  does  not,  it  is  quite  unreasonable  to 
presume  that  he  has  empowered  his  copartner  to  do  an  act  destructive 
of  the  purposes  for  which  the  firm  was  established. 

Still  less  can  an  authority  be  admitted  in  one  partner  to  sell  the 
entire  property  of  the  firm,  when  the  object  of  the  firm  was  not  trade, 
buying,  and  selling,  but  a  business  to  which  the  continued  ownership 
of  the  property  sold  is  indispensable.  An  assignment  is  for  the  pur- 
pose of  paying  the  debts,  but  a  sale  principally  for  division,  as  was 
this  case,  has  not  even  that  apology.  Such  a  power  in  one  of  two 
copartners  is  asserted  by  no  adjudicated  case.  It  is  directly  in  conflict 
with  the  purposes  of  the  partnership.  Instead  of  a  presumption  of 
agency  to  make  such  a  sale,  the  presumptions  are  all  the  other  way. 
It  is  not  denied  that  it  is  within  the  scope  of  partnership  authority  for 
one  partner  to  sell  and  dispose  of  all  the  partnership  goods  in  the  order- 
ly and  regular  course  of  the  business ;  but  selling  the  newspaper,  with 
its  good  wnll,  presses,  type,  etc.,  cannot  be  said  to  have  been  in  the 
regular  course  of  the  business  of  this  firm. 

It  is  clear,  therefore,  that  Moore  had  no  power  arising  out  of  the 
contract  of  copartnership  to  make  sale  to  Lints  of  the  entire  property  of 
the  firm.  The  case  shows  in  him  no  other  authority.  That  the  com- 
plainant assented^to  the  sale  is  not  pretended,  nor,  indeed,  can  it  be. 
It  was  made,  as  already  seen,  while  the  complainant  was  prosecuting 
his  bill  in  court  for  a  receiver  and  for  an  injunction  against  interfer- 


Sec.  7)         TRANSFER  OF  PARTMOUSHIP  PUOPERTY.  233 

ence  with  the  property.  The  supplemental  bill  charges  that  it  was 
made  without  the  knowledge  or  consent  of  Sloan,  and  the  defendant's 
answer,  yvhile  denying  that  it  was  made  without  that  knowledge  or 
consent,  adds  that  he  was  informed  and  believed  that  the  complainant 
did  not  know  he  was  selling  the  printing  establishment.  Nothing  more 
than  knowledge  is  asserted.  The  defendant  carefully  avoids  averring 
that  the  complainant  assented  to  the  sale.  He  denies  that  it  is  true 
that  complainant  neither  knew  nor  consented  to  the  sale,  and  follows 
this  denial  by  an  averment  that  he  did  know  of  it.  This  is  a  negative 
pregnant. 

The  sum  of  the  case  is  this:  One  partner  in  a  firm,  not  a  trading 
firm,  while  the  partnership  is  existing,  finding  himself  unable  to  agree 
with  his  copartner  respecting  the  disposition  of  the  joint  effects,  makes 
a  credit  sale  of  the  whole  to  a  third  person,  without  the  assent  of  the 
other  partner,  though  that  other  was  at  hand  and  might  have  been 
consulted.  This,  too,  is  done  while  judicial  proceedings  are  pending 
to  accomplish  a  settlement  of  the  difficulties  between  the  partners. 
Even  if  such  a  sale  were  legal,  it  evinces  a  total  disregard  of  the  rights 
of  the  rtonconcurring  partner,  and  is  what  has  sometimes  been  called 
by  a  chancellor  unrighteous  conduct  towards  him.  This  was  amply 
sufficient  to  warrant  the  appointment  of  a  receiver. 

The  reasons  for  the  appointment  of  a  receiver  apply  with  equal  force 
to  justify  the  injunction.  Indeed,  the  decree  making  the  latter  per- 
petual was  a  necessary  consequence  of  putting  the  partnership  DroD- 
erty  info  the  hands  of  the  receiver. 

The  decree  of  the  court  of  common  pleas  is  affirmed. 


DECKARD  v.  CASE. 

(Supreme  Court  of  Pennsylvania,  1S36.     5  Watts,  22,  30  Am.  Deo.    287.) 

Error  to  the  common  pleas  of  Perry  county,  in  an  action  of  trespass 
on  the  case  against  the  defendant  Deckard,  for  levying  an  execution 
on  certain  carriages,  wagons,  etc.  It  appeared  that  the  property  had 
formerly  belonged  to  Lowe  &  Mead,  partners  in  the  wagon-making 
business;  that  the  plaintiffs  and  others,  having  judgments  against  the 
firm,  caused  a  levy^  to  be  made  on  said  property  by  the  sheriflF,  who 
took  it  into  his  possession ;  that.  Mead  having  absconded,  Lowe  agreed 
»vith  certain  of  the  creditors  to  transfer  all  the  stock  in  trade  of  the 
firm  to  the  plaintiffs,  in  consideration  of  their  assuming  to  pay  certain' 
debts  of  the  firm,  including  those  for  which  the  levy  had  been  made ; 
that  he  made  such  transfer  accordingly,  by  an  assignment  under  seal, 
and  the  sheriff  thereupon  delivered  the  property  to  the  plaintiffs,  who 
rented  the  shop  formerly  occupied  by  the  partners,  and  took  the  goods 
back  there,  and  began  to  carry  on  the  same  business,  employing  Lowe 
as  one  of  their  workmen;    that  about  14  months  afterwards  another 


234  NATURE   AND   CHARACTERISTICS   OF   A    PARTNERSUIP.  (Ch.  3 

creditor  of  Lowe  &  Mead,  having  obtained  execution  against  them, 
placed  it  in  the  defendant's  hands,  and  he,  having  been  indemnified  by 
the  creditor,  levied  upon  the  goods.  The  court  below  instructed  the 
jury  that  the  fact  that  the  assignment  included  the  whole  stock  in  trade 
of  the  partnership,  and  was  under  seal,  and  executed  by  only  one  of 
the  partners,  did  not  render  it  invalid,  but  that,  if  the  jury  should  find 
that  the  employment  of  Lowe  was  a  part  of  the  consideration  of  the 
transfer,  it  was  fraudulent  and  void.  Verdict  and  judgment  for  the 
plaintiffs,  which  the  defendant  brought  error  to  reverse. 

Rogers,  J.  It  is  a  general  principle  of  the  law  of  partnership  that 
the  partners  are  bound  by  what  is  done  by  each  other  in  the  course  of 
the  partnership  business.  They  are  considered  as  virtually  present  at 
and  sanctioning  the  contracts  they  singly  enter  into  in  the  course  of 
trade ;  and  each  is  vested  with  authority  to  act  at  the  same  time  as  prin- 
cipal and  as  the  authorized  agent  of  his  copartners.  Each  partner  re- 
poses confidence  in  the  other,  and  by  the  act  of  entering  into  the 
partnership  constitutes  him  his  general  agent  as  to  all  the  partnership 
business.  These  principles  are  established  for  the  benefit  of  the  part- 
ners themselves;  for  it  would  be  a  great  impediment  to  commercial 
dealings  if,  in  the  ordinary  transactions  of  trade,  it  were  necessary  that 
the  actual  consent  of  each  partner  should  be  obtained,  or  that  it  should 
be  required  that  the  transaction  should  be  really  for  the  benefit  of  the 
firm.  When,  therefore,  the  act  of  one  has  the  appearance  of  being  on 
behalf  of  the  firm,  it  is  considered  as  the  act  of  all.  Among  the  pow- 
ers more  ordinarily  exercised  by  partners  is  the  jus  disponendi,  or 
the  power  which  each  partner  individually  has  of  disposing  of  the 
joint  stock  or  mercliandise.  But  it  is  contended  that  these  powers  are 
subject  to  certain  limitations;  and  on  the  authority  of  Justice  Wash- 
ington, in  Pearpoint  &  Lord  v.  Graham,  4  Wash.  C.  C.  (U.  S.)  234, 
Fed.  Cas.  No.  10,877,  it  is  said  to  admit  of  serious  doubt  whether  one 
partner  can,  without  the  consent  of  his  associates,  assign  the  whole  of 
the  partnership  effects  (otherwise  than  in  the  course -of  the  trade  in 
which  the  firm  is  engaged)  in  such  a  manner  as  to  terminate  the  part- 
nership. Justice  Washington  inclines  to  take  a  distinction  between  a 
voluntary  act  of  a  partner,  and  those  cases  where,  by  act  of,  God  or  by 
the  operation  of  the  law,  the  partnership  is  dissolved,  as  by  death  or 
bankruptcy  of  a  partner. 

But  why  should  the  disposal  of  the  whole  stock  in  trade  necessarily 
dissolve  the  partnership?  The  transaction  may  be  for  the  benefit  of 
the  concern,  and  may  increase,  rather  than  diminish,  the  ability  of  the 
firm  to  continue  their  business.  It  is  admitted  he  can  sell  part  with- 
out the  actual  consent  of  his  associates,  and  the  policy  of  limiting  that 
right  is  not  very  apparent,  where  the  transaction  is  concluded  in  good 
faith;  still  less  in  a  case  like  the  present,  where  the  arrangement  is 
most  clearly  for  the  benefit  of  the  firm.  For,  had  the  property  been 
sold  by  the  sheriff  in  its  unfinished  state,  it  would  have  been  attended 
with  the  sacrifice  of  the  interests  of  all  the  parties.     Mead,  aware  that 


Sec.  7)         TRANSFEi;  OF  PARTNERSHIP  PROPERTY.  235 

the  property  had  been  taken  in  execation,  abandoned  all  care  of  it. 
From  necessity,  then,  the  other  partner  should  have  the  power  of  dis- 
posal in  payment  of  the  debts  of  the  firm.  It  cannot,  with  any  pro- 
priety, be  considered  as  a  voluntary  act  of  disposition ;  but  some  ar- 
rangement was  required  to  relieve  the  property  from  the  custody  of 
the  sheriff.  But  is  the  power  so  limited  as  that  one  partner  cannot 
dispose  of  the  whole  of  the  partnership  effects?  In  Fox  v.  Hanbury, 
Cowp.  445,  Lord  Mansfield  held  that  each  partner  has  a  power  singly 
to  dispose  of  the  whole  of  the  partnership  effects.  The  authority  is 
implied  from  the  nature  of  the  business.  Justice  Brainard,  in  Mills 
v.  Barber,  4  Day  (Conn.)  430,  expresses  the  opinion  that  one  partner 
has  the  absolute  power  of  disposing  of  the  whole.  And  in  Harrison 
v.  Sterry  et  al.,  5  Cranch  (U.  S.)  2S9,  3  L.  Ed.  104,  it  is  held  that  one 
partner  may,  in  the  partnership  name,  assign  the  partnership  effects  and 
credits  in  trust  for  creditors  of  the  firm.  The  case  of  Dickinson  v. 
Legare,  1  Desaus.  Ch.  537,  would  seem  to  have  been  put  on  the  ground 
of  fraud,  and  certainly  the  transaction  must  be  free  from  every  taint 
of  fraud ;  but,  when  the  assignment  is  bona  fide,  I  cannot  doubt  the 
power  of  one  partner  to  transfer  the  whole,  as  well  as  a  part,  of  the 
partnership  effects.  Nor  do  I  think  it  can  make  any  difference,'  in 
passing  the  interests  of  the  firm,  when  the  property  has  been  delivered, 
whether  the  instrument  of  transfer  be  under  seal  or  not.  The  assignment 
transfers  the  whole  right  of  the  firm,  and  not  merely  the  right  of  Lowe. 
It  purports  to  assign  the  whole  interest,  and  contains  warranty  against 
all  persons  whatsoever. 

There  is  no  ground  to  say  that  there  was  fraud  in  the  contract.  The 
fact  of  fraud  was  left  by  the  court  to  the  jury,  and  they  have  found 
that  the  contract  was  bona  fide.     *     *     * 

The  levy  was  made  upon  all  the  property  of  the  defendants.  After 
the  levy  it  was  removed  to  an  adjoining  warehouse  and  held  by  the 
sheriff  in  custody  for  several  days,  and  wlien  so  held  the  contract  was 
made  for  a  valuable  consideration.  The  shop  to  which  the  property 
was  retransferred  was  rented  by  the  vendees.  It  was  under  their 
superintendence  and  care.  They  hired  the  workmen,  purchased  the 
materials,  and  continued  the  direction  of  the  concern  for  14  or  15 
months. 

There  is  nothing  in  all  this  either  fraudulent  in  fact  or  forbidden  by 
the  policy  of  the  law.  Nor  will  the  fact  that  the  plaintiff  employed 
Lowe  as  a  journeyman  affect  the  transaction,  unless  his  employment 
was  a  part  of  the  consideration  of  the  contract. 

Judgment  affirmed.^ 

1  "It  is  to  be  noted  that  the  question  arises  in  this  rase  between  the  credi- 
tors of  an  insolvent  firm,  and  not  between  the  purchasiup  creditor  and  a 
member  of  the  firm  not  consenting:  to  the  transfer  of  the  property.  If  the 
question  arose  between  the  purehasins  creditor  and  a  nonconsenting  partrier, 
a  very  different  question  mij^ht  be  presented.  Tlio  ajxenoy  whioli  one  partner 
holds  for  his  copartner  is  revocable,  and  his  implied  authority  to  dispose  of  the 
partnership  assets  is  svlbject  to  revocation.     It  is  undoubtedly  the  law  that 


236  NATURE   AND   CHARACTERISTICS  OF  A  PARTNERSUir,  (Ch.  3 


SHATTUCK  V.  CHANDLER. 

(Supreme  Court  of  Kansas,  18S9.    40  Kan.  516,  20  Pac.  225,  10  Am,  St.  Rep. 

227.) 

Action  upon  promissory  notes  by  J.  E.  Chandler,  as  assignee  of  the 
firm  of  Pierpont  &  Tuttle,  against  James  A.  Shattuck.  Judgment  for 
plaintiff,  and  defendant  brings  error. 

Clogston^  C.  This  was  an  action  upon  a  large  number  of  promis- 
sory notes  made  payable  to  Pierpont  &  Tuttle,  and  guarantied  by 
the  firm  of  Shattuck  &  Bowers  in  these  words:  "For  value  received, 
I  hereby  guaranty  the  payment  of  this  note  according  to  the  terms 
thereof,  waiving  demand,  notice,  and  protest."  The  evidence  shows 
that  Pierpont  &  Tuttle  were  a  manufacturing  firm,  located  at  Bush- 
nell,  III,  and  that  Shattuck  &  Bowers  resided  in  Phillips  county,  Kan., 
and  were  engaged  in  the  sale  of  agricultural  implements.  Certain 
agNcultural  implements  furnished  by  Pierpont  &  Tuttle  were  sold  by 
Shattuck  &  Bowers,  and  the  notes  sued  on  were  taken  in  payment 

If  one  partner  dissents,  or  forbids  ttie  transfer  of  property  of  the  firm  be- 
fore it  is  complete,  and  notice  thereof  be  given  to  the  purchaser,  the  sale  will 
not  be  bindins  upon  the  dissenting  partner.  The  member  of  the  firm  would 
cease  to  act  as  the  agent  of  the  other  member  in  respect  of  such  transaction. 
Id  Halstead  v.  Shepard,  23  Ala.  558,  it  was  held  that,  where  'one  partner 
undertakes  to  dispose  of  the  partnership  effects  to  the  injury  of  th^  other 
partner,  equity  will  interpose  to  grant  relief,'  and,  'if  the  purchasers  of  such 
effects  take  them  with  notice  of  such  fraudulent  intent  of  the  partner  making 
the  sale,  they  will  be  considered  as  parties  to  the  fraud,  and  liable  in  equity 
to  the  partner  to  refund.'  "  Per  Shope,  J.,  in  Hanchett  v.  Gardner  et  al., 
138  in.  571.  28  N.  E.  788  (1891). 

In  Tapley  v.  Butterfield,  1  IMetc.  (Mass.)  515,  35  Am.  Dec.  374  (1840),  up- 
holding the"  validity  of  a  chattel  mortgage  under  seal,  executed  in  the  name 
of  the  partnership  by  one  partner,  covering  the  whole  property  of  the  firm-,  it 
is  said:  "It  is  within  the  scope  of  partnership  authority  for  one  partner  to 
sell  and  dispose  of  all  of  the  partnership  goods  in  the  orderly  and  regular 
course  of  business.  It  is  also  within  the  scope  of  partnership  authority  to 
pay  the  debts  of  the  firm,  and  to  apply  the  assets  of  the  firm  for  that  pur- 
pose. He,  being  authorized  to  sell  the  goods  to  raise  money  to  pay  their 
debts,  may  apply  the  goods  directly  to  the  payment  of  the  debts;  and  accord- 
ing to  the  exigencies  of  the  occasion  he  may  pledge  the  partnership  goods  to 
raise  money  to  pay  the  debts  of  the  firm.  To  this  extent  we  think  each 
partner  has  a  disposing  power  over  the  partnership  stcrck.  arising  necessarily 
Irom  the  nature  of  that  relation.  *  *  *  To  what  extent  one  partner  can 
bind  another  in  the  disposition  of  the  entire  property  of  the  concern  is  a 
(iuestion  of  power,  arising  out  of  the  relation  of  i^artnership,  and  does  not, 
we  think,  depend  upon  the  form  or  manner  in  which  it  is  exercised.  Lands 
held  by  partners  are  considered  as  lands  held  by  tenants  in  common ;  and 
as  one  tenant  in  common  cannot  pass  any  estate  of  his  co-tenant,  and  as  laud 
cannot  pass  without  deed,  it  follows  that  one  partner  cannot  convey  away 
the  real  estate  of  the  firm  without  special  authority.  But,  considering  that 
the  authority  of  selling  and  pledging  the  personal  property  is  within  the 
scope  of  partnership  power,  and  may  be  done  by  either  partner,  and  considering 
that  it  may  be  done  without  deed,  the  court  are  of  opinion  that  such  a 
mortgage,  made  by  one  partner  in  the  absence  of  the  other,  although  un- 
necessarily made  by  deed,  was  binding  upon  the  property,  and  constituted  a 
valid  lien  upon  the  property,  which  the  plaintiff  may  avail  himself  of.  And- 
erson V.  Tompkins,  1  Brock.  (U.  S.)  456,  Fed.  Cas.  Ko.  3G5 ;  Deckard  v.  Case, 
5  Watts,  22,  30  Am.  Dec.  287.     *     •     •" 


Sec.  7)  TitANSFi:u  of  pautnkusiiip  property.  237 

therefor;  said  notes  being  made  payable  to  Pierpont  &  Tuttle,  and  be- 
fore delivery  to  them  were  guarantied,  as  above  stated.  In  answer  to 
the  petition  the  defendant  alleged,  among  ochcr  defenses,  that  the  plain- 
tiff was  not  the  assignee  of  Pierpont  &  Tuttle,  and  tlxat  he  had  no  right 
or  authority  to  bring  the  action ;  and  also  alleged  that  Pierpont  & 
Tuttle  had  failed  to  collect  tlie  notes  when  the  same  were  due  and  pay- 
able ;  that  the  makers  of  the  notes  were  solvent  at  that  time,  and  aft- 
erwards became  insolvent,  and  nonresidents  of  Kansas.  The  plain- 
tiffs offered  in  evidence  the  notes  sued  on,  and  the  deed  of  assignment 
made  in  Illinois  by  Tuttle  in  the  firm  name  of  Pierpont  &  Tuttle;  also 
a  deed  of  assignment  by  Tuttle  as  the  surviving  partner  of  Pierpont  & 
Tuttle.  Said  last  deed  of  assignment,  in  addition  to  a  general  assign- 
ment of  all  the  property  of  the  firm  of  Pierpont  &  Tuttle,  ratified  the 
first  deed  of  assignment,  and  all  the  doings  and  proceedings  had  there- 
under by  the  plaintiff  as  such  assignee.  Both  of  these  assignments 
were  objected  to,  and  the  objection  overruled,  and  were  admitted  in 
evidence. 

The  first  deed  was  objected  to  upon  the  ground  that  one  of  several 
partners  has  no  authority,  without  the  consent  of  the  other  partners, 
to  make  a  general  assignment  of  the  partnership  property.  The  plain- 
tiff contends  that  the  deed  of  assignment  is  prima  facie  good,  and  it 
devolved  upon  the  defendant  to  show  that  Pierpont  did  not  consent  to 
the  assignment,  and  that,  unless  it  was  at  least  shown  that  he  objected 
to  the  assignment,  the  assignment  must  be  held  good.  In  this  we  do 
not  agree  with  the  plaintiff.  Where  an  assignment  is  made  by  one  part- 
ner, his  right  to  make  that  assignment  depends  upon  the  consent  of  his 
copartner;  and  to  give  him  authority  to  make  it,  he  must,  in  addition, 
show  that  his  partner  consented  thereto,  or  show  such  a  state  of  facts 
from  which  tlie  court  could  presume  assent;  or  show  that  the  partner 
was  absent  from  the  country,  and  that  therefore  his  assent  could  not 
be  procured ;  or  some  other  state  of  facts  that  would  show  to  the 
court  that  the  partner  making  the  assignment  had  authority,  either  by 
reason  of  the  articles  of  partnership,  or  by  the  fact  of  his  being  man- 
aging agent  of  the  partnership,  or  some  such  fact  from  which  the 
court  could  say  that  the  assignment  was  authorized  by  the  partnership. 
No  such  proof  was  made  in  this  case,  and  we  think,  in  the  absence  of 
such  proof,  the  assignment  offered  in  evidence  was  absolutely  void. 
See  Burrill,  Assignm.  (5th  Ed.)  §§  68-88;  Loeb  v.  Pierpoint,  58  Iowa, 
469,  12  N.  .W.  544,  43  Am.  Rep,  122 ;  Lowenstein  v.  Flauraud.  82  X. 
Y.  494;  Haggerty  v.  Granger,  15  Plow.  Prac.  (N.  Y.)  243;  Dunklin 
V.  Kimball,  50  Ala.  251;  Sloan  v.  Moore,  37  Pa.  217;  Graves  v.  Hall. 
32  Tex.  G65;  Story,  Partn.  §  101;  Pars.  Partn.  166.  This  doctrine 
is  now  almost  universally  acknowledged  to  be  the  rule. 

The  second  assignment  offered  in  evidence  presents  a  more  difficult 
question.  In  many  of  the  states  the  doctrine  is  held  that  a  surviving 
partner  cannot  make  a  general  assignment,  and  in  those  states  the  the- 
ory upon  which  the  decisions  were  rendered  is  that  at  the  death  of  one 


2oS  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

partner  the  surviving  partner  becomes  trustee  of  the  partnership  es- 
tate, and  that  he  has  no  power  to  transfer  the  trust  so  created  to  an- 
other trustee.  This  see/ns  to  be  the  doctrine  held  in  New  York.  See 
Nelson  v.  Sutherland,  36  Hun,  327;  Loeschigk  v.  Hatfield,  51  N.  Y. 
660 ;  Cushman  v.  Addison,  52  N.  Y.  628 ;  also  Tiemann  v.  Molliter, 
71  Mo.  512;  Vosper  v.  Kramer,  31  N.  J.  Eq.  420.  On  the  other 
hand,  it  has  been  held  by  some  of  the  states  that  the  surviving  partner 
may  make  a  general  assignmetit  of  a  partnership;  and  to  this  effect 
are  numerous  decisions,  among  which  is  Emerson  v.  Sentcr,  118  U.' 
S.  3,  6  Sup.  Ct.  981,  30  L.  Ed.  49,  in  which  case  the  court  held  that  the 
surviving  partner  could  make  a  general  assignment.  The  court  said : 
"The  right  to  do  so  grows  out  of  his  duty,  from  his  relations  to  the 
property,  to  administer  the  affairs  of  the  firm  so  as  to  close  up  its 
business  without  unreasonable  delay."  This  seems  to  be  the  settled 
doctrine  of  the  Supreme  Court  of  the  United  States,  and  should  be 
followed,  unless  there  is  some  statute  making  a  different  rule.  This 
assignment  was  made  under  the  laws  of  Illinois,  and  should  be  inter- 
preted thereunder;  but  in  this  case  no  statute'  of  Illinois  was  offered 
disclosing  what  provisions  had  been  made  in  that  state  by  statute  for 
the  winding  up  of  partnership  business,  and,  in  the  absence  of  any 
showing  of  this  kind,  we  must  presume  that  the  statute  of  Illinois  is 
-like  that  of  Kansas. 

This  brings  up  the  question,  is  there  any  statute  in  Kansas  that  con- 
flicts with  the  rule  laid  down  by  the  Supreme  Court  of  the  United  States 
in  the  last  case  cited?  Article  2,  c.  37,  Comp.  Laws  1885,  provides  for 
the  winding  up  and  settlement  of  partnership  estates.  This  provides 
for  the  appraisement  of  partnership  property,  and  that  the  property 
shall  remain  in  the  possession  of  the  surviving  partner,  and,  if  he  sees 
fit  to  continue  its  management,  and  the  disposing  of  the  partnership 
assets,  and  the  payment  of  the  partnership  debts,  he  may  do  so  upon 
condition  that  he  give  a  bond  for  the  faithful  performance  of  the  duties 
imposed ;  and  the  power  is  given  the  probate  court  to  cite  him,  after 
the  giving  of  such  bond,  to  an  accounting,  and  to  adjudicate  upon  such 
accounts  as  in  the  case  of  an  ordinary  administrator,  and  for  an  action 
upon  the  bond  in  case  of  his  failure  to  faithfully  administer  the  part- 
nership estate ;  and  upon  his  refusal  to  give  the  bond  and  take  charge 
of  the  partnership  property,  it  becomes  the  duty  of  the  administrator 
of  the  deceased  partner's  estate  to  assume  the  management  of  the 
same,  and  to  settle  it  up.  By  this  statute  ample  provisions  are  made 
for  the  closing  up  of  a  partnership  estate,  either  by  the  surviving  part- 
ner or  by  the  administrator  of  the  deceased  partner's  estate.  We  think 
that  the  Legislature  by  this  provision  intended  to  provide  a  trustee  to 
close  up  the  partnership  upon  the  death  of  a  member  of  the  firm,  and 
that  the  statute  creates  a  trust  in  the  surviving  partner  which  he  has 
no  power  to  transfer  to  another,  except  as  it  is  transferred  by  his  re- 
fusal to  administer  upon  the  partnership  estate,  in  which  event  it  is 


Sec.  7)  TRANSFER  OF  PARTNERSHIP  PROPERTY.  -239 

transferred  by  operation  of  law  to  the  administrator  of  the  deceased 
partner's  estate.    *    *    * 

If  the  surviving  partner  under  our  statutes  may  transfer  his  trust 
to  an  assignee,  then  the  assignee  would  close  up  the  entire  partner- 
ship business  in  the  court  having  jurisdiction  of  the  assignment  and 
estate  thereunder,  and  would  be  entirely  free  from  the  jurisdiction  of 
the  probate  court,  and  the  statute  above  cited  would  be  without  any 
force  or  effect.  Did  the  Legislature  intend  that  this  statute  might  be 
regarded  or  not,  at  the  pleasure  of  the  surviving  partner?  We  think 
not.  This  means  of  winding  up  a  partnership  business  has  been  pre- 
scribed by  the  Legislature,  and,  in  the  absence  of  any  proof  of  the 
statutes  of  Illinois  to  the  contrary,  we  must  presume  that  this  is  the 
manner  of  closing  up  partnership  estates  in  that  state.  We  therefore 
think  the  court -erred  in  permitting  the  second  assignment  to  be  given 
in  evidence,  as  it  gave  the  plaintiff  no  authority  or  right  to  commence 
the  action.     *     ♦     * 

It  is  therefore  recommended  that  the  judgment  of  the  court  below 
be  reversed,  and  the  cause  remanded  for  a  new  trial. 


ROVELSKY  V.  BROWN  et  al. 

(Supreme  Court  of  Alabama,  April  14,  1891.    92  AJa.  522,  9  South.  182,  25 

Am.   St.   Rep.  S3.) 

Action  for  specific  performance  by  D.  Rovelsky  against  B.  S.  Brown 
and  A.  J.  Smith,  partners  as  Brown  &  Smith.  The  chancellor  granted 
the  relief  of  complainant  as  to  one-half  interest  owned  by  Brown,  but 
refused  to  grant  the  relief  as  to  the  other  half  interest  owned  by  Smith, 
and  decreed  that  Smith  was  entitled  to  his  half  interest  in  the  prop- 
erty sold  and  that  all  the  property  should  be  held  subject  to  the  debts 
of  the  partnership.     Complainant  appeals. 

Walker,  J.  B.  S.  Brown  ind  A.  J.  Smith  were  partners,  doing 
business  in  the  town  of  the  Ozark,  in  this  state,  under  the  firm  name  of 
Brown  &  Smith.  On  the  27th  day  of  September,  18S9,  said  Brown, 
in  the  name  of  the  firm,  sold  to  Rovelsky  a  house  and  lot  in  the  town 
of  Ozark  at  the  price  of  $700,  received  $500  thereof  in  cash,  and  signed 
the  firm  name  to  a  bond  for  title  purporting  to  bind  A.  J.  Smith  and 
B.  S.  Brown  under  the  firm  name  of  Brown  &  Smith.  Rovelsky  was 
put  in  possession  of  the  property  by  Brown,  and  thereafter  tendered 
the  balance  due  on  his  purchase,  and  demanded  of  the  partners  a  con- 
veyance of  title  to  the  property.  Smith  refused  to  join  in  the  con- 
veyance. Thereupon  Rovelsky  filed  his  bill  for  the  specific  enforce- 
ment of  the  contract  evidenced  by  the  bond  for  title.  Brown  inter- 
posed no  defense.  Smith  defended  on  the  ground  that  the  property  in 
question  was  owned  by  himself  and  Brown  as  joint  tenants  or  tenants 
in  common,  and  that  the  sale  by  Brown  was  made  without  his  knowl- 
edge or  consent,  and  was  repudiated  by  him,  because,  in  re.^pect  t6  his 


240  NATURE  AND   CHARACTERISTICS  OP  A  PARTNERSHIP.  (Ch.  3 

right  and  title  to  his  undivided  half  interest  in  said  real  estate,  he  was 
in  no  way  bound  by  the  acts  of  said  Brown.  Smith,  by  the  terms  of 
his  answer  and  by  the  statements  in  his  deposition,  assumed  the  posi- 
tion that  the  land  in  question  should  not  be  treated  as  partnership  prop- 
erty, but  as  any  other  land  held  by  a  tenancy  in  common.  The  bill 
avers  that  Brown  &  Smith  were  engaged  in  buying  and  selling  real 
estate  for  speculation  and  profit,  and  that  they  engaged  in  that  busi- 
ness as  partners;  that  they  bought  and  sold  real  estate  as  partners,* 
under  the  firm  name  of  Brown  &  Smith.  These  averments  are  sus- 
tained by  the  testimony  of  Brown,  of  the  complainant,  and  of  Barnes, 
all  to  the  effect  that  Brown  and  Smith  were  partners  in  the  real  estate 
business,  and  were  engaged  in  buying  and  selling  lots  in  and  around 
Ozark;  that  they  treated  and  rented  their  property  there  as  firm  prop- 
erty, and,  prior  to  the  sale  now  sought  to  be  enforqed,  each  of  the 
partners,  in  the  name  of  the  firm,  was  trying  to  make  sale  of  the  lot 
in  question  for  the  purpose  of  paying  the  debts  of  the  firm.  Brown 
stated  that,  prior  to  the  purchase  of  the  lot,  he  and  Smith  (the  latter 
did  not  reside  at  Ozark)  had  formed  a  partnership  for  the  purpose  of 
buying  and  selling  real  estate  in  the  town  of  Ozark,  and  that  it  was 
agreed  that  Brown  should  make  the  purchases ;  that  he  did  make  the 
purchases,  and  Smith  afterwards  paid  his  part  of  the  purchase  money 
to  Brown,  and  the  property  was  regarded  as  having  been  bought  with 
partnership  money;  and  that  both  members  of  the  firm  had  the  right 
to  bargain  for  the  sale  of  any  of  the  lots  belonging  to  the  firm.    *    *    * 

We  are  satisfied  from  the  evidence  that  the  lot  was  bought  by  Brown 
&  Smith  in  the  course  of  a  general  dealing  engaged  in  by  them  in  the 
business  of  buying  and  selling  real  estate,  and  that  it,  like  other  lots 
owned  by  them,  was  treated  and  regarded  by  them,  and  is  to  be  treated 
and  regarded  by  the  court,  as  partnership  property.  So  treating  it,  will 
the  contract  made  in  the  name  of  the  firm  by  Brown  alone  be  specific- 
ally enforced  against  Smith? 

The  doctrine  is  familiar,  and  is  illustrated  by  many  reported  cases, 
that  when  partnership  funds  have  been  used  in  the  acquisition  of  real 
estate,  whether  the  title  be  taken  in  the  name  of  one  partner,  or  in 
the  names  of  all,  so  as  to  make  them  in  law  tenants  in  common,  sucli 
property  will  for  certain  purposes  be  treated  in  courts  of  equity  as 
personalty.  Powers  v.  Robinson,  90  Ala.  325,  8  South,  10,  and  au- 
thorities there  cited.  This  doctrine  has  usually  been  invoked  for  the 
purpose  of  enforcing  the  payment  of  partnership  debts,  or  to  secure  a 
proper  division  of  the  assets  on  a  settlement  of  the  partnership  affairs ; 
and  sometimes  the  courts,  having  in  view  only  these  familiar  applica- 
tions of  the  rule,  have  spoken  of  it  existing  for  the  two  purposes  above 
mentioned.  Such  statements,  on  their  f^ace,  may  suggest  a  doubt  as  to 
whether  the  doctrine  can  be  invoked  for  any  other  purpose.  In  an 
ordinary  trading  or  commercial  partnership,  the  usual  dealings  of  the 
concern  in  the  course  of  its  business  are  with  money  or  other  per- 
son.'\l  property.    Real  estate  does  not  figure  in  the  regular  dealings  of 


Sec.  7)         TRANSFER  OF  PARTNERSHIP  PROPEUTT.  241 

such  a  partnership ;  but  it  often  happens  that  real  estate  is  acquired  in 
the  collection  of  debts,  or  the  funds  of,  the  firm  may  find  their  way 
into  real  estate  in  other  modes.  Still  real  estate  does  not  become  the 
subject-matter  of  the  regular  business  dealings  of  the  firm.  It  is  dis- 
posed of,  or,  if  it  remains  on  hand,  that  part  of  the  partnership  funds 
which  has  been  used  in  its  acquisition  is  thereby  practically  \siii:dra\vn 
from  the  business.  The  real  estate  is  not,  in  such  cases,  used  for 
partnership  purposes,  except  by  selling  it,  and  returning  the  proceeds 
to  the  business,  there  to  be  used  in  trade,  in  paying  debts,  or  in  a  dis- 
tribution on  a  settlement  of  the  partnership  affairs.  If  not  so  volun- 
tarily applied  by  the  partners  themselves,  courts  of  equity  are  not 
likely  to  be  appealed  to  in  reference  to  such  real  estate,  as  affected  by 
the  partnership  relation,  except  to  reach  it  as  a  depository  or  hiding 
place  of  partnership  funds  for  the  purpose  of  enforcing  the  payment 
of  debts  or  to  secure  an  equalization  in  division  among  partners.  The 
fact  that,  in  most  of  the  reported  cases,  the  equitable  jurisdiction  has 
been  invoked  only  for  one  or  the  other  or  both  of  these  two  special 
purposes  is  an  explanation  of  the  habit  of  speaking  of  the  rule  as 
existing  for  those  purposes,  without  mentioning  other  purposes  wiiich, 
on  consideration,  may  be  found  to  be  equally  within  the  reason  of  rhe 
rule.  There  are  manifest  reasons -for  the  existence  of  this  equitable 
rule  of  treating  partnership  real  estate  as  personal  property.  A  gen- 
eral partnership  is  a  scheme  of  co-ordinate  contribution,  effort,  and 
action  by  each  for  all.  The  property  and  resources  contributed  by  the 
several  members  constitute  a  fund  specially  appropriated  for  use  in 
carrying  on  the  partnership  business,  for  the  satisfaction  of  partner- 
ship obligations,  and  for  a  ratable  division  of  what  may  be  left  among 
the  partners.  None  of  these  special  purposes  could  be  effectually 
carried  out  as  to  real  estate,  if  the  incidents  of  the  legal  ownership 
of  that  kind  of  property  are  recognized  in  the  partnership  dealings. 
The  powers  of  the  several  general  partners  in  the  acquisition,  man- 
agement, control  and  disposition  of  the  partnership  property  in  the 
course  of  business,  would  be  impossible  of  adequate  exercise  if  ham- 
pered by  the  restrictions  which  at  law  embarrass  the  ownership  and 
alienation  of  real  estate.  The  incidents  of  dower,  heirship,  etc.,  prac- 
tically preclude,  so  far  as  real  estate  is  concerned,  a  recognition  at  law 
of  that  species  of  title  which  the  partnership  and  the  several  mem- 
bers thereof  have  in  the  firm  property;  for  each  has  the  power  of 
absolute  disposition  within  the  scope  of  the  business,  and,  in  the  case 
of  the  death  of  a  member,  the  survivor  or  survivors  are  vested  with  an 
exclusive  title  and  right  of  disposition  for  partnership  purposes.  It  is 
plain,  without  further  illustration,  that,  in  dealing  with  partnership  real 
estate  for  partnership  purposes,  it  is  impracticable  to  recognize  the  in- 
cidents of  its  legal  ownership.  And  it  is  equally  plain,  without  any 
illustration  at  all,  that  it  would  be  grossly  unjust,  both  in  respect  to 
the  relations  of  the  partners  with  each  other,  and  as  reg^jrds  the  part- 
nership dealings  with  others,  to  allow  the  investment  of  partnership 

GiL.rART.— 10 


242  NATURE   AND    CH ARACTEIUSTICS   OF   A   PARTNERSHIP.  (Ch.  3 

funds  in  real  estate  to  limit  or  to  enlarge  the  rights  and  powers  of  the 
several  partners  as  to  the  firm  property,  or  to  cut  off  or  restrict  the 
appropriation  of  the  partnership  property  to  the  purpose  above  men- 
tioned, to  which  it  has  been  specially  set  aside  and  devoted.  Such  in- 
equitable results  are  obviated  by  treating,  so  far  as  necessary  to  ac- 
complish the  purposes  of  the  partnership,  such  real  estate  as  personal 
property.  And  why  should  not  such  real  estate  be  treated  as  personal 
propertv  when  it  is  the  subject-matter  of  the  ordinary  business  of  the 
partnership,  as  well  as  when  it  is  sought  to  be  reached  to  enforce  the 
payment  of  debts,  or  to  effect  a  settlement  of  the  partnership  affairs? 
It  is  a  fact  that  the  buying  and  selling  of  real  estate  is  a  regular  busi- 
ness, engaged  in  throughout  the  country.  Many  partnerships  are  in 
existence  devoted  exclusively  to  the  transaction  of  this  kind  of  busi- 
ness. Real  estate  is  the  subject-matter  of  their  trading  operations. 
They  deal  in  it  as  a  commodity.  It  is  their  stock  in  trade.  The  ob- 
ligations they  assume  directly  affect  and  involve  tlie  title  to  that  char- 
acter of  property.  If  a  debt  contracted  in  a  transaction  having  no  con- 
nection with  real  estate  by  a  member  of  an  ordinary  commercial  firm, 
acting  within  the  scope  of  the  business,  may  be  enforced  against  land, 
merely  because  partnership  funds  have  been  used  in  its  acquisition,  a 
fortiori  the  obligation  one  member  of  a  real  estate  partnership  under- 
takes in  the  regular  course  of  trade,  in  reference  to  the  kind  of  prop- 
erty which  is  the  special  subject-matter  of  their  business,  should  be 
effectually  enforceable  against  all  the  partners,  and  should  reach  and 
bind  the  property  dealt  in.  If  the  several  partners  in  a  firm,  engaged 
in  the  business  of  buying  and  selling  real  estate,  cannot  bind  the  firm 
by  purchases  or  sales  of  such  property,  made  in  the  regular  course  of 
business,  then  they  are  incapable  of  exercising  the  essential  rights  and 
powers  of  general  partners,  and  their  association  is  not  really  a  part- 
nership at  all,  but  a  several  agency,  the  acts  of  each  member  being 
subject  to  ratification  or  repudiation  by  the  other  members,  or  by  their 
wives,  or,  if  they  should  die,  by  their  widov/s,  heirs,  or  devisees.  In 
short,  we  are  unable  to  discover  any  satisfactory  reason  for  denying 
to  a  court  of  equity  the  power  to  treat  real  estate  as  personalty  in 
order  to  make  binding  partnership  obligations  in  reference  to  the  par- 
ticular subject-matter  of  the  regular  dealings  of  the  firm,  when  that 
rule  sought  to  be  invoked  to  this  end  is  readily  applied  to  enforce  the 
payment  of  ordinary  debts,  or  to  secure  a  partnership  division,  which, 
as  compared  with  the  immediate  and  primary  aim  of  carrying  on  the 
regular  business  of  the  concern,  are  the  secondary  and  ultimate  pur- 
poses to  which  the  partnership  property  has  been  pledged  or  devoted. 
And  authorities  are  not  wanting  to  support  the  conclusion  that  the  rule 
is  not  confined  in  its  application  by  any  such  unreasonable  distinction. 
In  Lang's  Heirs  v.  Waring,  17  Ala.  145,  it  was  said:  "So  far  as  the 
partners  and  their  creditors  are  concerned,  real  estate  belonging  to 
the  partnership  is  in  equity  treated  as  mere  personalty;  and  so  it  will 
be  deemed  as  to  all  other  intents,  if  the  partners  have  by  agreement 


Sec.  7)  TKANSFEIi  OF   PARTNERSHIP   PROPERTY. 


243 


or  otherwise  impressed  upon  it  that  character,"  In  a  suit  to  recover 
commissions  for  finding  a  purchaser  of  real  estate,  brought  by  a  man 
\\ho  has  been  employed  by  one  member  of  a  firm  to  sell  the  partner- 
ship land,  it  was  said:  "There  is  no  doubt  that  a  copartnership  may 
exist  in  the  purchase  and  sale  of  real  property,  equally  as  in  ai.y  other 
lawful  business.  Nor  is  there  any  doubt  that  each  member  of  such 
copartnership  possesses  full  authority  to  contract  for  the  sale  or  other 
disposition  of  its  entire  property,  though,  for  technical  reasons,  the 
legal  title  vested  in  all  the  copartners  can  only  be  transferred  by  their 
joint  act."  Thompson  v.  Bowman,  G  Wall.  316.  One  member  of  a 
partnership  engaged  in  the  business  of  buying  and  selling  real  estate, 
fraudulently,  and  without  the  knowledge  of  his  copartner,  represented 
to  a  purchaser  that  the  partnership  land  which  was  the  subject  of  the 
sale^was  oil-producing.  In  an  action  for  damages  for  the  fraud  and 
deceit,  it  was  held  that  both  partners  were  liable.  In  the  course  of  the 
opinion  the  court  says :  "When  the  partnership  business  is  to  deal  jn 
real  estate,  one  partner  has  ample  pov/er,  as  general  agent  of  the  firm, 
to  enter  into  an  executory  contract  for  the  sale  of  real  estate.-"  Chester 
V.  Dickerson,  54  N.  Y.  1,  13  Am.  Rep.  550.  "When  real  estate  is 
brought  into  the  partnership  business,  it  is  treated,  in  equity,  as  per- 
sonal estate,  and  a  lease  of  it  by  one  partner  is  as  much  a  partnership 
transaction  as  a  sale  of  partnership  goods  by  him  would  be."  IModer- 
well  V.  Mullison,  21  Pa.  257.  When  land  is  purchased  to  be  dealt  in 
as  a  commodity,  this  would  seem  to  be,  for  the  purposes  of  such  deal- 
ing, an  out  and  out  conversion  of  it  into  personalty,  and  each  partner 
can  bind  the  firm  by  contracts  for  its  disposition.  Ludlow  v.  Cooper, 
4  Ohio  St.  1;  Olcott  v.  Wing,  4  McLean  (U.  S.)  15,  Fed.  Cas.  No. 
10,481 ;  Pugh  V.  Currie,  5  Ala.  446 ;  Frost  v.  Wolf,  77  Tex.  455,  14 
S.  W.  440,  19  Am.  St.  Rep.  761 ;  1  Bates,  Partn.  §§  298,  299.  Our 
conclusion  is  that  partnership  real  estate  is,  in  equity  and  for  partner- 
ship purposes,  to  be  treated  as  personalty;  and  that  one  member  of 
a  partnership,  engaged  in  the  business  of  buying  and  selling  real 
estate,  can  bind  the  firm  by  contract  in  the  firm  name  for  the  sale  of 
partnership  land,  and  that  such  contract  should  be  specifically  enforced 
against  all  the  partners.    *    *     * 

The  decree  of  the  chancery  court  is  reversed,  and  a  decree  will  be 
here  rendered  for  the  specific  enforcement  of  the  contract  of  sale;  ap- 
pellee Smith  to  pay  the  costs  in  this  court  and  in  the  chancery  court. 


JANNEY  V.  SPRINGER  et  al. 

(Supreme  Court  of  Iowa,  1SS9.     78  Iowa.  617,  43  N.  W.  4G1,  IG  .\ni.  St.  Rep. 

4C0.) 

This  is  an  action  at  law  to  recover  upon  an  account  for  ground  feed 
sold  to  the  defendants.  There  was  a  trial  by  jury,  and  a  verdict  and 
judgment  for  the  plaintiff.     Defendants  appeal. 


244  NATURE   AND   CHARACTERISTICS  OF  A   PARTNERSDIP.  (Ch.  3 

RoTHROCK,  J.  It  appears  from  the  evidence  that  at  the  time  the  ac- 
count accrued  A.  A.  Paine  &  Co.,  a  partnership,  were  the  keepers  of 
a  feed  store,  and  that  the  individual  members  of  the  partnership  were 
A.  A.  Paine  and  J.  JM.  Janney,  plaintiff  in  this  action.  W.  W.  Springer 
and  C.  F.  Willard  were  at  the  same  time  engaged  in  the  business  of 
importing  and  selling  high-bred  horses  from  France  under  the  part- 
nership style  of  Springer  &  Willard.  A.  A.  Paine  &  Co.  furnished  the 
ground  feed  the  value  of  which  is  in  controversy  in  this  action,- which 
feed  was  consumed  by  the  said  horses.  Some  time  after  the  account 
accrued  the  firm  of  A.  A.  Paine  &  Co.  was  dissolved,  and  at  the  dis- 
solution of  the  firm  the  ground  feed  account  was  assigned  to  Janney 
in  the  settlement  of  the  partnership.  He  brought  this  action  against 
the  firm  of  Springer  &  Willard,  and  against  Springer  as  an  individual 
member  of  the  firm.  The  defendants  claimed  that  Willard  bought  the 
feed  of  A.  A.  Paine,  and  paid  him  therefor.  The  real  facts  relied 
upon  as  a  defense  were  that  A.  A.  Paine  was  indebted  to  Willard  up- 
on a  promissory  note,  and  that  Willard  bought  the  feed  of  Paine  un- 
der the  agreement  that  the 'price  of  the  same  was  to  be  applied  on  the 
note  and  in  payment  thereof.  After  both  parties  had  introduced  their 
evidence  the  plaintiff  filed  a  motion  for  an  order  directing  the  jury 
to  return  a  verdict  for  the  plaintiff.  The  motion  was  sustained  upon 
the  ground  that  an  agreement  between  Willard  and  Paine  that  Willard 
should  purchase  the  feed  and  pay  for  the  same  by  the  discharge  of 
Paine's  individual  indebtedness  was  void  as  to  Janney,  the  other  mem- 
ber of  Paine  &  Co.,  unless  Janney  in  some  way  assented  to  or  ratified 
the  transaction.  We  do  not  understand  that  this  proposition  is  con- 
troverted by  counsel  for  appellants.  But  it  is  contended  in  behalf  of 
appellants  that  the  question  as  to  whether  there  was  such  a  partnership 
as  A.  A.  Paine  &  Co.  should  have  been  submitted  to  the  jury.  We 
do  not  think  this  position  can  be  sustained.  The  existence  of  the  firm 
was  shown  by  the  testimony  of  these  witnesses,  and  there  was  no  evi- 
dence to  the  contrary.  It  is  said  there  was  no  firm  sign  erected  at  the 
place  of  business  of  the  partnership,  and  that  defendants  had  no  knowl- 
edge of  the  existence  of  the  firm.  This  want  of  knowledge  and  oriiis- 
sion  to  use  a  sign  was  in  no  sense  conflicting  evidence  upon  the  ques- 
tion of  a  partnership  in  fact.  It  having  been  estabUshed  beyond  ques- 
tion that  the  feed  was  partnership  property,  it  was  incumbent  on  the 
defendants  to  show  that  Janney  in  some  way  assented  to  the  alleged 
agreement  to  pay  the  individual  debt  of  Paine  in  partnership  prop- 
erty, or  that  he  (Janney)  in  some  way  ratified  the  act  after  it  was  done. 
Thomas  v.  Stetson,  62  Iowa,  537,  17  N.  W.  751,  49  Am.  Rep.  148. 
There  was  no  evidence  of  such  assent  or  ratification. 

The  only  other  question  necessary  to  be  noticed  in  the  case  is  the 
claim  of  counsel  for  appellants  that,  as  they  had  no  knowledge  that 
Janney  was  in  partnership  with  Paine,  they  had  the  right  to  deal  with 
Paine  as  though  he  were  the  sole  owner  of  the  feed.  It  may  be  this 
position  would  be  sound  if  there  were  any  evidence  that  Janney  was 


Sec.  7)  TRANsrER  OF  pautn'i:rsiiip  property.  245 

a  dormant  or  silent  partner.  But  there  is  no  such  evidence.  The 
partnership  existed  for  some  three  years.  Janney  was  personally  and 
publicly  engaged  in  the  business,  and  his  daughter  was  bookkeeper 
of  the  partnership.  There  was  no  evidence  bi  any  act  of  concealment 
of  the  partnership.  It  is  true  that  for  part  of  the  time  there  was  no 
partnership  sign  upon  the  building.  But  there  was  no  sign  of  any 
kind,  and  therefore  no  effort  to  mislead  any  one  as  to  the  true  relation 
of  the  parties.  We  think  that  under  the  facts  of  the  case  the  question 
of  knowledge  as  to  the  partnership  is  immaterial.  In  our, opinion  the 
court  rightfully  directed  a  verdict  for  the  plaintiff. 
Affirmed. 


HARTLEY  v.  WHITE. 

(Supreme   Court  of   Pennsylvania,    1880.     94   Pa.    31.) 

Action  by  Norman  White  against  M.  J.  Decker  and  Andrew  Hal- 
stead,  copartners,  and  Silas  Hartley  as  garnishee.  The  garnishee 
pleaded  "nulla  bona."  At  the  trial  a  special  verdict  was  found  show- 
ing funds  in  the  hands  of  the  garnishee,  and  a  judgment  was  entered 
on  the  verdict  charging  the  garnishee.  The  garnishee  brings  the  case 
up  on  writ  of  error. 

Mercur,  J.  The  plaintiff  in  error  was  served  as  garnishee  of  Decker 
&  Halstead,  copartners.  The  jury  found  that,  in  fraud  of  the  cred- 
itors of  the  firm  and  without  the  knowledge  or  consent  of  Decker,  ex- 
cept as  to  one  note  (shown  by  the  evidence  to  be  about  $4:0),  Halstead 
assigned  and  transferred  judgments  and  notes,  the  property  of  the 
firm,  amounting  to  about  $2,000,  to  the  garnishee;  that  the  transfer 
of  this  property  was  fraudulent,  and  intended  by  Halstead  and  the 
garnishee  to  be  in  payment  of  Halstead's  private  debts,  and  to  pre- 
vent the  same  from  being  used  and  applied  in  the  payment  of  the  firm 
debts  of  Decker  &  Halstead;  that  the  firm  was  at  the  time  largely  in 
debt,  and  soon  after  ISecame  insolvent.  They  further  found  that  out 
of  the  claims  thus  assigned  to  the  garnishee  he  had  collected  a  specific 
sum  in  cash,  and  that  he  had  surrendered  to  the  makers  notes,  and 
taken  new  ones  therefor,  for  a  sum  certain,  and  of  sufficient  value, 
added  to  the  cash  received,  to  exceed  by  several  hundred  dollars  the 
sum  due  to  the  attaching  creditor,  or  for  which  judgment  was  en- 
tered against  the  garnishee. 

It  is  well  settled  that  one  partner  cannot  make  a  valid  transfer  of 
firm  property,  in  payment  of  his  individual  debt,  without  the  con- 
sent of  his  copartner.  Todd  v.  Lorah,  75  Pa.  155.  Such  act  is  a  fraud 
on  his  copartner,  and  the  right  of  property  in  the  firm  does  not  pass 
to  the  individual  creditor.  The  present  case  goes  still  further.  Not 
only  was  the  attempted  sale  a  fraud  on  the  copartner,  but  it  was  in- 
tended and  operated  as  a  fraud  on  the  creditors  of  the  firm.  It  is,  then, 
clear  under  these  facts  the  purchaser  cannot  hold  the  property  against 


246  NATURE   AND    CHARACTERISTICS   OF   A    PARTNERSHIP.  (Ch.  3 

the  creditors  intended  to  be  defrauded.  He  has  no  reason  to  complain 
of  the  amount  for  which  judgment  was  entered  against  him.  It  is 
for  a  sum  less  than  he  has  realized  out  of  the  property. 

It  is  further  objected  that  the  form  of  the  judgment  was  wrong. 
This,  however,  is  not  a  fatal  errcr.  The  form  of  the  judgment  can  be 
amended.  It  is  now  done  by  striking  out  those  references,  so  that  it 
shall  stand,  judgment  in  favor  of  plaintiff  below  and  against  said  gar- 
nishee for  $1,250.20  and  costs,  to  be  levied  on  the  goods  and  effects  of 
Decker  &  Halstead  in  his  hands,  or,  in  case  he  fails  or  refuses  to  pro- 
duce such  goods  and  effects  sufficient  to  satisfy  the  execution,  then  to 
be  levied  against  him  as  his  own  proper  debt.  Thus  amended,  the 
judgment  is  affirmed. 


BRYANT  &  STRAW  v.  CLIFFORD. 
(Supreme  Court  of  Veruiont,  1854.    27  Vt.  GG4.) 

Action  by  Bryant  &  Straw,  partners,  against  Clifford,  to  recover  for 
work  done  by  them  as  partners  for  Clift'ord.  The  defendant  contracted 
for  the  work  with  Bryant,  who  acted  on  behalf  of  the- firm.  The  ex- 
istence of  the  firm  was  not  generally  known,  and  was  not  known  to  the 
defendant  at  the  time  of  making  or  during  the  performance  of  the 
contract,  which  he  supposed  to  have  been  made  with  Bryant  alone. 
At  the  time  of  entering  into  the  contract  Bryant  was  indebted  to  the 
defendant,  which  indebtedness  defendant  expected  to  use  in  payment 
of  the  work  done  under  the  contract.  The  defendant  pleaded  as  a 
set-off  his  claim  against  Bryant.  This  was  disallowed,  and  judgment 
given  for  plaintiff's  in  the  trial  court.     Defendant  alleged  exceptions, 

Bennet,  J.  The  more  important  question  is:  Can  the  defendant 
use  his  account  against  Bryant  as  a  defense  to  this  action  brought  by 
Bryant  &  Straw?  Though,  at  he  time  the  contract  was  entered  into 
between  Bryant  and  the  defendant,  Bryant  _&  Straw  were  partners, 
yet  this  was  not  known  at  the  time  to  the  defendant,  and  he  supposed 
he  was  contracting  with  Bryant  alone,  and  during  the  performance 
of  the  work  he  supposed  Bryant  was  alone  interested,  and  had  no 
knowledge  of  a  partnership ;  and  it  is  found  that  the  defendant  was 
induced  to  enter  into  the  contract  with  Bryant  because  he  owed  him 
a  balance  on  book.  Bryant  ostensibly  acted  for  himself.  Nothing  was 
said  about  his  having  a  partner,  nor  was  it  generally  known  that  he 
had  one.  Though  Straw  was  present  when  the  contract  was  made, 
talked  about  the  work,  and  made  some  estimates,  and  eventually  as- 
sisted in  doing  the  work,  yet  this  was  consistent  with  his  being  a  jour- 
neyman to  Bryant,  in  which  capacity  he  had  served  him  for  about  one 
year  before. 

This  was  no  notice  of  the  existence  of  the  i)<'irtnership  to  the  de- 
fendant, nor  enough  to  put  him  on  inquiry.  Though  an  action  may,  on 
such  state  of  facts,  be  brought  by  the  partnership,  yet  the  court  will 


Sec.  7)  TRANSFER  OF  PARTNEKSHir  rr.orERTY.  217 

sec  that  it  is  not  done  to  the  prejudice  of  the  defendant,  and  he  will 
be  allowed  the  same  defense,  whether  by  set-off  or  otherwise,  ^hat  he 
might  have  had  if  sued  by  Bryant  alone.  See  Hilliker  v.  Loop,  5  Vt. 
121,  2G  Am.  Dec.  286,  and  cases  there  cited.  And  the  set-oflf  need  not 
have  arisen,  in  this  case,  after  the  contract  was  made  with  T'ryant. 
In  the  case  of  Lime  Rock  Bank  v.  Tlimpton  et  al.,  17  Pick.  (Mass.) 
159,  28  Am.  Dec.  28(5,  it  was  held  that  in  a  suit  by  the  principal  the 
defendant  could  not  be  defeated  of  a  legal  set-off  against  the  agent 
who  loaned  the  money.  The  defendant  was  allowed  to  detain  to  the 
amount  of  his  claim  against  the  agent.  As  in  the  case  at  bar  the  de- 
fendant was  induced  to  make  the  contract  with  Bryant  on  account  of 
his  claim  aganist  him,  it  would  be  eminently  unjust  to  deprive  him 
of  his  defense  by  reason  of  this  action  being  in  the  name  of  Bryant  & 
Straw,  when  Straw  must  be  regarded  in  the  light  of  a  secret  part- 
ner when  the  contract  was  made  with  Bryant  and  the  services  rendered. 
The  judgment  of  the  county  court  is  reversed,  and  judgment  ren- 
dered on  the  report  for  the  defendant  to  recover  his  costs. 


in.  Successive  Transfers  of  Each  Partner's  Interest. 

DONER  et  al.  v.  STAUFFER  et  al. 
(Supreme  Court  of  Pennsylvania,  1829.     1  Pen.  &  W.  198,  21  Am.  Dec.  370.) 

This  was  a  feigned  issue,  directed  by  the  court  and  joined  between 
the  defendants  in  error,  who  were  the  plaintiffs  below  (and  for  whom 
the  verdict  passed),  and  the  plaintiffs  in  error,  who  were  the  defend- 
ants below. 

It  appeared  from  the  evidence  in  the  cause  that  Daniel  Howry  and 
Benjamin  B.  Eshelman  entered  into  partnership  in  a  manufacturing  es- 
tablishment, under  the  firm  of  Howry  &  Eshelman.  They  became  con- 
siderably indebted.  Judgments  were  entered  and  executions  were  is- 
sued against  each  of  them.  Abraham  Doner,  Samuel  Herr,  John  How- 
ry, and  Samuel  Howry  had  severally  judgments  against  Daniel  Howry, 
on  each  of  which  an  execution  issued  against  him  and  was  levied  on 
the  9th  of  August,  1825,  on  the  personal  property  of  Daniel  Howry 
and  Benjamin  B.  Eshelman,  as  partners  in  trade. 

John  Stauffcr,  Christian  Breckbill,  and  Jacob  Eshelman  had  sever- 
ally obtained  judgments  against  B.  B.  Eshelman,  on  each  of  which 
judgments  an  execution  was  issued  against  him  and  levied  on  the  11th 
(lay  of  August,  1825,  on  Benjamin  B.  Eshelman's  share  of  the  person- 
al property  of  Benjamin  B.  Esb.elmnn  and  ^aniel  Howry,  as  partners 
in  trade.  By  virtue  of  these  and  other  executions  the  personal  prop- 
erty of  the  firm  was  sold  ior  the  sum  of  $5,070.39,  which,  after  pay- 


248  NATURE   AND   CHARACTERISTICS .  OF   A    PARTNKUSIIir.  (Ch.  3 

ment  of  the  costs,  left  a  balance  of  $4,779,  This  balance  was  paid  into 
court  for  distribution. 

On  a  rule  obtained  by  the  counsel  of  Stauffer,  Breckbill,  and  Eshel- 
man  to  show  cause  why  the  one-half  of  the  proceeds  of  the  sale  of 
■the  firm  property  should  not  be  applied  to  the  satisfaction  of  their  ex- 
ecutions against  B.  B.  Eshelman,  the  court  decided  that  the  execution 
creditors  of  Benjamin  B.  Eshelman  had  a  legal  right  to  his  share  of 
an  interest  in  the  partnership  effects  of  the  firm  of  Howry  &  Eshel- 
man as  it  stood  on  the  11th  of  August,  1825,  when  the  executions  were 
levied,  and  directed  this  issue  to  try  what  that  share  or  interest  was. 

The  plaintiffs  claimed  a  moiety  or  half  part  of  the  $4,779  as  their 
share. 

The  plaintiffs  having  closed  their  evidence,  the  defendants,  in  sup- 
port of  the  issue  taken  in  the  cause,  oft'ered  to  prove  that  the  firm  of 
Howry  &  Eshelman  was  entirely  insolvent  on  the  11th  of  August,  1825  ; 
that  the  debts  and  claims  against  the  said  firm  existing  on  the  said  11th 
of  August,  1825,  which  were  then  unpaid,  greatly  exceeded  the  whole 
property  of  the  said  firm;  that  Benjamin  B.  Eshelman  on  the  said 
day  had  no  interest  whatever  in  the  said  firm,  and  that  Daniel  Howry, 
the  other  partner,  is  greatly  interested  in  the  application  of  the  funds 
of  the  said  firm  to  the  payment  of  the  debts  of  the  said  firm,  as  he  is 
answerable  individually  and  as  a  partner  for  the  whole  of  the  said 
debts — which  offer  being  objected  to,  the  court  overruled  the  same, 
and  delivered  the  following  opinion,  to  wit:  "I  am  satisfied  that  t\\e 
authorities  cited  settle  the  law  as  it  appHes  to  the  cases  decided;  that 
is  to  say,  to  cases  where  there  are  separate  executions  against  one 
partner  levied  on  the  partnership  effects.  But  this  is  a  case  where  the 
whole  partnership  effects  are  swept  away  by  separate  executions  against 
each  partner,  where  the  creditors  at  large  have  no  lien.  I  must  say 
that  the  principal  object  in  directing  this  issue  was,  as  it  was  a  case 
of  great  importance,  to  give  an  opportunity  of  completely  considering 
and  reviewing  the  law  on  the  subject.  But  I  am  very  clear  that  Ben- 
jamin B.  Eshelman's  interest,  or  want  of  interest,  cannot  be  shown  by 
evidence  of  debts  due  from  the  firm,  and  that  the  testimony  offered 
relative  to  the  insolvency  of  the  firm,  and  the  interest  of  Daniel  How- 
ry in  the  application  of  the  funds  of  the  firm  to  the  payment  of  its 
debts,  cannot  be  admitted." 

To  this  opinion,  overruling  the  evidence  offered,  the  defendants 
excepted. 

Although  the  issue  joined  was  between  the  separate  execution  credit- 
ors of  the  respective  partners,  the  counsel  for  the  defense  appeared  for 
the  joint  creditors  of  the  firm  to  controvert  the  right  of  the  separate 
creditors  of  Eshelman  to  be  paid  out  of  the  fund  in  court  before  the  joint 
creditors  were  satisfied,  and  they  alleged  that  after  the  executions  of  the 
separate  creditors  were  levied  Howry  &  Eshelman  had  made  an  as- 
signment to  trustees  for  the  benefit  of  the  creditors  of  the  firm. 

The  only  question  now  raised  in  this  court,  upon  the  charge  of  the 


Sec.  7)  TUAN.s;  i:i:  of  pautnersuip  property.  249 

court  below  and  the  bill  of  exceptions,  was  whcilicr  the  separate  ex- 
ecution creditors  of  Eshehr.an  had  a  right  to  be  paid  out  of  the  pro- 
ceeds of  the  sales  of  the  goods  of  the  firm  before  the  joint  creditors 
were  satisfied  out  of  that  fund. 

GinsoN,  C.  J.  It  is  settled  by  a  train  of  decisions  in  the  American 
as  well  as  the  British  courts  that  the  joint  effects  belong  to  the  firm, 
and  not  to  the  partners,  each  of  whom  is  entitled  only  to  a  share  of 
what  may  remain  after  the  payment  of  the  partnership  debts,  and,  con- 
sequently, that  no  greater  interest  can  be  derived  from  a  voluntary  as- 
signment of  his  share,  or  a  sale  of  it  on  execution.  That  a  contract 
which  enables  the  parties  to  keep  a  class  of  their  creditors  at  bay,  and 
yet  retain  the  indicia  of  ownership,  should  not  have  been  deemed  with- 
in the  statutes  of  Elizabeth,  is  attributable  exclusively  to  the  disposi- 
tion universally  manifested  by  courts  of  justice  to  encourage  trade. 
But,  such  as  it 'is,  has  the  contract  of  partnership  been  established; 
and  the  principle  which  enables  the  partners  to  pledge  to  each  other 
the  joint  effects  as  a  fund  for  payment  of  the  joint  debts  has  intro- 
duced a  preference  in  favor  of  the  joint  creditors,  founded  on  no  mer- 
its of  their  own,  but  on  the  equity  which  springs  from  the  nature  of 
the  contract  between  the  partners  themselves.  The  author  of  the 
Commentaries  on  American  Law  (volume  3,  p. '38)  attributes  this 
preference  to  an  inherent  equity  in  the  joint  creditors  themselves, 
arising  from  a  supposed  acquisition  of  the  partnership  effects  from 
their  means.  The  opinions  of  Chancellor  Kent  are  so  justly  entitled 
to  deference  that  no  prudent  judge  will  differ  from  him  without  hes- 
itation. Yet  I  cannot  but  adhere  to  the  opinion  I  expressed  in  Bell  v. 
Newman,  5  Serg.  &  R.  93,  that  in  cases  of  insolvency  or  bankruptcy, 
in  which  alone  the  question  of  priority  can  be  material,  the  joint  ef- 
fects consist  of  the  wreck  of  the  capital  originally  embarked.  Under 
a  joint  commission,  by  which  the  effects  pass  to  the  assignees,  while 
the  partners  are  personally  discharged,  I  admit  that  the  preference 
of  the  joint  creditors  has  no  other  foundation,  if  it  has  any  at  all,  than 
this  supposed  inherent  equity ;  and  the  best  elementary  writer  on  the 
subject  so  disposes  of  the'  difficulty.  Gow  on  Partnership,  3-tl,  342. 
But  in  the  case  of  a  separate  commission  Lord  Eldon  expressly  puts 
it  on  the  particular  equity  of  the  partners  themselves.  Ex  parte  Ruf- 
fian, 6  Ves.  119.  And  in  the  case  of  an  execution,  Chief  Baron  M'Don- 
ald  does  the  same.  Taylor  v.  Fields,  4  Ves.  396.  To  secure  the  firm 
from  the  extravagance  of  its  members,  by  preventing  the  capital  from 
being  withdrawn  from  the  purposes  of  the  partnership,  the  stock  is 
pledged  for  the  burden  which,  from  the  nature  of  the  connection,  is 
to  be  borne  by  all ;  but,  in  molding  the  law  of  partnership  to  its  pres- 
ent form,  the  credit  gained  by  giving  the  joint  creditors  a  preference 
was.  if  an  object  at  all,  a  very  remote  one.  Accordingly,  with  the 
single  exception  of  a  joint  commission,  we  find  that,  wherever  the 
partners   are  not  individually  involved,   the  joint  creditors  have   no 


250  NATURE  AND   CHARACTERISTICS  OF  A  PARTNERSHIP.  (Ch.  3 

preference  whatever,  as  in  the  instance  of  a  bona  fide  assignment  of 
the  effects  to  one  of  the  partners  after  the  partnership  has  been  dis- 
solved. • 

In  consequence  of  the  rule  as  I  have  stated  it,  a  separate  execution 
creditor  sells,  not  the  chattels  of  the  partnership,  but  the  interest  of 
the  partner,  incumbered  with  the  joint  debt;  and  the  joint  creditors, 
therefore,  have  no  claim  to  the  proceeds.  To  allow  them  the  proceeds, 
and  recourse  to  the  property  in  the  hands  of  the  purchaser,  would  sub- 
ject it  to  a  double  satisfaction.  Neither  can  they  take  the  proceeds  or 
the  property  at  their  election.  They  can  interfere  at  all  only  on  the 
ground  of  a  preference,  which  has  regard  only  to  the  partnership  ef- 
fects ;  and  these  have  not  been  sold,  but  oAly  the  subordinate  interest 
of  the  partner,  which  was,  strictly  speaking,  his  separate  estate.  Their 
recourse,  therefore,  is  necessarily  to  the  property  in  the  hands  of  the 
purchaser.  Now,  had  the  sheriff  sold  the  interest  of  but  one  of  the 
partners,  the  execution  creditor  would  have  clearly  been  entitled  to 
the  proceeds.  But  although  he  sold  the  whole  stock  at  one  operation, 
on  separate  executions  against  both,  there  was,  in  contemplation  of 
law,  a  separate  sale  of  the  interest  of  each.  What,  then,  would  have 
been  the  effect  had  these  sales  been  made  consecutively?  The  first 
in  the  order  of  time  would  have  passed  the  interest  of  the  partner, 
subject  to  the  equity  of  his  copartner,  and  the  execution  creditor 
would  have  been  entitled  to  the  price.  But  this  equity,  together  with 
the  remaining  interest  of  the  other  partner,  would  have  passed  by  the 
succeeding -sale  to  th6  same  purchaser;  the  execution  creditor,  in  that 
instance,  also  taking  the  proceeds.  Can  it  make  a  dift'erence,  then, 
that  instead  of  being  consecutive  these  two  sales  were  simultaneous? 
A  curious  question  might  arise  whether  separate  purchasers  of  the 
shares,  respectively,  would  stand  in  the  relation  of  partners,  so  as  to 
enable  the  joint  creditors  to  follow  the  goods.  It  seems  to  me  they 
would  not,  because  not  personally  involved  in  payment  of  the  debts. 
Here,  however,  where  the  shares  of  the  partners  are  united  in  the 
same  purchaser,  every  semblance  of  partnership  equities  is  at  an  end. 
As  regards  the  goods  in  the  hands  of  the  purchasers,  this  is  conceded; 
but  the  joint  creditors  insist  that  the  proceeds  are  to  be  substituted  for 
the  goods  and  subjected  to  the  same  equities.  That  might  be  done  if 
the  proceeds  belonged  to  the  partners;  but  it  is  not  easy  to  imagine 
how  they  are  to  be  treated  as  the  owners  of  money  raised  by  a  sale 
on  executions  against  them.  For  what  purpose  should  the  ownership 
of  it  be  vested  in  them,  even  for  an  instant?  Not  to  give  the  joint 
creditors  a  preference,  for  that  would  make  the  rights  of  the  partners 
depend  on  the  claims  of  the  joint  creditors,  who,  on  the  contrary,  can 
claim  nothing  but  by  virtue  of  the  lien,  where  there  is  one,  of  the  part- 
ners. To  say  that  the  partners  have  such  a  lien  because  the  joint 
creditors  have  an  equity,  and  that  the  joint  creditors  have  an  equity 
because  the  partners  have  a  lien,  would  be  to  argue  in  a  circle.  Here 
the  partjiers  cannot  be  prejudiced  in  respect  of  their  claims  on  each 


Sec.  7)  TRANSFER  OF  PARTNERSHIP  PROPERTY.  251 

Other;  tlie  advantage  to  be  gained  from  an  application  of  the  joint 
eff.ccts  to  their  separate  debts  being  mutual  and  c*>jual.  The  conse- 
quences are  precisely  the  same  as  if  the  effects  had  been  sold  on  an 
execution  against  both.  We  ^re  therefore  of  opinion  that  the  joint 
creditors  cannot  interpose,  and,  consequently,  that  the  rejection  of  the 
evidence,  as  well  as  the  direction  to  the  jury,  was  substantially  right. 

I  have  considered  the  question  on  principles  applicable  to  it,  in  anal- 
ogy to  well-settled  parts  of  the  law  of  partnership,  rather  than  on  au- 
thority bearing  directly  on  the  point.  But  since  this  opinion  was  drawn 
"my  Brotiier  Huston  has  directed  my  attention  to  the  case  of  Brinker- 
hoff  V.  Marvin,  5  Johns.  Ch.  (N.  Y.)  320,  which  is  direct  to  the  point, 
so  that,  ind<^pendent  of  analogies,  we  have  an  authority  on  which  we 
might  safely  rule  the  cause.  But  both  principle  and  authority  are  ad- 
verse to  the  preference  claimed,  and  the  issue,  therefore,  was  correctly 
found  for  the  plaintiff. 

HiJSTON,  J.,  dissented. 

Judgment  affirmed. 


MENAGH  V.  WHITWELL  et  al. 

(Court  of  Appeals  of  New  York,  1S73.     52  N.  Y.  14G,  11  Am.  Rep.  GS3.) 

Appeal  from  a  judgment  in  favor  of  the  plaintiff  entered  upon  the 
report  of  a  referee.  This  was  an  action  for  converting  machinery, 
utensils,  lumber,  and  other  chattels  formerly  belonging  to  the  firm  of 
J.  C.  Smith  &  Co.  and  appertaining  to  a  yeast  factory  operated  by  that 
firm. 

From  the  17th  of  August  to  the  22d  day  of  December,  1866,  the 
firm  consisted  of  John  C.  Smith,  Hollister  E.  Goodwin,  John  Wride, 
Marietta  Huntington,  and  William  B.  Rubert,  each  being  interested 
to  the  extent  of  one-fifth.  The  firm  as  thus  cortstituted  contracted 
debts  to  the  Geneva  National  Bank  upon  which  judgments  were  after- 
ward recovered  against  the  above-named  parties,  viz.,  one  judgment 
for  $1,403.83,  and  one  for  $237.53,  both  recovered  May  24,  1867.  The 
larger  judgment  embraced  claims  to  the  amount  of  $330  which  ac- 
crued after  the  withdrawal  of  John  Wride  from  the  firm.  Executions 
were  issued  on  these  judgments  on  the  2ath  of  May,  1867,  and  placed 
in  the  hands  of  the  defendant  Ringer,  who  was  deputy  sheriff*  of  On- 
tario county,  and  by  virtue  of  those  executions  he  levied  upon  the 
property  on  the  19th  of  July,  1867,  and  sold  it  on  the  ■29th  of  July, 
1867.  The  defendant  Whitwell  was  sheriff,  and  this  action  was  brought 
against  him  and  his  deputy  for  that  levy  and  sale.  The  plaintiff  re- 
covered four-fifths  of  the  value  of  the  property. 

The  plaintiff  makes  title  to  this  four-fifths  as'  follows:  On  the  22d 
of  December,J866,  John  Wride  assigned  all  his  interest  in  the  prop- 
erty and  business  of  the  firm  to  John  C.  Smith,  who  agreed  to  pay  the 


252  NATURE   AND   CHARACTERISTICS  OF  A  PARTNERSHIP.  (Ch.  3 

firm  debts,  and  on  the  4tli  of  February,  1867,  Marietta  Huntington  as- 
signed all  her  interest  in  the  property  of  the  firm  to  said  John  C.  Smith, 
who  assumed  her  place  in  the  firm.  After  these  transfers  the  same 
business  was  carried  on  by  the  remaining  partners  under  the  same 
firm  name.  The  referee  finds  that  both  of  these  transfers  were  made 
with  the  consent  of  all  the  other  members  of  the  firm,  and  in  good  faith, 
without  intent  to  defraud  the  creditors  of  the  firm. 

On  the  28th  of  February,  1867,  the  firm  then  consisting  of  John  C. 
Smith,  William  B.  Rubert,  and  Hollister  E.  Goodwin,  and  Smith's 
interest  being  then  three-fifths,  he  gave  to  the  plaintiff  a  chattel  mort- 
gage upon  his  undivided  three-fifths  interest  in  the  yeast  factory,  prop- 
erty, accounts,  and  other  choses  in  action  of  the  firm  to  secure  his  in- 
dividual debt  to  the  plaintiflF  of  $2,100,  payable  in  installments  in  two, 
five,  and  seven  months,  with  power  to  take  possession  and  sell  in  case 
of  default,  or  whenever  she  should  deem  herself  unsafe  before  de- 
fault. The  referee  finds  that  this  amount  was  justly  due  the  plaintiff 
for  money  loaned  by  her  to  Smith,  which  he  had  used  for  the  firm  and 
for  which  it  was  indebted  to  him,  and  that  the  mortgage  was  given 
in  good  faith,  with  the  consent  of  all  the  persons  composing  the  firm, 
and  without  intent  to  defraud  creditors..  There  is  no  express  finding 
in  respect  to  the  solvency  of  the  firm  at  the  time  of  the  giving  of  this 
mortgage. 

On  the  2d  of  February,  1867,  William  B.  Rubert  had  given  a  like 
chattel  mortgage  on  his  one-fifth  interest  to  Samuel  E.  Rubert  to  se- 
cure an  individual  debt  of  $500,  payable  in  five  days.  The  referee  finds 
that  this  was  a  just  debt  for  money  loaned,  and  that  the  mortgage  was 
executed  in  good  faith  to  secure  the  debt,  and  without  any  fraudulent 
intent.  It  does  not  appear  that  any  of  the  other  partners  consented  to 
this  mortgage. 

On  the  10th  day  of  May,  1867,  the  plaintiff  and  Samuel  E.  Rubert 
took  possession  of  the  property  mentioned  in  their  respective  mort- 
gages, and  after  advertisement  it  was  sold  on  the  18th  of  May,  1867; 
the  three-fifths  interest  of  John  C.  Smith  being  purchased  by  the  plain- 
tiff for  $1,000,  and  the  one-fifth  interest  of  William  B.  Rubert  being 
bought  in  by  Samuel  E.  Rubert  for  an  amount  less  than  his  mortgage. 
On  the  same  day  John  C.  Smith  sold  and  delivered  to  the  plaintiff  all 
his  interest  in  a  quantity  of  lumber,  boxes  and  other  material  then  on 
the  premises,  and  belonging  to  the  firm,  for  $200,  which  was  applied 
in  part  payment  of  the  plaintiff's  mortgage.  The  referee  finds  that 
this  sale  was  in  good  faith  and  without  any  fraudulent  intent.  This 
lumber,  etc.,  was  levied  upon  and  sold  by  the  defendants  and  is  em- 
braced in  the  plaintiff's  recovery.  On  the  same  day  on  which  the  plain- 
tifif  and  Sam.uel  E.  Rubert  took  possession  under  their  mortgages,  viz., 
the  10th  of  May,  1867,  Hollister  E.  Goodwin,  the  only  remaining  m.em- 
ber  of  the  firm,  transferred  his  undivided  one-fifth  interest  in  the  prop- 
erty and  business  of  the  firm  to  Mary  B.  Goodwin,  who  still  owns  tlie 
same,  but  never  became  a  member  of  the  firm.     The  referee  has  not 


Sec.  7)         TRANSFKU  OF  PARTNERSHIP  PROPERTY.  253 

found  that  there  was  any  consideration  for  this  transfer,  or  what  was 
its  object,  or  that  it  was  made  in  good  faith. 

The  only  findings  in  respect  to  the  solvency  of  the  firm  at  the  times 
of  these  several  transactions  are  that,  on  the  22d  of  December,  18G6, 
when  John  Wride  withdrew  from  the  firm,  transferring  his  interest 
to  John  C.  Smith,  the  firm  was  somewhat  embarrassed,  but  was  not 
known  or  believed  to  be  insolvent  by  either  Wride  or  Smith,  and  that 
on  the  4th  of  February,  18.G7,  when  Marietta  Huntington  transferred 
her  interest,  the  financial  affairs  of  the  firm  were  about  the  same  as 
they  were  on  the  22d  of  December,  1SG6 ;  that  the  firm  was  largely  in- 
debted and  somewhat  embarrassed ;  that  the  value  of  its  property  and 
assets  depended  in  part  upon  the  continuance  of  its  business,  and,  in 
case  such  business  was  continued  and  properly  managed,  the  property 
and  assets  of  the  firm  were  more  than  sufficient  to  pay  its  debts.  The 
referee  further  finds  that  at  the  time  of  the  seizure  and  levy  by  the  de- 
fendants the  property  was  in  the  possession  of  the  plaintiflf  and  Samuel 
E.  Rubert,  and  was  of  the  value  of  $2,150;  that  the  plaintiff  was  the 
owner  of  an  undivided  three-fifths,  and  Samuel  E.  Rubert  of  one  un- 
divided fifth  part  thereof;  that  Mary  B.  Goodwin  was  the  owner  of 
the  other  undivided  fifth  part  thereof;  and  that,  on  the  15th  of  Au- 
gust, 1867,  and  before  the  commencement  of  this  action,  the  said  Sam- 
uel duly  assigned  to  the  plaintiff  all  his  right  to  the  property  and  cause 
of  action  against  the  defendants  for  taking  possession  thereof. 

As  conclusion  of  law  he  finds  that  at  the  time  of  the  levy  neither 
of  the  defendants  in  the  execution  had  any -leviable  interest  in  the  prop- 
erty, but  that  it  belonged,  four-fifths  to  the  plaintiff,  and  one-fifth  to 
Mary  B.  Goodwin;  that  the  bank  had  no  lien  thereon;  and  that  the 
plaintiff  was  entitled  to  recover  four-fifths  of  the  value,  amounting  to 
$1,720,  with  interest  from  the  time  of  the  conversion. 

Rapallo,  J.  The  mortgages  executed  by  John  C.  Smith  and  William 
P.  Rubert  appear,  to  have  been  regarded  by  the  learned  referee  as 
transferring  an  undivided  four-fifths  of  the  corpus  of  the  partnership 
property  therein  described.  He  has  found,  as  to  the  mortgage  from 
Smith,  that  it  was  executed  and  delivered  with  the  assent  of  the  other 
members  of  the  firm.  This  mortgage,  if  such  be  its  true  construction, 
having  been  given  to  secure  the  individual  debt  of  the  partner,  even  if 
effectual  as  to  the  firm,  by  reason  of  the  concurrence  of  all  the  part- 
ners giving  it,  would  be  a  fraudulent  misapplication  of  the  partner- 
ship property,  and  void  as  to  the  creditors  of  the  firm,  under  the  prin- 
ciple of  the  cases  of  Ransom  v.  Vandeventer,  41  Barb.  307,  and  Wil- 
son V.  Robertson,  21  N.  Y.  587.  unless  the  firm  were  solvent  at  the 
time  the  mortgage  was  given,  and  sufficient  property  would  remain, 
over  and  above  that  devoted  by  that  instrument  to  the  payment  of  the 
individual  debt,  to  pay  the  debts  of  the  firm.  The  Supreme  Court  have 
considered  that  the  findings  of  the  referee  fail  to  disclose  any  insol- 
vency, but,  on  the  contrary,  establish  solvency  of  the  firm  at  the  time 
the  mort"-p"^e.'^  were  ^iven.     We  cannot  concur  in  this  view  of  the  el- 


254  NATURE   AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

feet  of  the  findings,  but  think  that  the  facts  found  show  that  the  firm 
was  insolvent  when  the  mortgages  were  given,  and,  if  there  were  any 
doubt  upon  that  point,  they  clearly  establish  that  the  diversion  of  four- 
fifths  of  its  properties  to  the  individual  debts  of  two  of  the  partners 
would  make  it  insolvent. 

According  to  these  findings  the  firm  was,  in  February,  18G7,  and 
had  been  from  December,  1866,  largely  indebted  and  embarrassed, 
and  the  value  of  its  property,  and  its  conseqj.ient  ability  to  pay  its  debts, 
depended  in  part  upon  the  continuance  and  proper  management  of  its 
business.  The  mortgages  were  given  on  the  2d  and  28th  of  Febru- 
ary, 1867.  If  they  were  intended  to  be  liens  upon  the  corpus  of  the 
property,  as  they  have  been  treated  by  the  referee,  and  not  merely  liens 
upon  the  surplus  which  should  belong  to  the  partners,  respectively, 
after  the  payment  of  the  firm  debts,  it  is  evident,  from  the  facts  stated 
as  existing  at  the  time,  as  well  as  from  the  result,  that  their  enforce- 
ment would  prevent  the  firm  creditors  from  collecting  their  demands 
out  of  the  firm  property,  and  that,  under  the  principle  of  the  cases 
cited,  they  were  fraudulent  and  void  as  to  such  creditors.  If  so,  the 
mortgagees,  by  purchasing  at  the  sale  under  the  mortgages,  acquired 
no  valid  title  as  against  such  creditors,  and  the  plaintiff  was,  conse- 
quently, not  entitled  to  recover. 

Assuming,  however,  that  the  mortgages  were  intended  to  pass  mere- 
ly the  individual  interests  of  the  mortgaging  partners  in  the  common 
stock,  and  for  that  reason  were  not  fraudulent  as  to  the  firm  creditors, 
then  it  becomes  necessary  to  consider  their  legal  effect  upon  the  rights 
of  creditors  of  the  firm.  It  is  clear  that  the  remaining  partner  was  en- 
titled to  the  control  of  the  firm  property  so  long  as  he  retained  his 
interest,  and  to  apply  it  to  the  firm  debts,  and  that  the  mortgagees  ac- 
quired only  a  right  to  the  surplus,  if  any,  which  would  be  found  to  be- 
long to  the  mortgagors  on  the  settlement  of  the  accounts. 

And  so  long  as  any  of  the  partners  had  this  dominion  over  the  firm 
property  it  can  hardly  be  questioned  that  it  was  subject  to  levy  on  ex- 
ecution at  the  suit  of  a  firm  creditor.  Lovejoy  v.  Bowers,  11  N.  H. 
404;  Coover's  Appeal,  29  Pa.  9,  70  Am.  Dec.  149;  Pierce  v.  Jackson, 
6  Mass.  243. 

But  the  point  upon  which  the  judgment  was  sustained  in  the  Su- 
preme Court,  at  General  Term,  was  that  after  the  execution  of  the 
mortgages  H.  E.  Goodwin,  the  only  remaining  partner,  made  a  sepa- 
rate transfer  to  a  third  party  of  his  individual  interest  in  the  partner- 
ship properties,  and  on  this  ground  it  was  held  that  when  the  execu- 
tion was  levied  none  of  the  defendants  in  the  execution  had  any  levi- 
able interest  in  the  property  levied  upon,  and  it  was  further  held  that 
the  plaintiff,  who  had  purchased  the  interest  of  S.  E.  Rubert  under  his 
mortgage,  was  entitled,  by  virtue  of  the  two  mortgages  and  of  the  pur- 
chase at  the  sale  under  them,  to  recover  the  value  of  four-fifths  of  the 
corpus  of  the  partnership  property  levied  upon  by  the  defendants,  with- 
out regard  to  the  partnership  debts. 


Sec.  7)  TKAN8Ff:R    OF    PARTNERSHir    PROPKRTT.  21)5 

This  position  is  not  without  authority  in  its  support.  It  is  founded 
upon  ihc  theory  that  the  separate  transfers  of  the  individual  interests 
of  all  the  partners  divested  the  title  of  the  firm ;  that  firm  creditors 
have  no  lien  upon  the  partnership  effects,  and  no  direct  right  to  com- 
pel their  application  to  firm  debts  in  preference  to  individual  debts; 
that  the  right  to  compel  this  application  is  an  equity  vested  in  the 
partners  themselves,  and  exists  only  as  between  each  other ;  that  so 
long  as  this  equity  exists  in  any  of  the  partners  the  creditors  have  an 
equity  to  compel  its  enforcement  betw^een  the  partners,  and  may  by 
this  means  obtain  the  application  of  the  partnership  properties  to  their 
demands,  in  preference  to  the  individual  debts  or  separate  disposi- 
tions of  any  of  the  partners — in  other  words,  "that  the  equities  of  the 
creditors  can  only  be  worked  out  through  the  equities  of  the  partners." 
From  these  premises  the  conclusions  have  been  drawn  that,  if  such 
equities  are  waived  or  released  by  the  partners  themselves,  the  cred- 
itors lose  them,  and  that  a  transfer  of  the  individual  interest  of  a  part- 
ner in  the  firm  property  to  a  third  person  extinguishes  the  equity  of 
the  partner,  and  consequently  that  of  the  creditors,  which  is  dependent 
upon  it.  This  doctrine  has  been  carried  to  the  extent  of  holding  that, 
if  the  individual  interests  of  each  of  the  members  of  a  firm  are  suc- 
cessively sold  under  executions  against  such  members,  respectively, 
for  their  individual  debts,  the  purchasers  acquire  the  corpus  of  the 
property  free  from  the  copartnership  debts,  and  the  equities  of  the 
partners  and  partnership  creditors  are  extinguished.  Coover's  Appeal, 
29  Pa.  9,  70  Am.  Dec.  149. 

The  injustice  and,  it  may  be  said,  the  absurdities  which  result  from 
such  a  view  lead  to  an  inquiry  into  its  correctness.  A  firm  may  be 
perfectly  solvent,  though  the  members  are  individually  insolvent,  'and 
yet  in  such  a  case  the  doctrine  that  the  property  of  the  firm  is  divested, 
and  the  equities  of  the  partners  and  partnership  creditors  are  extin- 
guished, by  separate  transfers  of  the  individual  interests  of  all  the  part- 
ners, might  result,  not  only  in  an  appropriation  of  all  the  properties 
of  the  firm  to  the  payment  of  the  individual  debts,  to  the  entire  exclu- 
sion of  the  firm  creditors,  but  to  a  most  unjustifiable  sacrifice  and 
waste  of  such  properties.  For  instance,  suppose  a  firm  to  consist  of 
three  members,  each  having  an  equal  interest,  and  to  be  possessed  of 
assets  to  the  amount  of  $300,000,  and  to  owe  debts  to  half  of  that 
amount,  the  interest  of  each  partner,  supposing  their  accounts  between 
themselves  to  be  even,  is  $50,000.  The  members  of  the  firm  are  in- 
dividually indebted.  One  of  them  sells  his  share,  and  receives  for  it 
$.~.0,000,  which  is  its  actual  value.  The  share  of  another  of  the  part- 
ners is  sold  under  execution,  and  brings  its  full  value,  $5,000.  Thus 
far  one  partner  remains,  knd  he  has  an  equity  to  have  the  firm  debts 
paid,  and  those  who  have  sold  out  are  protected  against  those  debts. 
The  purchasers  of  the  separate  interests  are  entitled  to  the  surplus  only. 
The  joint  creditors  still  have  their  recourse  against  the  partnership 
propertv.  and  the  right  to  levy  on  such  of  it  as  is  subject  to  sale  on 


256  NATUriE   AKD   CnAHACTEUISTICS   OF   A    PARTNERSHIP.  (Cll.  3 

execution ;  but  before  any  levy  the  remaining  partner  sells  out  his  in- 
dividual interest,  or  it  is  sold  on  execution.  According  to  the  doctrine 
applied  in  the  present  case,  and  maintained  in  the  case  of  Coover's  Ap- 
peal, supra,  the  firm  property  is  by  this  last  sale  relieved  from  the 
partnership  debts,  the  two  shares  first  sold  are  at  once  changed  from 
interests  in  the  svirplus  to  shares  in  the  corpus  of  the  property  free 
from  the  debts,  their  value  is  doubled,  and  the  fund  which  should  have 
gone  to  pay  the  joint  debts  is,  without  any  consideration,  appropriated 
by  the  transferees  of  the  individual  interests  of  the  partners. 

Such  is,  in  substance,  the  operation  performed  in  the  present  case. 
Assuming  that  the  mortgages  are  intended  to  convey  only  separate  in- 
terests of  the  mortgagors  (which,  as  has  been  shown,  is  the  only 
theory  upon  which  they  can  escape  being  regarded  as  fraudulent), 
the  mortgaged  property  was,  at  the  time  the  mortgages  were  given, 
liable  to  be  taken  for  the  partnership  debts.  The  mortgages  were  but 
a  slender  security,  and  their  value  dependent  upon  the  firm  debts  bemg 
paid.  This  state  of  affairs  continued  so  long  as  Hollister  E.  Goodwin 
retained  his  one-fifth  interest  in  the  firm.  The  firm  property  was 
legally  under  his '  dominion  for  the  payment  of  firm  debts ;  and  the 
firm  creditors,  if  they  then  had  their  execution,  could  have  rightfully 
levied  upon  it,  or  availed  themselves  of  Goodwin's  equity  as  to  any 
property  which  must  be  reached  in  that  form.  But  on  the  10th  of 
May,  1867,  Hollister  E.  Goodwin  made  a  transfer  of  his  interest  in 
the  property  of  the  firm  to  one  Mary  B.  Goodwin;  and  on  the  same 
day  the  plaintiff  and  Samuel  E.  Rubert  took  possession  under  their 
hiortgages.  The  referee  has  not  found  what  was  the  consideration 
or  purpose  of  this  assignment  from  Hollister  E.  to  Mary  B.  Goodwin, 
nor  has  he  expressly  found  that  it  was  made  in  good  faifh.  But  the 
effect  claimed  for  it  is  that,  Hollister  E.  Goodwin  being  the  only  re- 
maining partner,  the  transfer  of  his  interest  divested  him  of  his  do- 
minion over  the  partnership  property  and  of  his  equity  to  require  the 
_  application  of  the  partnership  property  to  the  payment  of  its  debts, 
and  that,  as  the  partnership  creditors  could  only  reach  the  property 
through  him,  he,  by  this  transfer  or  surrender  of  his  rights,  had  cut 
off  their  access  to  it,  and  thrown  it  into  the  hands  of  the  transferees 
of  the  individual  partners,  unincumbered  by  firm  debts. 

Waiving  any  question  as  to  the  bona  fides  of  this  transaction,  the 
referee  not  having  found  it  fraudulent,  and  treating  the  sale  of  Good- 
win's interest  as  if  it  had  been  made  under  an  execution  against  him, 
we  come  back  to  the  question  whether  the  consequences  claimed  do 
legally  follow  from  separate  sales  of  the  individual  interests  of  the 
several  partners. 

It  would  be  a  superfluous  labor  to  trace  the  history  of  the  changes 
which  have,  from  time  to  time,  taken  place  in  the  views  of  the  courts 
respecting  the  nature  of  the  interests  of  individual  partners  in  the  com- 
mon stock  of  a  firm,  and  the  respective  rights  of  separate  and  joint 


Sec.  7)  TRANSFEIi   OF    PAUTNEHSHIP    PROPERTT.  257 

creditors;  but  it  is  sufilcient  to  observe  that  they  have  resulted  in  a 
general  recognition  of  the  doctrine  that  as  between  a  firm  and  its 
creditors  the  property  is  vested  in  the  firm,  and  that  no  individual 
partner  has  an  exclusive  right  to  any  part  of  the  joint  stock  until  the 
firm  debts  are  paid  and  a  balance  of  account  is  strutk  between  him  and 
his  copartners,  and  the  amount  of  his  interest  accurately  ascertained. 

The  corjais  of  the  effects  is  joint  property,  and  neither  partner  sepa- 
rately has  anything  in  that  corpus;  but  the  interest  of  each  is  only 
his  share  of  what  remains  after  .the  partnership  debts  are  paid  and 
accounts  are  taken.  West  v.  Skip,  1  Ves.  239 ;  Fox  v.  Hanbury,  Cowp. 
445;  Tavlor  v.  Fields,  4  Ves.  396;  15  Ves.  559,  note;  Pierce  v.  Jack- 
son, 6  Mass.  243;  Doner  v.  Stauffer,  1  Pen.  &  W.  (Pa.)  198,  21  Am. 
Dec.  370;  2  Kent,  Com.  (11th  Ed.)  78,  note;  Collyer  on  Partn.  (3d 
Am.  Ed.,  by  Perkins)  pp.  704  to  710,  notes  to  §  823;  Story  on  Partn. 
notes  to  §§  261,  262,  263;  Crane  v.  French,  1  Wend.  311;  Witter  v. 
Richards,  10  Conn.  37. 

P.artnership  effects  cannot  be  taken  by  attachment  or  sold  on  execu- 
tion to  satisfy  a  creditor  of  one  of  the  partners,  except  to  the  extent  of 
the  interest  of  such  separate  partner  in  the  effects,  subject  to  the  pay- 
ment of  the  firm  debts  and  settlement  of  all  accounts.  3  Kent,  Com. 
(11th  Ed.)  76. 

Purchasers  of  the  share  of  an  individual  partner  can  only  take  his 
interest.  That  interest,  and  not  a  share  of  the  partnership  effects,  is 
sold,  and  it  consists  merely  of  the  share  of  the  surplus  which  shall 
remain  after  the  payment  of  the  debts  and  settlement  of  the  accounts 
of  the  firm.     3  Kent,  Com.  (11th  Ed.)  78,  note  "b." 

No  more  property  can  be  carried  out  of  the  firm  by  the  assignee 
of  one  partner  than  the  partner  himself  could  extract  after  all  the  ac- 
counts are  taken.     1  Ves.  241   (Am.  Ed.)  note;   15  Ves.  557. 

No  person  deriving  und«r  a  partner  can  be  in  a  better  condition  than 
the  partner  himself.     Fox  v.  Hanbury,  Cowp.  445. 

A  partner  has  no  right,  by  an  assignment  of  his  interest,  to  take 
from  the  creditors  or  other  partners  the  right  to  have  their  claims 
against  the  partnership  satisfied  out  of  its  property.  A  mortgage  made 
by  one  partner  of  his  undivided  interest  cannot  avail  against  the  cred- 
itors of  the  partnership  who  attach  the  partnership  property.  Love- 
joy  v.  Bowers,  11  N.  PI.  404. 

These  principles  have  been  enunciated  in  a  great  number  of  cases. 
where  some  one  at  least  of  the  partners  retained  his  equity  to  have 
the  firm  debts  paid,  and  the  rights  of  the  creditors  to  assets  or  pro- 
ceeds, which  have  come  under  the  control  of  a  court  of  equity,  have 
been  worked  out  through  the  equity  of  that  partner.  But  I  find  no 
case  in  which  the  consequences  of  transfers  of  the  separate  interests 
of  all  the  partners  to  outside  parties  has  been  considered,  except  the 
case  of  Doner  v.  Stauffer,  1  Pen.  &  W.  (Pa.)  198,  21  Am.  Dec.  370, 
and  Coover's  Appeal,  29  Pa.  9,  70  Am.  Dec.  149.  before  referred  to. 
In  neither  of  these  cases  is  the  point  adjudicated,  for  in  both  cases  the 

GlL.P.\RT.— 17 


258  NATURE  A]^D   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

joint  creditors  intervened  before  the  sale  of  the  interest  of  the  last 
remaining  partner,  and  their  right  to  priority  was  sustained,  though 
the  opinion  of  the  court  was  expressed  as  to  what  the  result  would 
have  been  if  all  the  individual  interests  had  been  first  sold. 

There  is  another  class  of  cases  in  which  the  partnership  effects  have 
been  held  to  be  liberated  from  liability  to  be  applied  to  partnership 
debts  in  preference  to  the  separate  debts  of  one  partner;  that  is,  where 
a  bona  fide  sale  has  been  made  by  a  retiring  partner,  in  a  solvent  firm 
of  two  members,  to  his  copartner,  the  latter  assuming  the  debts.  In 
such  a  case  it  is  settled  that  the  property  formerly  of  the  partnership 
becomes  the  separate  property  of  the  purchasing  partner,  and  that  the 
partnership  creditors  are  not  entitled  to  any  preference  as  against 
his  individual  creditors  in  case  of  his  subsequent  insolvency.  Ex  parte 
Ruffin,  6  Ves.  119;  Dimon  v.  Hazard,  32  N.  Y.  65.  But  in  those 
cases  the  joint  property  was  C9nverted  into  separate  property  by  the 
joint  act  of  all  the  members  of  the  firm.  They  had  power  to  dispose 
of  the  corpus  of  the  joint  property,  and  the  exercise  of  that  power, 
when  free  from  fraud,  divested  the  title  of  the  firm  as  effectually  as 
if  they  had  united  in  a  sale  to  a  stranger.  It  remained  subject  to  exe- 
cution for  firm  debts  so  long  as  it  continued  in  the  hands  of  the  pur- 
chasing partner.  It  is  conceded  that  the  creditors  have  no  lien  which 
would  affect  the  title  of  a  purchaser  from  the  firm.  But  the  question 
now  is:  What  is  the  eft'ect  upon  the  title  of  the  firm,  as  between  it 
and  its  creditors,  of  transfers  by  the  partners  severally  of  their  re- 
spective interests  to  third  persons?  Where  the  property  remains  in 
specie,  and  no  act  has  been  done  by  the  firm  to  divest  its  title,  but  the 
partners  have  made  separate  transfers  of  their  respective  individual 
interests  to  different  persons,  is  it  still  to  be  regarded,  as  to  the  firm 
creditors,  as  firm  property,  or  has  it  become  the  absolute  property  of 
the  several  transferees  of  the  interests  of  the  individual  partners? 

It  has  been  shown  that  no  share  in  the  corpus  of  the  property 
passed  by  either  of  these  transfers  separately,  but  merely  an  interest 
in  the  surplus,  and  which  should  be  ascertained  on  an  accounting  after 
payment  of  the  firm  debts.  But  it  is  claimed  that,  when  all  the  part- 
ners have  assigned,  their  interest  in  the  property  is  divested,  and  their 
equity  is  destroyed,  and  therefore  the  property  is  released  from  the 
debts,  and  what  was  at  the  time  of  the  assignment  a  share,  of  a  con- 
tingent surplus  has  been  converted  into  a  share  of  the  corpus  of  the 
property.  Is  this  position  sound?  When  a  partner  sells  his  interest 
in  a  firm  to  a  person  other  than  his  copartner,  or  it  is  sold  on  execution 
against  him,  does  he  thereby  lose  all  equity  to  have  the  firm  debts  paid 
out  of  the  assets? 

When  he  sells  to  his  copartner  he  relics  upon  his  assumption  of 
the  partnership  debts,  and  unless  he  stipulates  for  an  application  of 
the  assets  to  that  purpose  he  parts  with  all  lien  upon  them.  But  when 
he  sells  to  a  stranger  not  liable  for  the  debts,  or  his  interest  is  sold 
on  execution,  is  not  the  right  to  have  the  debts  paid  out  of  the  prop- 


Sec.  7)  TRANSFER   OF   PARTNERSHIP   PROPERTY.  2o0 

erty  a  riglit  of  indemnity  personal  to  himself,  and  which  does  not 
pass  by  the  sale?  Could  it  be  tolerated  that  the  interest  of  a  partner 
should  be  sold  under  execution  against  him,  on  which  sale  only  the 
value  of  his  interest  in  the  surplus  could  be  realized,  anrl  that  the 
purchaser  should  be  allowed  to  take  the  corpus  of  the  property  and 
leave  him  liable  for  the  debts?  If  the  legal  effect  of  the  transfer  were 
set  forth  in  the  instrument,  it  would  be  seen  that  all  the  purchaser  ac- 
quired was  a  right  to  an  account  and  to  the  partner's  share  in  the 
surplus  after  payment  of  debts,  when  ascertained,  and  that  he  had  no 
right  to  that  part  of  the  property  which  was  required  for  the  pay- 
ments of  debts;  that  the  sale  was  subject  to  the  debts.  3JKent,  Com. 
76-78.  The  partner  whose  share  was  sold  would  manifestly  have  an 
interest  in  the  protection  and  appropriation  of  that  part  of  the  proper- 
ty in  discharge  of  his  own  liability  to  the  firm  creditors. 

I  do  not  see  how  this  right  can  be  affected  by  the  question  whether 
the  separate  interests  of  all  or  only  one  of  the  partners  is  thus  sold. 
Each  of  the  purchasers  would  acquire  an  interest  merely  in  the  sur- 
plus, and  each  partner  whose  interest  was  sold  would  have  the  right 
to  indemnity  against  the  firm  debts  by  the  application  to  such  debts 
of  so  much  of  the  property  as  might  be  necessary  for  the  purpose. 
These  debts  must  have  been  taken  into  consideration  in  fixing  the 
price  of  the  interest  sold,  and  consequently  allowed  to  the  purchaser, 
and  the  partnership  assets  are  the  primary  fund  for  their  payment. 
The  case  differs  materially  from  a  sale  by  a  retiring  copartner  to  his 
copartner,  who  is  personally  liable  for  the  debts  directly  to  the  cred- 
itors; but  even  such  a  sale  is  valid  only  when  there  is  no  insolvency 
at  the  time.  To  sell  to  an  insolvent  partner  would  be  a  clear  fraud. 
How  much  more  clearly  apparent  would  be  the  injury  to  creditors  by 
a  sale  to  a  person  not  liable  for  the  debts,  if  such  sale  had  the  effect 
to  relieve  the  property  from  them. 

It  can  hardly  be  necessary,  where  the  firm  property  remains  in 
specie,  and  is  tangible  and  capable  of  being  levied  upon,  to  resort  to 
the  equities  of  the  partners  in  case  there  has  been  no  transfer  by  the 
firm  and  the  only  adverse  claimants  are  assignees  of  the  individual 
interests  of  the  several  partners  for  their  separate  debts.  The  right 
of  the  firm  creditor  to  levy  on  property  thus  situated  can  be  sustained 
on  two  grounds.  If  the  effect  of  any  of  the  transfers  is  to  divest  the 
title  of  the  firm,. then,  if  eft'ected  by  the  acts  of  the  partner,  they  are 
clearly  fraudulent  and  void  as  to  firm  creditors,  as  is  shown  in  the 
cases  of  Ransom  v.  Vandeventer,  41  Barb.  307,  and  Wilson  v.  Robert- 
son, 21  N.  Y.  587.  An  appropriation  to  the  individual  debt  of  one 
partner  of  any  part  of  the  firm  property,  even  with  the  assent  of  his 
copartners,  is  illegal  and  void,  provided  fhe  firm  is  not  left  with  suffi- 
cient to  pay  its  debts.  How  absurd  it  would  be  to  hold  that  all  of  the 
partners,  by  making  separate  assignments  of  their  respective  shares 
in  the  firm  property  to  their  individual  creditors,  could  effectually 
divest  the  firm  of  all  its  property  and  apply  it  to  their  individual  debts, 


260  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Cll.  3 

leaving  nothing  for  tile  partnership  creditors.  But  the  simple  solution 
of  tlie  question  is  to  hold  that  the  title  of  the  firm,  as  between  it  and 
its  creditors,  to  the  corpus  of  the  property,  or  at  least  to  so  much  of  it 
as  is  necessary  for  the  debts,  is  not  divested  by  these  separate  trans-. 
fers  to  strangers. 

As  is  stated  by  Prof.  Parsons,  in  his  work  on  Partnership  (pages 
356  to  363  [2d  Ed.]  c.  10,  §  1),  a  partnership,  though  neither  a  ten- 
ancy in  common  nor  a  corporation,  has  some  of  the  attributes  of  both. 
The  well-established  rule  which  excludes  creditors  of  the  several  part- 
ners from  the  partnership  property  until  that  has  paid  the  debts  of  the 
partnership  is  derived  from  the  acknowledgment  that  a  partnership  is 
a  body  by  itself.  In  its  relation  to  its  creditors  it  is  placed  upon  the 
basis  of  having  its  own  creditors  and  possessing  its  own  property, 
which  it  applies  to  the  payment  of  its  debts,  and  after  this  work  is 
done  there  is  a  resolution  of  the  body  into  its' elements. 

Until  some  act  is  done  by  the  firm  to  transfer  the  joint  interest,  no 
separate  act  of  either  or  all  of  the  partners,  or  proceedings  against 
them  individually  with  reference  to  their  individual  interests,  should 
be  held  to  aft'ect  the  title  of  the  firm,  so  as  to  preclude  a  creditor  of  the 
firm,  having  a  judgment  knd  execution,  from  levying  upon  the  joint 
property.  To  hold  that  separate  transfers  of  their  individual  shares 
by  the  several  partners  can  convey  a  good  title  to  the  whole  property 
free  from  joint  debts  would  be  to  return  to  the  doctrine,  long  since 
exploded,  that  partners  hold  by  moieties  as  tenants  in  common.  In 
the  present  advanced  stage  of  the  law  upon  this  subject,  no  established 
rule  is  violated  by  holding  that  the  title  of  the  firm,  as  between  it  and 
its  creditors,  cannot  be  divested  by  the  acts  of  the  partners  severally, 
not  in  the  business  of  the  firm,  nor  by  the  separate  creditors  of  mem- 
bers of  the  firm  ( further,  than  such  temporary  interruption  of  the  pos- 
session as  may  be  necessary  to  enable  the  officers  of  the  law  to  make 
an  effectual  sale  of  the  interest  of  the  debtor  partner).  This  view 
does  not  recognize  any  lien  of  partnership  creditors  upon  the  firm  prop- 
erty. The  firm  have  power  to  dispose  of  it  without  regard  to  the  cred- 
itors, provided  the  disposition  be  not  fraudulent.  But  the  individual 
members  or  their  creditors  ought  not  to  have  any  such  power,  and  all 
transfers  made  by  them  for  individual  purposes  should  be  held  in- 
operative upon  the  corpus  of  the  property,  so  long  as  there  are  firm 
debts  unpaid  for  which  the  property  is  required.  As  against  firm 
creditors,  no  greater  effect  should  be  given  to  such  transfers  when 
made  by  all  the  partners  separately  than  when  made  by  a  portion'  of 
them,  but  the  property  should  be  deemed  to  continue  in  the  firm  until 
its  title  has  been  divested  by  some  act  of  the  firm. 

My  conclusion  is  that,  as'  between  the  firm  of  J.  C.  Smith  &  Co. 
and  its  creditors,  the  property  levied  upon  by  the  defendants  remained 
the  property  of  the  firm,  and  subject  to  levy  on  execution  against  it, 
notwithstanding  the  transfers  by  the  several  partners  of  their  respective 
individual  interests. 


Sec.  7)         ipANSFER  OF  PARTNERSHIP  PROPERTY.  2G1 

I  have  not  adverted  to  the  changes  which  took  place  in  the  firm  by 
the  retirement  of  John  Wride  and  M.  Huntington,  and  the  transfer 
by  them  of  their  interests  to  J.  C.  Smith,  intermediate  the  contracting 
of  the  debt  to  the  Bank  of  Geneva  and  the  levy,  the  effect  of  these 
changes  being  fully  considered  in  the  opinion  of  my  learned  associate, 
Ali.i-.n,  J. 

The  judgment  should  be  reversed,  and  a  new  trial  ordered,  with 
costs  to  abide  the  event. 

Allen,  J.  I  fully  concur  in  the  legal  conclusions  of  my  Brother 
Rapallo,  and  for  the  reasons  assigned  by  him.    *    *    * 

A  single  question  only  will  be  considered,  and  that  is  as  to  the  effect 
of  the  retirement  of  two  of  the  partners,  Wride  and  Pluntington,  by 
the  transfer  of  their  interests  to  another  partner,  Smith,  after  the  debts 
were  contracted  with  the  Geneva  National  Bank,  and  before  the  re- 
covery of  the  judgments  upon  which  the  property  was  seized  by  the 
defendants.  That  the  withdrawal  of  two  of  the  five  partners,  and  a 
transfer  of  their  interests  to  one  of  the  three  remaining  partners,  was 
a  dissolution  of  the  copartnership  that  had  theretofore  existed,  is  not 
controverted;  that  is,  although  a  firm,  composed  of  a  part  of  the  mem- 
bers of  the  old  firm,  continued  the  business  in  the  same  name,  still 
it  was  not  composed  of  all  the  original  members  of  the  firm,  and 
therefore,  strictly,  the  old  partnership  was  dissolved  and  superseded 
by  the  new  organization.  But  the  dissolution  had  respect  to  the  future, 
and  not  to  the  past,  Past  transactions  and  existing  liabilities,  and  the 
relative  rights  and  obligations  of  the  several  partners,  or  the  rights  of 
creditors,  in  respect  to  past  transactions  and  dealings,  were  not  affected 
by  the  mere  act  of  dissolution  resulting  from  such  withdrawal  of  the 
two  and  the  assignment  of  their  interest,  aside  from  any  conventional 
arrangement  between  the  partners,  or  between  them  and  their  cred- 
itors, by  which  their  respective  and  relative  rights  might  be  changed. 
The  partners  all  continued  liable  in  solido  for  the  debts  due  by  the 
firm,  and  all  the  joint  property  continued  liable  for  the  joint  debts 
as  it  was  before. 

Heath,  J.,  says,  in  Wood  v.  Braddick,  1  Taunt.  10-1:  "When  a 
partnership  is  dissolved,  it  is  not  dissolved  with  regard  to  things  past, 
but  only  with  regard  to  things  future.  With  regard  to  things  past, 
the  partnership  continues  and  always  must  continue."  And  Lord 
Mansfield,  C.  J.,  in  same  case  says:  "The  powers  of  partners  with 
respect  to  rights  created  pending  the  partnership  remain  after  the  dis- 
solution."   And  see  Parsons  on  Partnership,  386,  396. 

From  the  time  of  the  withdrawal  of  the  two  partners  their  power 
to  act  for  or  represent  the  continuing  members  of  the  firm  in  new 
transactions  ceased,  and  perhaps  they  relinquished  their  right  to  con- 
tract or  deal  with  the  joint  property  as  they  might  have  done  in  con- 
currence with  the  other  partners,  had  the  partnership  been  closed, 
and  the  business  settled  up,  instead  of  being  continued  with  a  change 
in  its  membership.     It  is  said,  also,  that  one  partner,  selling  his  inter- 


262  NATURE  AND   CHARACTERISTICS   OF   A   PARllffiRSHIP.  (Cll.  3 

est  to  a  copartner,  who  assumes  his  share  of  the  partnership  debts, 
does  not,  in  the  absence  of  a  stipulation  to  that  effect,  have  any  Hen, 
equitable  or  otherwise,  upon  the  firm  property  for  the  payment  of 
the  joint  debts  for  which  he  still  remains  liable.  Dimon  v.  Hazard, 
32  N,  Y,  65.  This  must  be  so  when  new  rights  have  attached  by  rea- 
son of  such  change  of  interests,  as  where  the  transfer  is  to  a  sole 
partner,  who  becomes  thereby  the  individual  owner  of  the  property, 
and  rights  of  individual  creditors  have  accrued,  as  in  Howe  v.  L'aw- 
rence,  9  Cush.  (Mass.)  553,  57  Am.  Dec.  68,  and  Robb  v.  Mudge,  14 
Gray  (Mass.)  534,  or  where  the  new  firm  which  has  resulted  from  the 
change  of  interests  has  exercised  the  jus  disponendi  which  it  has  over 
the  property,  or  there  are  creditors  of  the  new  firm  who  have  the 
quasi  lien  recognized  by  the  law.  But  I  see  no  reason  why,  so  long 
as  the  retiring  partner  remains  liable  with  the  others  for  the  joint 
debts,  and  no  adverse  or  paramount  rights  or  liens  have  attached  to 
the  joint  property,  the  same  equity  should  not  be  recognized  as  ex- 
isting in  him  to  have  the  joint  property  subjected  to  the  payment  of 
the  joint  debts  that  he  would  have  had  as  a  continuing  partner. 

But,  whatever  may  be  the  rights  and  equities  of  Wride  and  Hunting- 
ton, the  retiring  partners,  the  equities  of  the  continuing  partners, 
especially  those  of  Rubert  and  Goodwin,  were  not  impaired  or  affected 
by  the  transfer  of  interests  by  Wride  and  Huntington  to  Smith,  the 
other  partner.  By  those  transfers, Smith  only  acquired  the  same  in- 
terest in  the  property  of  the  firm  that  any  other  transferee  would  have 
acquired;  that  is,  a  right,  as  to  the  two-fifths  thus  purchased,  to  an 
account  and  to  share  to  that  extent  in  the  surplus  of  the  property  of 
the  firm.  The  fact  that  he  was  a  partner  does  not  change  the  character 
or  the  legal  effect  of  the  transaction.  It  was  an  arrangement  between 
three  of  five  partners,  and  they  could  not  dispose  of  the  corpus  of 
the  joint  property  to  the  prejudice  of  the  other  partners  or  the  cred- 
itors of  the  firm,  or  destroy  the  joint  interest  which  before  existed. 
Smith  took  the  transfer,  subject  to  the  rights  of  the  other  partners  as 
to  the  joint  property,  and  the  share  or  portion  of  the  retiring  or  with- 
drawing members.  The  rights  of  an  assignee  or  transferee  of  the 
individual  share  or  interest  of  a  partner  in  the  joint  property  are 
well  settled  to  be  but  a  right  to  an  accounting,  or  to  what  shall  re- 
main after  the  adjustment  of  the  partnership  accounts  and  dealings. 
Mumford  v.  McKay,  8  Wend.  442,  24  Am.  Dec.  34;  Nicoll  v.  Mum- 
ford,  4  Johns.  Ch.  522. 

The  assignee  of  a  partner's  interest  cannot  withdraw  his  share  of  the 
joint  effects.  They  must  remain  in  the  possession  of  the  continuing 
partners  for  the  purpose  of  winding  up  the  partnership  which  has  been 
dissolved  by  the  assignment.    Horton's  Appeal,  13  Pa.  67. 

Smith  could  no  more  have  withdrawn  the  share  of  Wride  and  Hunt- 
ington, to  which  he  had  succeeded,  than  he  could  withdraw  his  own 
original  share  in  the  joint  effects  of  the  firm,  without  the  consent  of 
his  copartners. 


Sec.  7)  TRANSFER   OF   PARTNERSHIP   PROPLRTY.  2G3 

Although  the  original  partnership  has  ceased  to  exist,  the  rights  of 
the  partners  have  not  been  impaired.  The  new  firm  acquired  and  had 
the  absolute  power  of  disposal;  and,  had  the  joint  property  been 
transferred  by  the  joint  act  of  all,  the  creditors  of  the  old  firm  would 
have  lost  their  quasi  lien,  or  their  right  to  pursue  this  property,  un- 
less they  could  impeach  the  transfer  for  fraud. 

Had  the  firm,  after  the  change  of  interests  therein,  incurred  lia- 
bilities and  contracted  debts,  a  question  would  have  arisen  between 
the  creditors  of  the  old  and  new  firms,  and  the  creditors  of  the  new 
would  have  been  preferred.  But  no  such  question  is  in  this  case. 
The  property  of  the  original  firm,  composed  of  the  five  members,  is 
still  joint  property  with  respect  to  the  partners  still  retaining  an  in- 
terest in  it,  who  are  tenants  in  common,  and  the  creditors  of  that  firm 
to  whom  all  the  parties  remain  liable,  and  through  whom  and  whose 
equities  and  the  equities  of  each  of  them  they  can,  in  the  language  of 
the  books,  work  out  their  rights. 

Judge  Story  says :  "In  case  of  a  dissolution  each  partner  holds  the 
joint  property  clothed  with  a  trust  to  apply  it  to  the  payment  of  the 
joint  debts,  and,  subject  thereto,  to  be  distribued  among  the  partners 
according  to  their  respective  shares  therein."  Story  on  Partn.  §  360. 
Here  the  three  partners  composing  the  new  firm,  as  partners  and  ten- 
ants in  common,  held  this  property  clothed  with  this  trust,  and  neither 
could  withdraw  any  part  of  it,  nor  do  any  act  to  impair  this  trust.  All 
must  unite  in  order  to  give  effect  and  validity  to  any  disposal  of  the 
property,  except  in  execution  of  the  trust  or  in  the  ordinary  course 
of  business.  A  transfer  in  payment  or  security  of  an  individual  debt 
of  one  is  not  such  an  act,  and  does  not  impair  the  trust  or  affect  the 
rights  of  the  other  tenants  in  common  or  partners,  or  creditors  having 
claims  to  be  enforced  through  their  equities.  It  is  only  when  the 
rights  of  partners  as  such  with  respect  to  the  joint  property  are  gone 
that  the  quasi  lien  of  creditors  is  destroyed.  While  this  right  of  cred- 
itors is  spoken  of  as  in  the  nature  of  a  lien  or  quasi  lien  and  depend- 
ing to  a  great  extent  upon  the  equities  of  partners  inter  se,  it  is  to  be 
enforced  against  the  joint  effects  of  the  partners  by  a  common-law 
action  and  common-law  remedies,  except  where  the  dissolution  is  by 
the  death  or  bankruptcy  of  one  of  the  partners.    Story  on  Partn.  §  3G1, 

The  parties  who  claim  to  have  acquired  severally,  by  transfer  from 
the  individual  partners,  the  respective  shares  of  such  partners,  each 
having  only  the  right  which  the  law  gives  the  assignee  of  the  share 
of  a  single  partner,  if  they  have  in  any  way  obtained  possession  of  the 
property  itself,  must  hold  it  clothed  with  the  trust  which  would  have 
attached  to  it  in  the  possession  of  the  partners,  their  assignors,  and 
as  to  the  corpus  of  the  property  it  remains  the  joint  property  of  the 
firm,  and  liable  to  be  seized  for  its  debts.  There  has  been  no  distribu- 
tion of  the  property  among  the  partners,  and  it  has  not  been  trans- 
ferred by  them  as  partners  by  any  joint  act.  or  by  the  act  of  one  in 
the  name  of  all,  and  no  creditors  of  the  later  firm  assert  any  cla-m 


2G4  NATURE   AND   CHARACTERISTICS   OF   A    PARTNERSHIP.  (Ch.  3 

to  it.  So  long  as  the  property  continues,  the  firm  creditors  may  assert 
their  priority  of  right  to  it  as  against  the  creditors  or  transferees  of 
individual  partners.  Allen  v.  Center  Valley  Co.,  21  Conn.  130,  54 
Am.  Dec.  333 ;  2  Story,  Eq.  Jur.  §  125a.  It  is  joint  quoad  the  part- 
ners and  the  firm  creditors,  so  long  as  any  one  of  the  partners  may 
insist  upon  the  partnership  claims  to  it.  Crawshay  v.  Collins,  15  Ves. 
237;  Peacock  v.  Peacock,  16  Ves.  57.  Plere  neither  the  partners, 
nor  any  one  claiming  as  creditors  of  or  under  title  derived  from  the 
firm,  assert  any  claim  to  the  property  adverse  to  the  defendants.  Had 
a  stranger  to  the  first  firm  come  into  the  second  in  the  place  of  the 
retiring  members,  a  different  question  would  have  arisen.  But  here  ' 
the  continuing  members  of  the  firm  are  all  liable  for  the  debts  of  the 
old  firm,  and  as  successors  of  that  firm  have  possession  and  ownership 
of  its  property,  primarily  chargeable  with  the  payment  of  its  debts, 
and  there  is  no  foundation  in  principle  for  the  claim  that  each  of  the 
partners  can  transfer  his  share,  subject  only  to  the  claims  that  may 
exist  growing  out  of  the  new  relation  of  the  partners  consequent  on 
the  withdrawal  of  the  two  retiring  members,  and  this  must  be  establish- 
ed to  entitle  the  plaintiff  to  hold  her  judgment.  If  Rubert  and  Good- 
win could  only  assert  a  lien  for  the  liabilities  of  the  three  as  a  firm 
incurred  after  Smith  acquired  the  additional  two-fifth  interests  from 
Wride  and  Huntington,  then  the  plaintiff  has  a  good  title  to  the  un- 
divided share  and  portion  of  the  corpus  of  the  estate  for  which  she 
has  been  permitted  to  recover  in  the  court  below ;    otherwise  not. 

We  are  cited  to  several  cases,  of  which  Ex  parte  Ruffin,  6  Ves. 
119,  is  the  pioneer,  as  showing  that,  upon  the  dissolution  of  a  part- 
nership by  the  retiring  of  one,  the  creditors  of  the  firm  lose  all  power 
to  enforce  the  payment  of  their  debts  from  the  joint  property.  But 
such  is  not  the  effect  of  the  decisions,  nor  can  such  a  principle  be 
deduced  from  them.  They  are  entirely  consistent  with  the  views  now 
taken  of  the  rights  of  the  parties  to  this  action.  Ex  parte  Ruffin  was 
the  case  of  a  dissolution  of  partnership  between  two;  one  retiring 
and  assigning  the  partnership  property  to  the  other,  who  continued 
the  trade  and  became  bankrupt.  It  was  decided,  and  could  not  well 
ha^ve  been  decided  otherwise,  that  by  the  dissolution  and  transfer  the 
property  became  the  individual  property  of  the  bankrupt,  and  liable  to 
his  individual  debts  in  priority  to  the  debts  of  the  former  partnership. 
The  retiring  partner  gave  to  the  bankrupt  the  entire  property,  with  the 
absolute  right  of  disposal,  and  the  Lord  Chancellor  held  that  joint  debts 
could  not  be  proved  against  the  individual  estate.  The  like  question 
presented  in  Dimon  v.  Hazard,  32  N.  Y.  65,  Horton's  Appeal,  supra, 
and  Robb  v.  Mudge,  14  Gray  (Mass.)  534,  received  the  same  solution. 
The  same  principle  was  applied  in  Smith  v.  Howard,  20  How.  Prac. 
121,  and  Baker's  Appeal,  21  Pa.  76,  59  Am.  Dec.  752. 

The  only  difference  in  the  several  cases  was  circumstantial,  and  did 
not  call  for  the  application  of  any  other  or  different  rule.  The  deci- 
sions all  stand  upon  the  same  reasons.     In  the  last  two  cases  ^he  re- 


Sec.  7)  TRANSFER    OF   PAltTNEItSTIIP    PROPERTY.  205 

tiring  partner  transferred  his  interest  to  several  partners,  who  con- 
tinued the  business,  and  it  was  held  that  the  firm  creditors  had  no  such 
lien  upon  the  property  as  would  prevent  the  disposal  of  the  property 
by  the  joint  act  of  those  who  had  become  the  owners  or  deprive  the 
creditors  of  the  new  firm  of  a  priority.  Smith  v.  Howard  sustained 
an  assignment  by  the  two  partners,  to  whom  the  other  partner  had 
transferred  his  interest  for  the  benefit  of  creditors,  in  which  a  note 
indorsed  by  a  third  person  as  their  security  and  given  to  the  retiring 
partner  in  payment  for  his  interest  was  preferred.  In  Baker's  Ap- 
peal a  like  assignment  by  the  continuing  partners,  preferring  the  debts 
of  the  new  firm,  was  sustained.  These  cases  are  clearly  distinguish- 
able from  this.  If  the  partners  who  had  acquired  the  joint  right  to  dis- 
pose of  the  property  had  exercised  it  without  fraud,  and  as  the  cred- 
itors of  the  first  or  former  firm  had  no  specific  liens,  they  could  not, 
in  the  absence  of  any  fraud,  have  impeached  the  transfer. 

Judge  Gibson,  in  Doner  v.  Stauffer,  supra,  intimates  an  opinion  upon 
a  theoretical  case  adverse  to  the  views  now  taken.  While  restricting 
the  purchaser  of  the  share  of  a  single  partner  to  what  might  remain 
after  payment  of  the  partnership  debts,  he  says:  "A  curious  question 
might  arise  whether  separate  purchasers  of  the  shares,  respectively, 
would  stand  in  the  relation  of  partners,  so  as  to  enable  the  joint  cred- 
itors to  follow  the  goods" — and  intimates  an  opinion  in  the  negative; 
but  the  question  was  not  in  the  case.  To  me  it  seems  illogical,  the 
premises  being  granted  that  a  sale  by  a  partner,  or  upon  an  execution 
against  him  for  an  individual  debt,  carries  only  a  right  to  what  may 
remain  after  the  payment  of  the  partnership  debts,  thus  affirming  the 
right  of  partnership  creditors  to  a  priority  of  payment  and  a  quasi 
lien  on  the  joint  efifects,  to  declare  that  such  preference  is  destroyed 
and  right  lost  by  distinct,  independent  transfers  of  the  individual  in- 
terests of  the  several  partners,  and  that,  while  each  partner,  or  the 
creditor  of  each  individual  partner,  can  only  have  dominion  or  ac- 
quire a  title  for  the  surplus,  when  each  has  exercised  this  right,  or  the 
individual  creditors  of  all  have  seized  and  sold  this  right  to  the  surplus, 
the  rights  of  each  are  at  once  enlarged  by  relation  as  of  the  time 
of  the  first  transfer  of  interest  of  any  one  of  the  partners  to  the  de- 
struction of  the  acknowledged  rights  of  the  partners  inter  se  and  of 
the  joint  creditors. 

In  Brinkerhoff  v.  Marvin,  5  Johns.  Ch.  320,  separate  and  s.uccessive 
judgments  against  individual  partners  for  a  single  partnership  debt 
were  held  entitled  to  be  paid  from  the  partnership  funds;  the  chan- 
cellor giving  the  same  effect  to  the  two  judgments  as  if  they  had  been 
consolidated  in  a  joint  judgment  against  both  the  partners. 

This  is,  so  far  as  reported  decisions  have  come  under  my  observa- 
tion, a  case  of  the  first  impression;  but  by  the  application  of  well- 
established  principles,  and  carrying  to  their  legitimate  and  logical  re- 
sults the  doctrines  fairly  deducible  from  authoritative  adjudications, 
and  giving  proper  effect  to  the  recognized  rights  and  equities  of  part- 


266  NATURE   AND   CHARACTERISTICS   OF   A   PARTNERSHIP.  (Cll.  3 

nership  creditors,  as  now  understood,  the  plaintiff  did  not  acquire  a  val- 
id title  to  the  partnership  effects,  or  to  any  part  or  undivided  share  or 
portion  thereof,  so  as  to  give  her  a  property  in  the  corpus  of  the  goods 
and  eft'ects  as  against  the  judgment  and  execution  creditors  of  the 
tirm. 

The  judgment  should  be  reversed,  and  a  new  trial  granted. 


SECTION  8.— EFFECT  OF  DEATH  OF  PARTNER  ON  FIRM 

PROPERTY. 


*  *  *  An  exception  is  to  be  made  of  two  joint  merchants;  for 
the  wares,  merchandizes,  debts  or  duties,  that  they  have  as  joynt  mer- 
chants or  parteners,  shall  not  survive,  but  shall  go  to  the  executors 
of  him  that  deceaseth ;  and  this  is  per  legem  mercatoriam,  which  (as 
hath  beene  said)  is  part  of  the  lawes  of  this  realm,  for  the  advance- 
ment and  continuance  of  commerce  and  trade,  which  is  pro  bono  pub- 
lico; for  the  rule  is,  that  jus  accrescendi  inter  mercatores  pro  beneficio 
commercii  locum  non  habet. — Co.  Litt.  182a, 


JEFFEREYS  v.  SMALL. 

Jn  Chancery,  before  Sir  Frauds  North,  L.  K.,  1G83.     1  Vern.  217.) 

Two  persons  having  jointly  stocked  a  farm,  and  occupied  it  as 
joint  tenants,  the  bill  was  to  be  relieved  against  survivorship,  one  of 
them  being  dead;  and  though  it  was  proved  in  the  cause  that  the 
deceased  was  informed  what  the  consequence  of  law  was  in  case 
he  should  die,  and  that  he  thereupon  replied  he  was  content  the  stock 
should  survive,  yet  the  Lord  Keeper  was  clear  of  opinion  that  the 
plaintiff  ought  to  be  relieved;  and  said,  if  the  farm  had  been  taken 
jointly  by  them,  and  proved  a  good  bargain,  there  the  survivor  should 
have  had  the  benefit  of  it ;  but  as  to  a  stock  employed  in  way  of  trade, 
that  should  in  no  case  survive.  The  custom  of  merchants  as  to  bills 
of  exchange  is  now  extended  to  inland  bills,  and  the  custom  of  mer- 
chants is  extended  to  all  traders  to  exclude  survivorship ;  and  though 
it  is  common  for  traders  in  articles  of  co-partnership  to  provide  against 
survivorship,  yet  that  is  more  than  is  necessary ;  and  he  said  he  took 
the  distinction  to  be,  where  two  become  joint  tenants  or  jointly  inter- 
ested in  a  thing  by  way  of  gift  or  the  like,  there  the  same  shall  be 


Sec.  8)   EFFECT  OF  DEATH  OF  PARTNER  ON  FIRM  PROPERTY.      267 

subject  to  all  the  consequences  of  law ;  but  as  to  a  joint  undertaking 
in  the  way  of  trade  or  the  like,  it  is  otherwise,  and  decreed  for  the 
plaintiff  accordingly.^ 


ANDREWS'   HEIRS   v.   BROWN. 
(Snpreme  Court  of  Alabama,  I8r)2.     21  Ala.  437,  5G  Am.  Dec.  2.-2.) 

Bill  by  Thomas  Brown,  the  surviving  partner  of  the  firm  of  E.  I. 
Andrews  &  Co.,  against  the  representatives  and  heirs  of  E.  L.  An 
drews  and  Z.  Andrews,  the  deceased  partners,  for  the  purpose  of  ob- 
taining control  of  certain  stock  and  real  estate  standing  in  the  name 
of  the  deceased  partners  and  subjecting  it  to  the  partnership  debts. 
The  bill  alleged  that  the  property,  although  standing  in  the  names 
of  the  defendants  individually,  was  partnership  property,  and  also 
the  insolvency  of  the  firm.  The  property  had  belonged  formerly  to 
a  firm  composed  of  E.  L.  and  Z.  Andrews,  and  when  the  firm  with 
Brown  as  a  member  was  formed  the  land  was  carried  into  the  new 
firm  and  became  part  of  the  capital.  A  supplemental  bill  was  filed, 
stating  that  part  of  the  real  estate  had  been  purchased  by  E.  L.  An- 
drews for  the  firm  at  a  foreclosure  sale,  and  the  property  had  been 
redeemed,  and  the  money  paid  to  Campbell  &  Chandler,  attorneys  for 
the  deceased  partners,  and  prayed  that  this  be  decreed  to  stand  in 
place  of  the  land  itself.  The  chancellor  decreed  in  favor  of  the  com- 
plainant.    Defendant  brought  error. 

Dargan,  C.  J.  When  a  partnership  is  dissolved  by  the  death  of 
one  or  more  of  the  partners,  the  legal  title  to  all  the  personal  property 
and  choses  in  action  belonging  to  the  firm  becomes  vested  exclusively 
in  the  survivor ;  not,  indeed,  for  his  own  peculiar  benefit,  but  for 
the  purpose  of  paying  the  debts,  and  then  dividing  the  net  "balance 
amongst  those  entitled,  giving  to  the  representatives  of  the  de- 
ceased partner  the  same  interest  he  would  have  taken  had  he  been 
in  life,  and  the  firm  had  been  dissolved,  not  by  death,  but  by  mutual 
consent.  But  as  respects  real  property  the  case  is  different  at  law; 
for  the  legal  title  descends  to  the  heir  at  law  of  the  deceased  part- 
ner, and  a  court  of  law,  looking  to  the  legal  title  alone,  cannot  regard 
or  protect  the  mere  equities  of  others.  In  a  court  of  equity,  however, 
real  estate  belonging  to  the  firm  is  considered  as  personal  property 
to  this  extent,  at  least:  that  it  is  liable  to  pay  the  debts  of  the  firm, 
and  then  to  distribution  between  the  partners  in  the  same  manner  as 

1  "When  it  Is  said  that  by  the  law  merchant  the  jus  accresceiuli.  or  rifiht 
of  survivorship,  does  not  take  place  amon.s;  partners  in  trade,  it  is  meant  that 
it  does  not  take  place  for  the  exclusive  benefit  of  the  survivor,  as  it  does  iu 
a  joint  tenancy  at  the  common  law,  but  that  the  survivor  holds  the  partner- 
ship fund  for  the  payment  of  the  partnership  debts  and  the  settlement  of  the 
partnership  concerns,  and  the  balance.  If  any.  to  be  distributed  eijuitably 
betweeu  the  representative  of  the  deceased  partner  and  the  survivor."  Per 
Walworth.  C,  in  Egberts  v.  Wood.  3  Paige  (N.  Y.)  517,  o'JO.  24  Am.  Dec.  230. 


268  NATURE  AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

if  it  had  been  personal  instead  of  real  estate.  These  charges  upon 
the  real  estate,  being  prior  to  the  claims  of  tlie  representatives  of  the 
deceased  partner,  override  his  wife's  title  to  dower,  as  well  as  the 
title  of  his  heir  at  law.  The  consequence  is  that  the  heir  at  law  holds 
the  legal  title  subservient  to  or  in  trust  for  the  surviving  partner,  who 
is  charged  with  the  payment  of  the  debts.  These  principles  of  law, 
in  my  opinion,  are  so  well  settled  that  they  are  no  longer  the  subject 
of  controversy.  Story  on  Partn.  127  et  seq. ;  Coll.  on  Partn.  (Per- 
kins' Ed.)  183-185;  Pugh  v.  Currie,  5  Ala.  446;  Pierce  v.  Trigg,  10 
Leigh  (Va.)  406;  Delmonico  v.  Guillaume,  2  Sandf.  Ch.  (N.  Y.) 
366;  Dyer  v.  Clark,  5  Mete.  (J^Iass.)  562,  39  Am.  Dec.  697;  Ripley 
V.  Waterworth,  7  Ves.  425 ;    Dale  v.  Hamilton,  5  Hare,  369. 

Inasmuch  as  the  real  estate  is  considered  as  personal  for  the  pur- 
pose of  paying  the  debts  of  the  firm,  and  the  surviving  partner  is 
charged  with  the  duty  of  paying  those  debts,  it  must  of  necessity  fol- 
low that  he  has  the  right  in  equity  to  dispose  of  the  real  estate  for  this 
purpose ;  for  it  would  never  do  to  charge  him  with  the  duty  of  pay- 
ing the  debt,  and  at  the  same  time  to  take  from  him  the  means  of  doing 
it.  Therefore,  although  he  cannot  by  his  deed  pass  the  legal  title 
to  the  purchaser,  which  descended  to  the  heir  of  the  deceased  partner, 
yet,  as  the  heir  holds  the  title  in  trust  to  pay  the  debts,  and  the  sur- 
vivor is  charged  with  this  duty,  his  deed  will  convey  this  equity  to  his 
purchaser,  and  through  it  he  may  call  on  the  heir  for  the  legal  title 
and  compel  him  to  convey.  See  Delmonico  v.  Guillaume  and  Dyer  v. 
Clark,  supra. 

Applying  these  principles  to  the  facts  exhibited  by  the  pleadings 
and  proof  in  the  case  before  us  (but  which  we  will  not  state  in  de- 
tail in  this  opinion),  we  can  perceive  no  error  in  the  decree;  for  the 
proof,  we  think,  is  abundant  to  show  that,  although  the  legal  title 
to  the  lands  was  held  by  E.  L.  Andrews  alone,  nevertheless  they  be- 
longed to  the  firm  as  partnership  property,  and  were  so  treated  by  all 
the  members  of  the  firm.  They  never  did  belong  exclusively  to  E.  L. 
Andrews.  Consequently  the  claims  of  the  creditors  of  the  firm  are 
superior  to  his  widow's  right  of  dov/er,  as  well  as  to  the  lep.al  title 
of  his  heirs  at  law.  The  lands  were  purchased  with  the  fuiids  of  E.  L. 
&  Z.  Andrews,  who  were  then  partners,  and  stood  upon  their  books 
as  partnership  property,  and  when  the  new  firm  was  formed,  com- 
posed of  E.  L.  and  Z.  Andrews  and  Thomas  G.  Brown,  these  lands 
were  carried  into  the  new  firm  as  part  of  its  capital,  and  were  there- 
fore partnership  property. 

As  to  the  stocks  purchased  with  the  funds  of  the  new  firm,  it  is 
very  clear  that  they  also  are  subject  to  the  control  and  disposition  of 
the  surviving  partner.  Brown,  notwithstanding  they  stand  on  the 
books  of  the  bank  and  the  insurance  company  in  the  name  of  E.  E. 
Andrews  alone.  In  reference  to  the  money  received  by  Messrs.  Camp- 
bell &  Chandler,  growing,  out  of  the  redemption  of  one  of  the  lots  by 
Mr.  Gliddon,  we  think  it  should  stand  in  the  place  of  the  lot  itself, 


Sec.  8)   EFFECT  OF  DEATH  OF  PARTNER  ON  FIRM  PROPERTY. 


269 


and  consequentlv  subject  to  the  disposition  made  by  Broun  of  the 
lot. 

We  are  satisfied  there  is  no  error  in  the  decree,  and  it  must  be  af- 
firmed. 

I  will  observe,  in  conclusion,  that  we  do  not  intend,  by  anything 
said  in  the  foregoing  opinion,  to  hold  that  a  surviving  partner  is  au- 
thorized to  sell  real  estate  for  the  simple  purpose  of  making  distribu- 
tion amongst  the  partners  themselves  and  their  representatives.  That 
question  is  not  raised  in  the  case,  and  has  not  been  considered.  We 
only  intend  to  decide  this:  The  firm  being  insolvent,  the  surviving 
partner  may  dispose  of  the  whole  property  to  pay  the  debts,  whether 
that  property  consist  of  real  or  personal  estate. 

The  decree  is  affirmed. 


SHANKS  v.  KLEIN. 

(Supreme  Court  of  the  United  States,  1881.    104  U.  S.  18.  20  L.  Ed.  635.) 

Miller,  J.  This  is  a  bill  in  chancery,  filed  by  John  A.  Klein  and 
others  against  David  C.  Shanks,  executor  of  the  last  will  and  testa- 
ment of  Joseph  H.  Johnston.  The  substance  of  the  bill  is  that  in 
the  lifetime  of  Johnston  there  existed  between  him  and  Shepperd 
Brown  a  partnership,  the  style  of  which  was  Brown  &  Johnston; 
that  their  principal  place  of  business  was  at  Vicksburg,  in  the  state 
of  2vlississippi,  where  they  had  a  banking  house;  that  they  had 
branches  and  connections  with  other  men  in  business  at  other  places, 
among  which  was  New  Orleans;  that  they  dealt  largely  in  the  pur- 
chase and  sale  of  real  estate,  of  which  they  had  a  large  amount  in 
value  on  hand  at  the  outbreak  of  the  recent  Civil  War;  that  this 
real  estate  was  in  different  parcels  and  localities,  and  was  bought 
and  paid  for  by  partnership  money,  and  held  as  partnership  property 
for  the  general  uses  of  the  partnership  business;  and  that  early  in 
the  war,  namely,  in  1863,  Johnston  died  in  the  state  of  Virginia,  where 
he  then  resided,  leaving  a  will  by  which  all  his  property,  including 
his  interest  in  the  partnership,  became  vested  in  Shanks,  who  was 
appointed  his  executor. 

It  seems  that  both  Brown  and  Johnston  were  absent  from  [Mis- 
sissippi and  from  New  Orleans  during  the  war;  the  one  being  in 
Virginia  and  the  other  in  Georgia.  Upon  the  cessation  of  hostilities. 
Brown  returned  to  New  Orleans,  and  visited  Vicksburg  to  look  after 
the  business  of  the  firm  of  Brown  &  Johnston  and  the  other  firms 
with  which  that  was  connected.  Finding  that  suits  had  been  com- 
menced by  creditors  of  the  firm  against  him  as  sui-\'iving  partner, 
and  in  some  instances  attachments  levied,  he  became  satisfied  that, 
unless  he  adopted  some  mode  of  disposing  of  the  partnership  prop- 
erty and  applying  its  proceeds  to  the  payment  of  the  debts  in  their 
just  order,  the  whole  would  be  wasted,  or  a  few  active  creditors  would 


270      NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHIP.    (Ch.  3 

absorb  it  all.  Under  these  circumstances,  acting  by  advice  of  coun- 
sel, he  executed  a  deed  conveying  all  the  property  of  tlie  firm  of 
Brown  &  Johnston  to  John  A.  Klein,  in  trust  for  the  creditors  of 
that  partnership,  and  providing  that  the  surplus,  if  any,  should  be  for 
the  use  of  the  partners  and  their  heirs  or  devisees.  Klein  accepted 
the  trust,  and  pursuant  thereto  paid  debts  with  the  lands,  or  with 
the  proceeds  of  the  sale  of  them.     *     *     * 

It  appears  that,  after  all  this  property  had  been  sold  to  purchasers 
in  good  faith.  Shanks,  as  executor  of  Johnston's  will,  instituted  ac- 
tions of  ejectment  against  them.  They  thereupon  filed  this  bill  to  en- 
join him  from  further  prosecuting  the  actions,  and  compel  him  to 
convey  the  legal  title  to  the  real  estate  which  came  to  him  by  the  will 
of  his  testator.  A  decree  was  rendered  in,  conformity  with  the  prayer 
of  the  bill,  and  Shanks  appealed.     *     *     * 

There  is  no  doubt  that  in  the  present  case  all  the  real  estate  which 
is  the  subject  of  this  controversy  is  to  be  treated  as  partnership  prop- 
erty, bought  and  held  for  partnership  purposes,  within  the  rule  of 
equity  on  that  subject.  Nor  is  it  denied  by  the  counsel  who  have  so 
ably  argued  the  case  for  the  appellant  that  the  equity  of  the  creditors 
of  the  partnership  to  have  their  debts  paid  out  of  this  property  is 
superior  to  that  of  the  devisee  of  Johnston.  Their  contention  is  that 
this  right  could  only  be  enforced  by  proceedings  in  a  court  of  justice, 
and  that  no  power  existed  in  Brown,  the  surviving  partner,  to  convey 
the  legal  title  vested  in  Shanks  by  the  will  of  Johnston,  nor  even  to 
make  a  contract  for  the  sale  of  the  real  estate  which  a  court  will  en- 
force against  Shanks  as  the  holder  of  that  title.    * 

Counsel  for  the  appellees,  while  conceding  that  neither  the  deed 
of  Brown  to  Klein,  nor  of  Klein  to  his  vendees,  conveyed  the  legal 
title  of  the  undivided  moiety  which  was  originally  in  Johnston,  main- 
tain that  Brown,  as  surviving  partner,  had,  for  the  purpose  of  paying 
the  debts  of  the  partnership,  power  to  sell  and  transfer  the  equitable 
interest  or  right  of  the  partnership,  and  of  both  partners,  in  the  real 
estate,  that  the  trust  deed  which  he  made  to  Klein  was  effectual  for 
that  purpose,  and  that  by  Klein's  sales  to  the  other  appellees  they  be- 
came invested  with  this  equitable  title  and  the  right 'to  compel  Shanks 
to  convey  the  legal  title. 

One  of  the  learned  counsel  for  the  appellant  concedes  that  at  the 
present  day  the  doctrine  of  the  English  Court  of  Chancery  "extends 
to  the  treating  of  the  realty  as  personalty  for  all  purposes,  and  gives 
the  personal  representatives  of  the  deceased  partner  the  land  as  per- 
sonalty, to  the  exclusion  of  the  heir,"  and  that  the  principle  has  "ac- 
quired a  firm  foothold  in  English  equity  jurisprudence  that  partner- 
ihip  real  estate  is,  in  fact,  in  all  cases,  and  to  all  intents  and  purposes, 
personalty."  He  maintains,  however,  that  the  principle  has  not  been 
carried  so  far  in  the  courts  of  America ;  that  the  extent  of  the  doc- 
trine is  that  the  creditors  of  the  partnership  and  the  surviving  partner 
have  a  lien  on  the  real  estate  of  the  partnership  for  debts  due  by  the 


Sec.  8)       EFFECT  OF  DEATH    OF  PARTNER  ON  FIRM  PROPERTY.  271 

firm,  and  for  any  balance  found  due  to  either  partner  on  a  final  set- 
tlement of  the  partnership  transactions ;  and  that  the  right  of  the 
surviving  partner,  and  of  the  creditors  through  him,  is  no  more  than 
a  lien,  which  cannot  be  asserted  by  a  sale,  as  if  the  property  were  per- 
sonal, but  to  the  enforcement  of  which  a  resort  to  a  court  of  equity 
is  necessary. 

We  think  that  the  error  which  lies  at 'the  foundation  of  this  argu- 
ment is  in  the  assumption  that  the  equitable  right  of  the  surviving 
partner  and  the  creditors  is  nothing  but  a  lien. 

It  is  not  necessary  to  decide  here  that  it  is  not  a  lien  in  the  strict 
sense  of  that  word ;  for,  if  it  be  a  lien  in  any  sense,  it  is  also  some- 
thing more. 

It  is  an  equitable  right,  accompanied  by  an  equitable  title.  It  is 
an  interest  in  the  property  which  courts  of  chancery  will  recognize 
and  support.  What  is  that  right?  Not  only  that  the  court  will,  when 
necessary,  see  that  the  real  estate  so  situated  is  appropriated  to  the 
satisfaction  of  the  partnership  debts,  but  that  for  that  purpose  and  to 
that  extent  it  shall  be  treated  as  personal  property  of  the  partnership, 
and,  like  other  personal  property,  pass  under  the  control  of  the  sur- 
viving partner.  This  control  extends  to  the  right  to  sell  it,  or  so  much 
of  it  as  may  be  necessary  to  pay  the  partnership  debts,  or  to  satisfy 
the  just  claims  of  the  surviving  partner. 

It  is  beyond  question  that  such  is  the  doctrine  of  the  English  Court 
of  Chancery,  as  stated  by  counsel  for  appellant.  As  this  result  was 
reached  in  that  court  without  the  aid  of  any  statute,  it  is  authority 
of  very  great  weight  in  the  inquiry  as  to  the  true  equity  doctrine  on 
the  subject.  We  think,  also,  that  the  preponderance  of  authority  in 
the  American  courts  is  on  the  same  side  of  the  question.     *     *    * 

We  are  of  opinion,  therefore,  that  the  purchasers  from  Klein  ac- 
quired the  equitable  title  of  the  real  estate  conveyed  to  him  by  Brown, 
and  that  they  had  a  right  to  the  aid  of  a  court  of  chancery  to  com- 
pel Shanks  to  convey  the  legal  title  to  the  undivided  half  of  the  land, 
vested  in  him  by  the  will  of  Johnston. 

Decree  affirmed. 


BASSETT  et  al.  v.  MILLER. 

(Supreme  Court  of  Michigan,  1878.     39  Mich.   133.) 

Campbell,  C.  J.  This  case  presents,  as  we  think,  but  one  important 
question,  ""and  that  is  whether  surviving  partners  who  sell  goods  which 
belong  to  their  firm  can  recover  for  their  price  in  their  own  names, 
without  joining  the  representatives  of  the  deceased  partner.  The 
principle  is  well  settled  that  the  entire  legal  estate  vests  in  the  sur- 
vivors, and  no  one  else  can  be  regarded  as  having  any  legal  interest 
in  the  assets.  Barry  v.  Briggs,  22  Mich.  201 ;  Pfeffer  v.  Steiner,  27 
Mich.  537;   Merrin  v.  Dickey,  38  Mich.  41     The  court  erred  in  hold- 


272  NATURE  AND  CHARACTERISTICS  OF  A  PARTNERSHIP.  (Ch.  3 

ing  that  the  survivors  could  not  sue  for  goods  sold  by  them  until  they 
had  an  assignment  or  had  formerly  organized  a  new  firm. 

Judgment  must  be  reversed,  with  costs,  and  a  new  trial  ordered. 


PFEFFER  V.  STEINER. 

(Supreme  Court  of  Michigau,  1873.     27  Mich.  537.) 

Christiancy,  C.  J.  The  plaintiff  in  error,  as  the  surviving  partner 
of  the  firm  of  Emil  Toeser  &  Co.,  brought  his  action  in  the  circuit 
court  for  the  county  of  Wayne  for  a  trespass  committed  by  Steiner 
by  entering  into  a  certain  brick  store  in  the  city  of  Detroit,  which 
plaintiff  and  his  deceased  partner  had  leased  from  the  defendant  for 
a  term  which  had  not  yet  expired. 

The  declaration  was  special,  setting  forth  the  facts  of  the  •  leasing, 
the  death  of  Toeser,  the  other  member  of  the  firm,  on  the  15th  of 
March,  1872,  that  the  firm  was  in  possession  and  use  of  the  property 
at  the  time  of  Toeser's  death,  and  that  plaintiff,  as  sole  surviving  part- 
ner, continued  in  the  lawful  and  peaceable  possession,  and  was  so  in 
possession  at  the  time  of  the  trespass,  April  2,  1872. 

This  declaration  was  demurred  to  on  the  ground  that  the  plaintiff 
had  sued  alone,  and  that  it  appeared  upon  the  face  of  the  declaration 
that  the  representatives  of  the  deceased  partner  should  have  been 
joined  as  coplaintift's.  The  circuit  court  sustained  the  demurrer,  and 
the  plaintiff  brings  the  case  here  by  writ  of  error. 

The  only  ground  upon  which  the  counsel  for  the  defendant  in  error 
relies  in  support  of  the  demurrer  is  that  as  to  choses  in  possession  the 
surviving  partner  is  a  tenant  in  common  with  the  representatives  of 
the  deceased  partner,  for  which  he  cites  1  Parsons  on  Contracts,  202 ; 
Story  on  Part.  §  346,  and  Parsons'  Mercantile  Law.  However  this  may 
be  after  the  partnership  business  has  been  settled  and  its  debts  fully 
paid,  and  when  the  representatives  have  been  let  into  joint  possession 
by  the  surviving  partner,  we  think  it  very  clear  that,  until  the  part- 
nership has  been  thus  settled  and  all  the  debts  paid,  the  representa- 
tives of  the  deceased  partner  have  but  an  equitable  Interest  in  such 
property,  which,  though  in  equity  it  may  make  them  tenants  in  com- 
mon, subject  to  the  debts  of  the  firm  and  a  final  settlement,  does  not 
constitute  them  tenants  in  common  at  law,  and  until  such  settlement 
and  payment  of  all  debts,  at  least,  they  have  no  right  of  possession, 
and  the  right  of  action  at  law  for  any  trespass  upon  or  injury  to  the 
property  is  vested  solely  in  the  surviving  partner.  Whether  this  would 
be  so  after  the  full  settlement  of  the  partnership  and  payment  of  debts, 
until  such  representatives  should  be  let  into  joint  possession,  we  need 
not  decide,  as  this  does  not  appear,  nor  is  there  anything  in  the  declara- 
tion from  which  we  can  infer  any  such  facts.  All  the  allegations  fur- 
nish  an  opposite  inference.     The  demurrer  is  so  clearly  without  any 


Sec.  8)       EFFECT  OF  DEATU    OF  PAIiTNER  ON  FIIIM  PROPERTY.  -  < -^ 

basis  of  law  for  its  support  that  it  would  be  idle  to  cite  authorities  for 
our  conclusion. 

The  circuit  court  erred  in  sustaining  the  demurrer,  and  the  judg- 
ment must  be  reversed,  with  costs. 


STEARNS   V.   HOUGHTON. 
(Supreme  Court  of  Vermont,  186G.    38  Vt.  584.) 

PiERPOiNT,  C.  J.  This  is  an  action  of  trover,  brought  to  recover 
the  value  of  two  notes  executed  by  one  Michael  Sanford. 

From  the  facts  reported  by  the  referee  it  appears  that  prior  to  the 
15th  day  of  April,  1858,  the  plaintiff  and  one  Goodell  were  copartners 
in  the  business  of  running  a  line  of  stages;  that  on  the  said  15th  of 
April  they  sold  out  thei^r  line,  with  a  part  of  the  property  they  had 
used  in  the  business,  to  said  Sanford,  and  that  the  notes  sued  for  in 
this  action  were  a  part  of  the  consideration  given  by  said  Sanford  for 
such  property;  that,  notwithstanding  these  notes  were  taken  payable 
to  Goodell  or  bearer,  they  were  the  joint  property  of  the  plaintiff  and 
said  Goodell,  as  such  copartners;  that  their  copartnership  business 
and  accounts  were  never  settled  between  themselves,  or  the  copartner- 
ship dissolved,  until  it  was  dissolved  by  the  death  of  said  Goodell. 
When  Goodell  died  these  notes  were  in  his  possession,  and  afterwards 
went  into  the  possession  of  the  defendant  as  his  administrator.  Sub- 
sequently the  plaintiff  demanded  the  notes  of  the  defendant,  who  re- 
fused to  deliver  them  to  him,  claiming  the  right  to  hold  them  for  the 
benefit  of  Goodell's  estate. 

It  is  an  elementary  principle  that  on  the  death  of  one  copartner  tlic 
right  to  the  possession  and  control  of  the  partnership  effects  vests  in 
the  survivor.  He  takes  them,  subject  to  the  right  and  duty  of  settling 
and  closing  up  the  copartnership  affairs.  He  alone  has  the  right  of 
disposing  of  the  property  and  of  collecting  and  paying  the  debts.  All 
actions  to  enforce  the  claims  of  the  company  must  be  brought  in  his 
name  as  survivor.  The  right  of  the  survivor  to  the  copartnership 
effects  does  not  in  any  respect  depend  upon  the  question  whether  or 
not,  upon  a  settlement  of  the  business,  there  will  be  funds  m  his  hands 
belonging  to  the  estate  of  the  deceased  copartner.  If  the  company 
i-s  solvent,  there  necessarily  will  be. 

If  the  representative  of  the  deceased  partner  has  reason  to  fear 
that  the  copartnership  funds  will  be  misapplied  or  squandered,  the  aid 
of  the  court  of  chancery  may  be  invoked  to  prevent  such  a  result ;  but 
a  court  of  law  has  no  power  to  interfere  in  that  respect. 

It  is  insisted  that  the  plaintiff  ought  not  to  recover,  because  the 
said  Goodell  had  agreed  that  whatever  he  owed  to  said  Sanford  might 
be  applied  upon  said  notes.  What  might  have  been  the  effect  if  the 
application  had  actually  been  made  in  Goodell's  lifetime,  it  is  not  nec^s- 

GlL.rART.— 18 


274  NATURE   AND   CHARACTERISTICS  OF  A   PARTNERSHIP.  (Ch.  3 

sary  now  to  determine.  It  was  an  agreement  to  apply  the  company 
effects  in  payment  of  his  individual  debt ;  but,  not  having  been  car- 
ried out  by  Goodell,  it  is  quite  clear  that  the  survivor  is  not  bound  by 
the  arrangement.     *     *     * 

Upon  examining  carefully  the  report  of  the  referee,  we  are  unable 
to  find  therein  any  sufficient  reason  why  the  plaintiff  is  not  entitled 
to  recover. 

The  pro  forma  judgment  of  the  county  court  is  reversed,  and  judg- 
ment rendered  for  the  plaintiff  for  the  amount  reported  by  the  referee, 
with  interest  thereon  and  his  cost. 


ADAMS  V.  HACKETT. 
(Supreme  Court  of  New  Hampshire,  1853.     27  N.  H.    289.  59  Am.  Dec.  376.) 

Eastman,  J.  As  we  understand  the  declaration  in  this  case,  it  is 
founded  upon  promises  made  to  the  plaintiff  as  surviving  partner  of 
the  firm  of  J.  G.  Bancroft  &  Co.,  and  as  surviving  partner  of  the  firm 
of  G.  A.  &  J.  O.  Adams,  and  also  upon  promises  to  the  plaintiff  in 
his  individual  capacity.  And  the  objection  is  taken  by  the  defendant 
that  these  are  different  causes  of  action,  which  cannot  be  joined  in 
one  suit. 

We  suppose  the  objection  is,  not  that  the  causes  of  action  are  of 
a  dift'erent  nature,  and  therefore  cannot  be  joined,  but  that  they  ac- 
crue in  different  rights ;  that  is,  that  here  is  a  cause  of  action  in  favor 
of  the  firm  of  J.  G.  Bancroft  &  Co.,  and  another  in  favor  of  G.  A.  & 
J.  Q.  Adams,  and  still  another  in  favor'of  George  A.  Adams  individu- 
ally, and  that  the  three  cannot  be  united  in  one  suit. 

It  is  not  disputed  that  the  plaintiff  is  the  surviving  partner  of  the 
two  firms,  and  it  is  well  settled  that  where  a  firm  consists  of  two  per- 
sons, and  one  of  them  dies,  the  rights  of  action  which  were  vested 
in  the  firm  survive  to  the  remaining  member ;  not  to  him  as  to  an  ad- 
ministrator or  executor,  representing  another  person,  but  as  the  sur- 
vivor of  the  partnership  representing  himself,  and  being  all  that  is 
left  of  the  firm.  The  cause  of  action  is  in  him ;  and  hence  it  has  been 
often  held  that,  in  an  action  at  the  suit  of  a  surviving  partner,  he  may 
include  a  count  for  a  debt  due  to  himself  in  his  own  right,  as  both 
causes  of  action  are  in  him.  Slipper  v.  Stidstone,  5  T.  R.  493 ;  French 
v.  Andrade,  6  Id.  582;  Golding  v.  Vaughan,  2  Chit.  436;  Richards 
v.  Heather,  1  Barn.  &  Aid.  29 ;   Smith  v.  Barrow,  2  T.  R.  476. 

On  the  death  of  one  of  two  or  more  joint  obligees,  promisees,  etc., 
the  action  must  be  brought  by  the  survivor,  or,  if  there  be  more  than 
one,  by  all  the  survivors.  Martin  v.  Krump,  2  Salk.  444 ;  Kemp  v. 
Andrews,  Carth.  170;  Wilton  v.  Hamilton,  1  Bos.  &  Pul.  445;  Cabell 
v.  Vaughan,  i  Saund.  291,  note  4.  The  remedy  at  law  survives  entire 
to  the  surviving  obligee  or  promisee,  who  receives  the  share  of  the 


Sec.  8)   EFFECT  OF  DEATH  OF  PARTNER  ON  FIRM  PROPERTY.      275 

deceased  in  tlic  avails  of  the  suit  as  trustee  to  his  personal  represen- 
tatives, and  must  account  for  it  with  them.  Martin  v.  Crompe,  1  Ld. 
Raym.  340;  West  v.  Skip,  1  Ves.  Sr.  212;  Id.  4oG ;  Toller  on  Execu- 
tors, 155,  163,  444. 

As  it  is  clear,  upon  authority,  that  a  surviving  partner  may,  in  an 
action  brought  by  him  as  such  survivor,  include  in  his  declaration  a 
count  for  a  debt  due  to  himself  in  his  own  right,  no  reason  occurs  to 
us  why  he  may  not  also,  in  the  same  suit,  join  another  count  for  a 
debt  accruing  to  him  as  survivor  of  another  firm.  The  causes  of 
action  are  all  in  him,  and  the  principle  in  the  one  case  must  be  the 
same  as  in  the  other.  This  objection  of  the  defendant  must  therefore 
fail.     *     *     * 

Judgment  for  the  plaintiff. 


^      VALENTINE  et  al.  v.  WYSOR. 

(Supreme  Court  of  Indiana,  1890.    123  Ind.  47,  23  N.  E.  107G,  7  L.  R,  A.  788.) 

Mitchell,  J.  This  suit  was  instituted  by  Emily  E.  Valentine,  Mar- 
tha M.  Little,  Parmelia  R.  Gilbert,  M^ry  E.  Wood,  and  Florence  T. 
Howe,  the  children  and  heirs  at  law  of  John  Jack,  late  of  Delaware 
county,  deceased,  against  Jacob  H.  Wysor.  The  questions  for  deci- 
sion arise  upon  the  complaint,  from  which  we  summarize  the  follow- 
ing facts:  John  Jack,  father  of  the  plaintiffs  below,  died  testate  in 
the  month  of  October,  1859.  At  and  before  that  date,  he  was  in  part- 
nership with  the  defendant,  Jacob  H.  Wysor,  the  two  composing  the 
firm  of  Wysor  &.  Jack.  The  testator  was  also  a  member  of  the  firm 
of  Wysor,  Jack  &  Kline,  which  was  composed  of  the  above-named 
Jacob  H.  Wysor,  John  Jack,  and  William  B.  Kline.  This  last-named 
firm  was  engaged  in  the  milling  business,  and  owned  a  flouring  mill, 
together  with  65  acres  of  land  adjacent;  each  member  being  the  owner 
of  an  undivided  one-third  of  the  business  and  property.  The  business 
of  the  firm  of  Wysor,  Jack  &  Kline  was  in  no  way  connected  with 
that  of  Wysor  &  Jack ;  the  last-named  firm  being  the  owner  of  380 
acres  of  land,  which  constituted  part  of  the  firm  assets,  in  which  each 
partner  had  an  equal  interest.  The  character  of  the  business  of  Wysor 
&  Jack  does  not  distinctly  appear,  but  the  land  owned  by  them  is  treated 
by  both  parties  as  partnership  property.  By  the  first,  second,  and 
third  clauses  of  his  will,  the  testator  appointed  executors  to  carry  the 
will  into  execution,  made  provision  for  his  wife  by  giving  her  a  life 
estate  in  his  real  estate,  and  expressed  a  desire  that  she  should  be  ad- 
mitted into  the  firm,  and  continue  the  business  as  a  partner  with  Wysor 
and  Kline,  his  former  associates  in  the  milling  business.  The  fourth 
and  fifth  clauses  of  his  will  read  as  follows:  [The  executors  are  au- 
thorized to  adjust  all  debts  due  to  and^  from  tiie  testator,  to  settle 
with  testator's  partners  all  firm  affairs,  and  to  sell  so  much  of  testator's 
real  and  personal  estate,  in  such  manner  as  the  executors  think  best, 


LlTli  NATURE   AND   CHARACTERISTICS   OF   A   rARTXERSHIP,  (Ch.  3 

to  satisfy  all  debts  against  the  estate.]     As  to  the  remainder  of  his 
property,  after  the  termination  of  the  life  estate  of  the  widow,  the 
testator  died  intestate.     After  the  testator  died,  Wysor,  as  surviving 
partner  of  the  firm  of  Wysor  &  Jack,  and  Wysor  and  KHne,  as  sur- 
viving partners  of  WVsor,  Jack  &  Kline,  continued  in  possession  of 
the  property  of  their  respective  firms  until  June  25,  1866,  when  the 
executors  of  the  last  will  of  John  Jack,  assuming  to  act  under  the 
provisions  of  the  fourth  and  fifth  clauses  of  the  will,  above  set  out, 
made  a  settlement,  and  entered  into  an  agreement  with  the  defendant, 
Wysor,  whereby,  in  consideration  that  the  latter  agreed  to  pay  the 
indebtedness  of  the  firm  of  Wysor  &  Jack,  and  certain  debts  due  from 
the  testator  to  Wysor,  and  also  to  pay  his  share  of  all  the  unpaid  in- 
debtedness of  Wysor,  Jack  &  Klme,  and  all  other  indebtedness  of  the 
testator,  including  the  cost  of  administration,  and,  in  addition,  con- 
vey certain  property  to  the  widow,  and  secure  to  her  one-third  in- 
terest in  the  property  of  Wysor,  Jack  &  Kline,  free  from  any  debts, 
the  executors  and  widow  agreed  to  convey  to  the  defendant,  Wysor, 
all  the  interest  of  the  testator,  excepting  certain  designated  parcels, 
in  the  real  estate  owned  by  the  firm  of  Wysor  &  Jack.     This  agree- 
ment was  consummated,  and  ^conveyances  were  made,  accordingly,  by 
the  widow  and  executors,  in  June,  1866;    and  it  is  charged  that  the 
defendant  claims,  in  virtue  of  these  conveyances,  to  be  the  sole  owner 
of  the  property,  and  denies  the  title  of  the  plaintiffs.     These  convey- 
ances stood  without  question  until  in  February,  1880,  when  this  suit 
was  instituted. 

It  does  not  appear  from  the  complaint  that  there  was  any  disparity 
between  the  value  of  the  property  conveyed  and  the  amount  of  debts 
assumed,  or  that  the  debts  have  not  been  paid  according  to  the  agree- 
ment, or  that  there  was  any  fraud  or  collusion  between  the  surviving 
partner  and  the  executors,^  or  that  the  latter  were  in  any  way  over- 
reached. It  is  claimed,  however,  that  the  power  of  sale  contained  in 
the  will  did  not  extend  to  the  partnership  real  estate,  except  that  spe- 
cifically mentioned  therein ;  that,  if  it  did,  it  only  authorized  the  execu- 
tors to  sell  the  testator's  interest  in  so  much  thereof  as  remained  after 
full  payment  of  the  partnership  debts.  Moreover,  it  is  claimed  that, 
even  if  the  executors  had  authority  to  sell,  the  transaction,  as  disclosed 
by  the  complaint,  was  not  a  sale,  within  the  meaning  of  the  language 
employed  in  the  will,  and  that,  because  the  sale  was  made  by  the  execu- 
tors without  having  given  notice  of  the  time,  place,  and  terms  of  sale, 
and  without  having  included  the  value  of  the  real  estate  in  the  bond 
given  by  them  when  they  qualified,  the  conveyance  was  invalid  and 
void.  It  is  claimed,  too,  that  Wysor,  being  the  surviving  partner  of  the 
firm  of  Wysor  &  Jack,  was  a  trustee  of  the  partnership  property,  under 
a  duty  to  the  heirs  and  creditors,  and  that  he  was  therefore  incompetent 
to  purchase  and  receive  a  conveyance  from  the  executors.  For  all  these 
reasons,  it  is  urged  that  the  conveyance  is  illegal,  and  ought  to  be  set 
aside,  and  that  an  accounting  of  the  affairs  of  the  firm  of  Wysor  & 


Sec.  8)       EFFECT  OF  DEATH    OF  l'Ai:TN  ER  ON   FIUM    IMlOPEKXr.  277 

Jack  should  be  had;    the  appellants  alleging  their   readiness  to  pay 
whatever  may  be  found  due  the  defendant,  Wysor. 

While  it  is  undoubtedly  true,  as  a  general  rule,  that  an  action  to 
compel  a  surviving  partner  to  account  can  only  be  maintained  by  the 
personal  representative  of  the  deceased  partner,  yet  circumstances  may 
appear  which  create  an  exception  to  the  general  rule,  and  make  it 
proper  that  a  court  of  equity  should  entertain  an  action,  on  behalf 
of  the  heirs.  Where  it  is  shown  that  there  is  a  collusion  between  the 
surviving  partner  and  the  executor^  the  latter  refusing  to  compel  an 
accounting  by  the  former,  or  where  there  has  been  such  dealings  be- 
tween the  two  as  renders  it  probable  that  the  executor  will  not  make 
a  bona  fide  effort  to  secure  an  accounting,  or  other  like  circumstances 
appear,  it  has  been  held  that  the  heirs  may  maintain  the  action.  In 
the  absence  of  special  circumstances,  heirs  have  no  locus  standi  against 
the  surviving  partner.  2  Lindl.  Partn.  494;  Harrison  v.  Righter,  11 
N.  J.  Eq.  389 ;   Hyer  v.  Burdett,  1  Edw.  Ch.  (N.  Y.)  325. 

Assuming,  without  decid'ng,  that  the  facts,  as  pleaded  in  the  present 
case,  make  it  apparent  that  the'  executors  have  placed  themselves  in 
such  an  attitude  towards  the  surviving  partner,  and  the  transaction 
sought  to  be  set  aside,  as  to  bring  the  case  within  the  exception,  it 
becomes  pertinent  to  inquire  whether  or  not  the  appellants,  as  heirs, 
show  any  interest  in  the  property  of  the  late  firm  of  Wysor  &  Jack 
upon  which  to  predicate  an  action.  If  the  executors  had  no  power 
under  the  will  to  sell  and  convey,  or  the  surviving  partner  was  in- 
competent to  purchase,  or  receive  a  conveyance,  or  if,  for  any  of  the 
other  reasons  urged,  the  transaction  between  the  executors  and  the 
surviving  partner  was  illegal,  and  the  conveyance  void,  then  the  prop- 
erty remained  in  the  possession,  and  under  the  qualified  ownership, 
of  the  surviving  partner,  unaffected  by  what  trrnspired.  It  is  familiar 
law  that  a  surviving  partner  has  the  right  to  the  control  and  posses- 
sion of  the  property  of  the  firm,  and  that  he  may  dispose  of  it  in 
order  to  adjust  the  partnership  accounts,  and  is  only  liable  to  the  rep- 
resentatives of  the  deceased  partner  for  what  remains  in  his  hands 
after  the  partnership  affairs  are  settled;  and  there  is  nothing  more 
thoroughly  settled  in  the  law  of  partnership  than  that  the  rights  of 
the  hefrs'of  a  deceased  partner  are  subject  to  the  adjustment  of  all 
claims  between  the  partners,  and  attach  only  to  the  surplus  which  re- 
mains when  the  partnership  debts  are  all  paid,  and  the  affairs  of  the 
firm  wound  up.  Until  all  the  debts  are  paid  the  rights  of  the  heirs 
do  not  attach.  Grissom.v.  Moore,  lOG  Ind.  296,  6  N.  E.  629.  55  Am. 
Rep.  742,  and  cases  cited;  Walling  v.  Burgess,  122  Ind.  299,  22  N.  E. 
419,  23  N  E.  1076,  7  L  R.  A.  481 ;  Deeter  v.  Sellers,  102  Ind.  458, 
1  N.  E.  854.  The  heirs  of  a  deceased  partner  have  no  interest,  as 
such,  in  the  property  of  the  firm.  Their  only  remedy  is  to  compel 
the  surviving  partner  to  acco^int  tor  the  surplus  after  the  settlement 
of  all  the  partnership  liabilities;  and,  ordinarily,  a  court  of  equity 
will  not  entertain  jurisdiction  of  the  aff'airs  of  a  partnership  until  by 


278  NATURE   AND   CHARACTEUISTICS  OF   A   PARTNERSHIP.  (Ch.  3 

its  decree  a  final  adjustment  of  the  business  can  be  effected.    Thomp- 
son V.  Lowe,  111  Ind.  272,  12  N.  E.  476,  and  cases  cited;    Scott  v. 
Searles,  5   Smedes  &  M.    (Miss.)    25;    Rossum  v.   Sinker,   12  Cent. 
Law  J.  205,  and  note.     Now,  while  it  appears  that  the  deceased  part- 
ner was  indebted  to  the  firm,  and  that  the  firm  was  indebted  on  part- 
nership account,  and  that  the  surviving  partner  agreed,  in  considera- 
tion of  the  conveyance  which  is  assailed,  to  pay  these  and  other  debts 
for  which  the  testator's  estate  was  liable,  and  while  it  may  be  inferred 
from  the  facts  alleged  in  the  complaint  that  the  surviving  partner  has 
paid  all  the  debts  of  the  firm  except  what  remains  due  to  himself  on 
the  partnership  account,   it  nowhere  appears   that  the  entire   interest 
of  the  deceased  partner  would  not  be  absorbed  in  the  adjustment  of 
the  partnership  account  with  the  surviving  partner.     Having  averred 
facts  from  which  the  inference  arises  that  the  surviving  partner  has 
paid  all  the  partnership  debts,   and  that  the   estate  of  the  deceased 
partner  is  indebted  to  him,  it  is  essential  to  the  right  of  the  heirs  to 
call  him  to  account  that  they  make  it  appear  that  he  has  in  his  hands 
partnership  property  in  excess  of  the  amount  required  to  reimburse 
himself.     The  averments  in  the  complaint  wholly  fail  to  do  this,  and 
the  conclusion  is  therefore  unavoidable  that  the  complainants  fail  to 
show  such  an  interest  in  the  property  as  entitles  them  to  invoke  the 
aid  of  a  court  of  equity.     This  conclusion  necessarily   follows   from 
the  application  of  the  rule  that  a  surviving  partner  is  entitled  to  the 
custody  and  management  of  the  assets,  unless  it  be  shown  that  he  is 
committing  waste,  or  otherwise  mismanaging  the  affairs  of  the  firm, 
and  is  only  liable  to  the  heirs  or  representatives  of  the  deceased  part- ' 
ner  for  what  remains  after  everything  is  settled  up.     Roys  v.  Vilas, 
18  Wis.  1G9;    Shanks  v.  Klein,  13  Cent.  Law  J.  369;    Anderson  v. 
Ackerman,  88  Ind.  481;    Cobble  v.  Tomlinson,  50  Ind.  550.     *     *     * 
This  brings  us  to  inquire  whether  the  surviving  partner  occupied 
such  a  relation  to  the  property,  and  to  those  concerned,  as  to  disqualify 
him  from  purchasing  the  interest  from  the  executors  of  the  deceased 
partner.     It  is  not  to  be  doubted  that  a  surviving  partner  is  regarded 
as  a  trustee,  primarily  for  the  creditors  of  the  firm,  and,  secondarily, 
for  the  heirs  or  personal  representatives  of  the  deceased  partner  in 
all  that  remains,  or  fairly  ought  to  remain,  after  adjusting'  the  part- 
nership account.     Accordingly,  it  has  been  correctly  laid   down  that 
"the  surviving  partners  are  held  strictly  as  trustees,  and  their  conduct 
in  discharging  their  trust  is  carefully  looked  after,  by  courts  of  equity. 
Thus,  like  other  trustees,  they  cannot  sell  the  property  of  the  firm, 
and  buy  it  themselves ;  nor,  as  the  converse  of  this,  can  they  buy  from 
themselves  property  for  the  firm.     Their  trust  being  to  wind  up  the 
concern,    their    powers    are    commensurate   with    the   trust.     *     *     * 
Their  trust  is  to  wind  up  the  concern  in  the  best  manner  for  all  inter- 
ested, and  therefore  without  unnecessary  delay."     Pars.   Partn.  442; 
Case  V,  Abeel,  1  Paige   (N.  Y.)   393;    Sigourney  v.  Munn,  7  Conn. 
11;    Jones  v.  Dexter,  130  Mass.  380,  39  Am.  Rep.  459.     Being  in  a 


Sec.  8)       Kl  FECT  OF  DEATH    OF  PARTNER  ON   FIRM  PROPERTY.  279 

sense  a  trustee,  the  surviving  partner  cannot,  of  course,  speculate  upon 
the  property  whicli  the  law  commits  to  his  custody,  solely  for  his  own 
advantac^e,  in  disregard  of  the  interest  of  his  cestuis  que  trustent ;  and, 
if  he  makes  profits  out  of  the  trust  property,  in  the  course  of  the  adjust- 
ment of  the  affairs  of  the  partnership,  he  is  held  to  account  to  those  in- 
terested for  their  share.  He  cannot  purchase  the  trust  property  from 
himself,  no  matter  whether  the  attempt  be  made  by  means  of  a  public  or 
private  sale.  This  is  so,  not  only  because  his  duty  as  seller,  and  his 
interest  as  purchaser,  are  in  irreconcilable  conflict,  but  for  the  more 
cogent  reason  that  it  is  indispensable  to  every  legal  contract  of  sale 
and  purchase  that  there  be  two  contracting  parties  competent  to  enter 
into  a  binding  engagement  with  each  other.  Hence,  an  attempt  by  a 
trustee  who  holds  property  in  trust,  whether  he  be  surviving  partner, 
administrator,  or  whatever  his  designation,  to  sell  the  trust  estate  to 
himself,  is  everywhere  held  to  be  void.  Martin  v.  Wyncoop,  12  Ind. 
26().  74  Am.  Dec.  209  ;  Hunsucker  v.  Smith,'  49  Ind.  118 ;  Murphy 
v.  Teter,  56  Ind.  545;  Rochester  v.  Levering,  101  Ind.  562,  4  N.  E. 
203 ;  Nelson  v.  Hayner,  66  111.  487.  In  the  case  of  a  sale  thus  made 
or  attempted,  it  can  well  be  said,  it  is  of  no  avail  to  show  that  the 
trustee  acted  in  good  faith.  Such  transactions  are  poisonous  in  their 
tendencies,  and  violative  of  the  principles  of  public  policy.  They  are 
declared  void,  not  for  the  purpose  of  affording  a  remedy  against  actual 
mischief,  but  to  prevent  the  possibility  of  wrong.  Potter  v.  Smith,  36 
Ind.  231;  Morgan  v.  Wattles,  69  Ind.  261.  These  principles  do  not 
apply  or  control  in  the  case  of  a  sale  made  by  the  personal  represen- 
tative of  a  deceased  partner  to  a  surviving  partner.  No  good  reason 
■can  be  suggested  why  a  surviving  partner  should  be  held  legally  in- 
competent and  absolutely  disqualified  from  becoming  the  purchaser 
of  the  interest  of  his  deceased  partner  in  the  partnership  business  from 
his  properly  authorized  legal  representative,  while  very  many  reasons 
occur  why  such  transactions,  fairly  entered  into,  should  not  only  be  up- 
held, but  encouraged.  Ill  addition,  the  adjudged  cases  firmly  support 
the  right  to 'make  such  sales.  Brown  v.  Slee,  103  U.  S.  828,  2{}  L. 
Ed.  618;  Baird  v.  Baird,  21  N.  C.  524,  31  Am.  Dec.  399 ;  Chambers  v. 
Howell,  11  Beav.  6;  Roys  v.  Vilas,  supra.  In  Kimball  v.  Lincoln,  99 
111.  578,  after  reiterating  the  rule  that  a  surviving  partner  could  not  be- 
come a  purchaser  of  the  firm  property  at  his  own  sale,  nor  from  a  co- 
trustee, the  court  said:  "But  the  reason  that  would  forbid  a  transaction 
of  this  character  has  no  application  to  a  case  where  a  surviving  partner 
purchases  property  from  the  executor  or  administrator  of  the  deceased 
partner,  and  hence  the  rule  which  would  govern  the  one  case  cannot 
control  the  other."  See  Ludlow's  Heirs  v.  Cooper's  Devisees,  4  Ohio 
St.  1.  It  has  thus  been  seen  that  the  executors  had  plenary  power  to 
make  settlement  of  the  partnership  account,  and  to  sell  and  convey  the 
real  and  personal  estate  of  the  testator  at  their  discretion,  and  that 
the  surviving  partner  was  competent  to  negotiate  a  settlement  of  the 


280  XATURE   AND   CHAKACTEUISTICS   OF   A   PARTiNliKSlIIP.  (Cll.  3 

affairs  of  the  firm,  and  to  purchase  the  interest  of  his  deceased  part- 
ner.    *     *     * 

Judgment  for  defendant  affirmed.^ 

1  In  Knox  v.  Gye,  L.  R.  5  H.  L.  G56  (1872),  in  holding  th.nt  an  action  bj-  the 
executor  of  the  deceased  partner  against  the  surviving  partner  was  barred 
by  the  statute  of  limitations,  Lord  Westbury  said:  "In  deciding  this  case, 
it  must  be  recollected  that  the  represeiutative  of  a  deceased  partner  has  no 
specific  Interest  in  or  claim  upon  any  particular  part  of  the  partnership 
estate.  The  whole  property  therein  accrues  to  the  surviving  partner;  and 
he  is  the  owner  thereof,  both  at  law  and  in  equity.  The  right  of  the  deceased 
partner's  representative  consists  in  having  an  account  of  the  property,  of  its 
collection  and  application,  and  in  receiving  that  portion  of  the  clear  balance 
that  accrues  to  the  deceased's  share  and  interest  in  the  partnership.  Another 
source  of  error  in  this  matter  is  the  l(X)seness  with  which  the  word  'trustee' 
is  frequently  used.  The  sun-iving  partner  is  often  called  a  'trustee' ;  but 
the  term  is  used  Inaccurately.  He  is  not  a  trustee,  either  expressly  or  by 
implication.  On  the  death  of  a  partner,  the  law  confers  on  his  representatives 
certain  rights  as  against  the  surviving  partner,  and  imposes  on  the  latter 
correspondent  obligations.  The  surviving  partner  may  be 'called,  so  far  as 
these  obligations  extend,  a  trustee  for  the  deceased  partner;  but,  when 
these  obligations  have  been  fulfilled,  or  are  discharged,  or  terminate  by 
law,  the  supposed  trust  is  at  an  end.  *  •  *  In  like  manner  here  the 
surviving  partner  may  be  called  a  trustee  for  the  dead  man;  but  the  trust 
is  limited  to  the  discharge  of  the  obligation,  which  is  liable  to  be  barred 
by  lapse  of  time.  As  between  the  express  trustee  and  the  cestui  que  trust, 
time  will  not  run;  but  the  surviving  partner  is  not  a  trustee  in  that  full  and 
proper  sense  of  the  word.  *  *  *  There  Is  nothing  fiduciary  between  the 
surviving  partner  and  the  dead  partner's  representative,  except  that  they 
may  respectively  sue  each  other  in  equity.  There  are  certain  legal  rights 
and  duties  which  attach  to  them;  but  it  is  a  mistake  to  apply  the  word 
'trust'  to  the  legal  relation  which  is  thereby  created." 

The  English  partnership  act  of  1890  (section  43)  provides:  "Subject  to  any 
agreement  between  the  partners,  the  amount  due  from  surviving  or  continu- 
ing partners  to  an  outgoing  partner  or  the  representatives  of  a  deceased 
partner  in  respect  of  the  outgoing  or  deceased  partner's  share  is  a  debt  ac- 
cruing at  the  date  of  the  dissolution  or  death." 


Sec.  1)  PARTNERSHIP   LIABILITY.  281 


CHAPTER  IV. 

THE  NATURE,  EXTENT,  AND  DURATION  OF 
PARTNERSHIP  LIABILITY. 


SECTION  1.— NATURE  OF  LIABILITY  IN  CONTRACT. 

I.  Characteristics  of  Joint  Obligations. 


MASON  V.  ELDRED  et  al. 
(Supremo  Court  of  the  United  States,   1867.     6   Wall.  231.   18  L.   Ed.   IST..) 

On  certificate  of  division  between  the  judges  of  the  Circuit  Court 
of  Wisconsin.  The  plaintiff,  Mason,  sued  in  the  Circuit  Court  for 
Wisconsin  Anson  Eldred,  Elisha  Eldred,  and  one  Balcom,  trading 
as  partners,  upon  a  partnership  note  of  theirs.  Process  was  served 
on  Anson  Eldred  alone,  who  alone  appeared  and  pleaded  non  as- 
sumpsit. On  the  trial,  the  note  being  put  in  evidence  by  the  plaintiff, 
Eldred  offered  the  record  of  a  judgment  in  one  of  the  state  courts  of 
Michigan,  showing  that  Mason  had  already  brought  suit  in  that  court 
on  the  same  note  against  the  partnership,  where,  though  Elisha  El- 
dred was  aloiie  served  and  alone  appeared,  judgment  in  form  had  been 
passed  against  all  the  defendants  for  the  full  amount  due  upon  the 
note.  The  evidence  being  objected  to  by  the  plaintiff,  because  not 
admissible  under  the  pleadings,  and  because  it  appeared  on  the  face 
of  the  record  that  there  was  no  judgment  against  either  of  the  de- 
fendants named,  except  Elisha  Eldred,  who  alone,  as  appeared  also, 
was  served  or  appeared,  and  because  it  was  insufficient  to  bar  the 
plaintiff's  action,  the  question  whether  it  was  evidence  under  the  issue 
in  bar  of,  and  to  defeat,  recovery  against  Anson  Eldred,  was  certified 
to  this  court  for  decision  as  one  on  which  the  judges  of  the  Circuit 
Court  were  opposed. 

Eii:ld,  J.  The  counsel  of  the  plaintiff  suggests  that  the  question 
presented  by  the  certificate  of  the  judges  of  the  Circuit  Court  is  di- 
visible into  two  parts:  (1)  Whether  the  record  of  the  judgment  re- 
covered in  Michigan  was  admissible  under  the  pleadings;  and  (2) 
whether,  if  admissible,  the  judgment  constituted  a  bar  to  the  present 
action.  We  think,  however,  that  the  admissibility  of  the  record  de- 
pends upon  the  operation  of  the  judgment. 

If  the  note  in  suit  was  merged  in  the  judgment,  then  the  judgment 


282  PARTNERSHIP   LIABILlTi'.  (Ch.  4 

is  a  bar  to  the  action,  and  an  exemplification  of  its  record  is  admissible; 
for  it  has  long  been  settled  that  under  the  pleas  of  the  general  issue 
in  assumpsit  evidence  may  be  received  to  show,  not  merely  that  the 
alleged  cause  of  action  never  existed,  but  also  to  show  U]at  it  did  not 
subsist  at  the  commencement  of  the  suit.  Young  v.  Black,  7  Cranch, 
Coo,  a  L.  Ed.  440;  Young  v.  Rummcll,  3  Hill  (N.  Y.)  480,  38  Am. 
Dec.  594.  On  the  other  hand,  if  the  note  is  not  thus  merged,  it  still 
forms  a  subsisting  cause  of  action,  and  the  judgment  is  immaterial 
and  irrelevant. 

The  question,  then,  for  determination,  relates  to  the  operation  of 
the  judgment  upon  the  note  in  suit. 

The  plaintiff  contends  that  a  copartnership  note  is  the  several  ob- 
ligation of  each  copartner,  as  well  as  the  joint  obligation  of  all,  and 
that  a  judgment  recovered  upon  the  note  against  one  copartner  is  not 
a  bar  to  a  suit  upon  the  same  note  against  another  copartner ;  and  the 
latter  position  is  insisted  upon  as  the  rule  of  the  common  law,  inde- 
pendent of  the  joint  debtor  act  of  Alichigan. 

It  is  true  that  each  copartner  is  bound  for  the  entire  amount  due  on 
copartnership  contracts,  and  that  this  obligation  is  so  far  several  that, 
if  iie  is  sued  alone  and  does  not  plead  the  nonjoinder  of  his  copartners, 
a  recovery  may  be  had  against  him  for  the  whole  amount  due  upon  the 
contract  and  a  joint  judgment  against  the  copartners  may  be  enforced 
against  the  property  of  each.  But  this  is  a  different  thing  from  the 
liability  which  arises  from  a  joint  and  several  contract.  There  the 
contract  contains  distinct  engagements,  that  of  each  contractor  in- 
dividually, and  that  of  all  jointly,  and  different  remedies  may  be  pur- 
sued upon  each.  The  contractors  may  be  sued  separately  on  their 
several  engagements,  or  together  on  their  joint  undertaking.  But  in 
copartnerships  there  is  no  such  several  liability  of  the  copartners.  The 
copartnerships  are  formed  for  joint  purposes.  The  members  under- 
take joint  enterprises,  they  assume  joint  risks,  and  they  'incur  in  all 
cases  joint  liabilities.  In  all  copartnership  transactions  this  common 
risk  and  liability  exists.  Therefore  it  is  that  in  suits  upon  these 
transactions  all  the  copartners  must  be  brought  in,  except  when  there 
is  some  ground  of  personal  release  from  lial)ility,  as  infancy  or  a  dis- 
chaige  in  bankruptcy;  and,  if  not  brought  in,  the  omission  may  be 
pleaded  in  abatement.  The  plea  in  abatement  avers  that  the  alleged 
promises  upon  which  the  action  is  brought  were  made  jointly  with 
ajiother,  and  not  with  the  defendant  alone, -a  plea  which  would  be 
vvithout  meaning,  if  the  copartnership  contract  was  the  several  con- 
tract of  each  copartner. 

The  language  of  Lord  Mansfield  in  giving  the  judgment  of  the 
King's  Bench  in  Rice  v.  Shute,  Burr.  2511,  "that  all  contracts  with 
partners  are  joint  and  several,  and  every  partner  is  liable  to  pay  the 
whole,"  must  be  read  in  connection  with  the  facts  of  the  case,  and, 
when  thus  read,  does  not  warrant  the  conclusion  that  the  court  in- 
tended to  hold  a  copartnership  contract  the  several  contract  of  each 


Sec.  1)  NATURE    OF   LIABILITY    IN    CONTRACT.  283 

copartner,  as  well  as  the  joint  contract  of  all  the  copartners,  in  the 
sense  in  which  these  terms  are  understood  by  the  plaintiff's  counsel, 
but  only  that  the  obligation  of  each  copartner  was  so  far  several  that 
in  a  suit  aj2:ainst  him  judgment  would  pass  for  the  whole  demand,  if 
the  nonjoinder  of  his  copartners  was  not  pleaded  in  abatement. 

The  plea  itself,  which,  as  the  court  decided,  must  be  interposed  in 
such  cases,  is  inconsistent  with  the  hypothesis  of  a  several  liability. 

For  the  support  of  the  second  position,  that  a  judgment  against  one 
copartner  on  a  copartnership  note  does  not  constitute  a  bar  to  a  suit 
upon  the  same  note  against  another  copartner,  the  plaintiff  relies  upon 
the  case  of  Sheehy  v.  Mandeville  &  Jamesson,  decided  by  this  court, 
and  reported  in  6  Cranch,  254,  3  L.  Ed.  215.  In  that  case  the  plaintiff 
brought  a  suit  upon  a  promissory  note  given  by  Jamesson  for  a  co- 
partnership debt  of  himself  and  Mandeville.  A  previous  suit  had  been 
brought  upon  the  same  note  against  Jamesson  alone,  and  judgment 
recovered.  To  the  second  suit  against  the  two  copartners  the  judg- 
ment in  the  first  action  was  pleaded  by  the  defendant  Mandeville,  and 
the  court  held  that  it  constituted  no  bar  to  the  second  action,  and  sus- 
tained a  (femurrer  to  the  plea. 

The  decision  in  this  case  has  never  received  the  entire  approbation 
of  the  profession,  and  its  correctness  has  been  doubted  and  its  au- 
thority disregarded  in  numerous  instances  by  the  highest  tribunals  of 
different  states.  It  was  elaborately  reviewed  by  the  Supreme  Court 
of  New  York  in  the  case  of  Robertson  v.  Smith,  18  Johns.  459,  9  Am. 
Dec.  227,  where  its  reasoning  was  declared  unsatisfactory,  and  a 
judgment  rendered  in  direct  conflict  with  its  adjudication. 

In  the  Suprerne  Court  of  Massachusetts  a  ruling  similar  to  that  of 
Robertson  v.  Smith  was  made.  Ward  v.  Johnson,  13  Mass.  148.  In 
Wann  v.  McNulty,  2  Oilman,  359,  43  Am.  Dec.  58,  the  Supreme 
Court  of  Illinois  commented  upon  the  case  of  Sheehy  v.  Mandeville 
and  declined  to  follow  it  as  authority.  The  court  observed  that,  not- 
withstanding the  respect  which  it  felt  for  the  opinions  of  the  Supreme 
Court  of  the  United  States,  it  was  well  satisfied  that  the  rule  adopted 
by  the  several  state  courts — referring  to  those  of  New  York,  Mas- 
sachusetts, Maryland,  and  Indiana — was  more  consistent  with  the 
principles  of  law  and  was  supported  by  better  reasons. 

In  Smith  V.  Black,  9  Serg.  &  R.  142,  11  Am.  Dec.  686,  the  Supreme 
Court  of  Pennsylvania  held  that  a  judgment  recovered  against  one  of 
two  partners  was  a  bar  to  a  subsequent  suit  against  both,  though  the 
new  defendant  was  a  dormant  partner  at  the  time  of  the  contract  and 
was  not  discovered  until  after  the  judgment.  "No  principle,"  said  the 
court,  "is  better  settled  than  that  a  judgment  once  rendered  absorbs 
and  merges  the  whole  cause  of  action,  and  that  neither  the  matter  nor 
the  parties  can  be  severed,  unless,  indeed,  where  the  cause  of  action 
is  joint  and  several,  which,  certainly,  actions  against  partners  are  not." 
In  its  opinion  the  court  referred  to  Sheehy  v.  Mandeville.  and  remark- 
ed that  the  decision  in  that  case,  however  much  entitled  to  respect  from 


28i  PARTNERSHIP  LIABILITY.  (Cll.  4 

the  character  of  the  judges  who  composed  the  Supreme  Court  of  the 
United  States,  was  not  of  binding  authority,  and  it  was  disregarded. 
In  King  v.  Hoare,  13  Mees.  &  W.  495,  the  question  whether  a  judg- 
ment recovered  against  one  of  two  joint  contractors  was  a  bar  to  an 
action  against  the  other  was  presented  to  the  Court  of  Exchequer  and 
was  elaborately  considered.  The  principal  authorities  were  reviewed, 
and  the  conclusion  reached  that  by  the  judgment  recovered  the  orig- 
inal demand  had  passed  in  rem  judicatam  and  could  not  be  made  the 
subject  of  another  action.  In  the  course  of  the  argument  the  case  of 
Sheehy  v.  Mandeville  was  referred  to  as  opposed  to  the  conclusion 
reached,  and  the  court  observed  that  it  had  the  greatest  respect  for  any 
decision  of  Chief  Justice  Marshall,  but  that  the  reasoning  attributed 
to  him  in  the  report  of  that  case  was  not  satisfactory.  Mr.  Justice 
Story,  in  Trafton  v.  United  States,  3  Story,  651,  Fed.  Cas.  No.  14,135, 
refers  to  this  case  in  the  Exchequer,  and  to  that  of  Sheehy  v.  Mande- 
ville, and  observes  that  in  the  first  case  the  Court  of  Exchequer  pro- 
nounced what  seemed  to  him  a  very  sound  and  satisfactory  judgment, 
and  as  to  the  decision  in  the  latter  case  that  he  had  for  years  enter- 
tained great  doubts  of  its  propriety. 

The  general  doctrine  maintained  in  England  and  the  United  States 
may  be  briefly  stated.  A  judgment  against  one  upon  a  joint  contract 
of  several  persons  bars  an  action  against  the  others,  though  the  latter 
were  dormant  partners  of  the  defendant  in  the  original  action,  and  this 
fact  was  unknown  to  the  plaintiff  when  that  action  was  commenced. 
When  the  contract  is  joint,  and  not  joint  and  several,  the  entire  cause 
of  action  is  merged  in  the  judgment.  The  joint  liability  of  the  par- 
ties not  sued  with  those  against  whom  the  judgment  is  recovered  being 
extinguished,  their  entire  liability  is  gone.  They  cannot  be  sued  sepa- 
rately, for  they  have  incurred  no  several  obligation.  They  cannot  be 
sued  jointly  with  the  others,  because  judgment  has  been  already  re- 
covered against  the  latter,  who  would  otherwise  be  subjected  to  two 
suits  for  the  same  cause. 

If,  therefore,  the  common-law  rule  were  to  govern  the  decision  of 
this  case,  we  should  feel  obliged,  notwithstanding  Sheehy  v.  Mande- 
ville, to  hold  that  the  promissory  note  was  merged  in  the  judgment  of 
the  court  of  Michigan,  and  that  the  judgment  would  be  a  bar  to  the 
present  action.  But  by  a  statute  of  that  state  (2  Comp.  Laws  ^lich. 
1857,  p.  1219,  c.  133),  the  rule  of  the  common  law  is  changed,  with 
respect  to  judgments  upon  demands  of  joint  debtors,  when  some  only 
of  the  parties  are  served  with  process.  The  statute  enacts  that  ''in 
actions  against  two  or  more  persons  jointly  indebted  upon  any  joint 
obligation,  contract,  or  liability,  if  the  process  against  all  of  the  de- 
fendants shall  have  been  duly  served  upon  either  of  them,  the  defend- 
ant so  served  shall  answer  to  the  plaintiff,  and  in  such  case  the  judg- 
ment, if  rendered  in  favor  of  the  plaintiflf,  shall  be  against  all  the 
defendants  in  the  same  manner  as  if  all  had  been  served  with  process," 
and  that  "such  judgment  shall  be  conclusive  evidence  of  the  liabilities 


Sec.  i)  NATURE    OF    LIABILITY    IN    CONTHACT.  285 

of  the  defendant  who  was  served  with  process  in  the  suit,  or  who  ap- 
peared therein;  but  against  every  other  defendant  it  shall  be  evidence 
only  of  the  extent  of  the  plaintiff's  demand,  after  the  liability  of  such 
defendant  shall  have  been  established  by  other  evidence." 

Judgments  in  cases  of  this  kind  against  the  parties  not  served  with 
process,  or  who  do  not  appear  therein,  have  no  binding  force  upon, 
them  personally.  The  principle  is  as  old  as  the  law,  and  is  of  uni- 
versal justice,  that  no  one  shall  be  personally  bound  until  he  h^s  had 
his  day  in  court,  which  means  until  citation  is  issued  to  him,  and  op- 
portunity to  be  heard  is  afforded.  D'Arcy  v.  Ketchum,  1  How.  HJo, 
13  L.  Ed.  648.  Nor  is  the  demand  against  the  parties  not  sued  merged 
in  the  judgment  against  the  party  brought  into  court.  The  statute 
declares  what  the  effect  of  the  judgment  against  him  shall  be  with 
respect  to  them.  It  shall  only  be  evidence  of  the  extent  of  the  plain- 
tiff's demand  after  their  liability  is  by  other  evidence  established.  It 
is  entirely  within  the  power  of  the  state  to 'limit  the  operation  of  the 
judgment  thus  recovered.  The  state  can  as  well  modify  the  conse- 
quences of  a  judgment  in  respect  to  its  effect  as  a  merger  and  ex- 
tinguishment of  the  original  demand  as  it  can  modify  the  operation  of 
the  judgment  in  any  other  particular. 

A  similar  statute  exists  in  the  state  of  New  York,  and  the  highest 
tribunals  of  New  York  and  Michigan,  in  construing  these  statutes, 
have  held,  notwithstanding  the  special  proceedings  which  they  au- 
thorize against  the  parties  not  served  to  bring  them  afterward  before 
the  court,  if  found  within  the  state,  that  such  parties  may  be  sued  upon 
the  original  demand. 

In  Bonesteel  v.  Todd,  9  Mich.  379,  80  Am.  Dec.  90,  an  action  of 
covenant  was  brought  against  two  parties  to  recover  rent  reserved  up- 
on a  lease.  One  of  them  was  alone  served  with  process,  and  he  ap- 
peared and  pleaded  the  general  issue,  and  on  the  trial,  as  in  the  case 
,at  bar,  produced  the  record  of  a  judgment  recovered  against  himself 
and  his  codefendant  under  the  joint  debtor  act  of  New  York;  process 
in  that  state  having  been  served  upon  his  codefendant  alone.  The 
court  below  held  the  judgment  to  be  a  bar  to  the  action.  On  error 
to  the  Supreme  Court  of  the  state  this  ruling  was  held  to  be  erroneous. 
After  referring  to  decisions  in  New  York,  the  court  said :  "No  one 
has  ever  doubted  the  continuing  liability  of  all  parties.  We  cannot, 
therefore,  regard  the  liability  as  extinguished;  and  inasmuch  as  the 
new  action  must  be  based  upon  the  original  claim,  while,  as  in  the  case 
of  foreign  judgments  at  common  law.  it  may  be  of  no  great  importance 
whether  the  action  may  be  brought  in  form  upon  the  judgment,  or  on 
the  previous  debt,  it  is  certainly  more  in  harmony  with  our  practice 
to  resort  to  the  form  of  action  appropriate  to  the  real  demand  in  con- 
troversy. While  we  do  not  decide  an  action  in  form  on  the  judgment 
to  be  inadmissible,  we  think  the  action  on  the  contract  the  better  rem- 
edy to  be  pursued." 


286  PARTNERSHIP  LIABILITY.  (Ch.  4 

In  Oakey  v.  Aspinwall,  4  Comst.  513,  the  Court  of  Appeals  of  New 
York  had  occasion  to  consider  the  effect  of  a  judgment  recovered  un- 
der the  joint  debtor  act  of  that  state  upon  the  original  demand.  Mr. 
Justice  Bronson,  speaking  for  the  court,  says :  "It  is  said  thqt  the  or- 
iginal demand  was  merged  in  and  extinguished  by  the  judgment,  and 
•consequently  that  the  plaintiff  must  sue  upon  the  judgment,  if  he 
sues  at  all.  '  That  would  undoubtedly  be  so,  if  both  the  defendants  had 
been  before  the  court  in  the  original  action.  But  the  joint  debtor  act 
creates  an  anomaly  in  the  law;  and  for  the  purpose  of  giving  effect 
to  the  statute,  and  at  the  same  time  preserving  the  rights  of  all  parties, 
the  plaintiff  must  be  allowed  to  sue  on  the  original  demand.  There 
is  no  difficulty  in  pursuing  such  a  course.  It  can  work  no  injury  to 
any  one,  and  it  will  avoid  the  absurdity  of  allowing  a  party  to  sue  on 
a  pretended  cause  of  action,  which  is,  in  truth,  no  cause  of  action  at 
all,  and  then  to  recover  on  proof  of  a  different  demand." 

Following  these  authorities,  and  giving  the  judgment  recovered  in 
Michigan  the  same  effect  and  operation  that  it  would  have  in  that 
state,  we  answer  the  question  presented  in  the  certificate  that  the  ex- 
emplification of  the  record  of  the  judgment  recovered  against  the  de- 
fendant Elisha  Eldred,  oft'ered  by  the  defendant  Ahson  Eldred,  is 
not  admissible  in  evidence  in  bar  of,  and  to  defeat,  a  recovery  against 
the  latter.^ 

NORTHERN  INSURANCE  COMPANY  v.  POTTER. 

^Supreme  Court  of  California,  1883.     63  Cal.    157.) 

McKiNSTRY,  J.     The  defendant,  Julius  Jacobs,  and  George  Easton 
were  copartners  doing  business  as  insurance  agents,  and  as  such  were, 
agents  of  plaintiff.     In  March,  1879,  an  account  was  stated  between 
pfaintiff  and  defendant,  Jacobs,  and  Easton,  by  which  a  balance  of^ 
$2,359.02  was  found  due  from  the  three  to  plaintiff. 

In  September,  1879,  Jacobs  and  Easton  paid  to  plaintiff  on  account 
of  such  balance  $1,800.  At  the.  time  of  the  payment  plaintiff  re- 
leased Jacobs  and  Easton  from  all  further  claim  or  liability  with  re- 
spect to  the  indebtedness  of  them  and  defendant,  but  it  was  particu- 

1  "In  most  of  tlie  states  legislative  acts  have  been  passed,  called  'joint 
debtor  acts,'  which,  as  a  substitute  for  outlawry,  provide  that  if  process  be 
issued  against  several  joint  debtors  or  partners,  and  served  on  one  or  more 
of  them  and  the  others  cannot  be  found,  the  plaintilf  may  proceed  agamst 
those  served,  and,  if  successful,  have  judgment  against  all.  Various  effects 
and  consequences  are  attributed  to  such  judgments  in  the  states  in  which  they 
are  rendered.  They  generally  are  held  to  bind  the  common  property  of  the 
joint  debtors  as  well  as  the  separate  property  of  those  served  with  pr(jcess, 
when  such  property  is  situated  in  the  state,  but  not  the  separate  property  of 
those  not  served;  and.  whilst  they  are  binding  personally  on  the  former, 
they  are  regarded  as  either  not  personally  binding  at  all,  or  only  prima 
facie  binding  on  the  latter."  Hall  et  al.  v.  Lauuing  et  al.,  01  U.  S.  160, 
168,  23  L.  Ed.  271  (1875). 


Sec.  1)  NATURE    OF   LIABILITY    IN    CONTRACT.  287 

larly  specified  and  agreed  by  and  between  plaintiff  and  Jacobs  and 
Easton  that  the  release  should  not  operate  or  be  construed  to  release 
or  discharge  the  defendant. 

This  action  is  to  recover  of  defendant  the  part  of  the  said  balance 
$2,3.59.02  unpaid  by  Jacobs  and  Easton.  The  partners  were  joint 
debtors.  Civ.  Code,  §  2442.  Section  1543  of  the  same  Code  provides: 
"A  release  of  one  of  two  or  more  joint  debtors  does  not  extinguish 
the  obligations  of  any  of  the  others,  unless  they  are  mere  guarantors ; 
nor  does  it  affect  their  right  to  contribution  from  him."  Independent 
of  the  Code,  the  release  of  Jacobs  and  Easton  would  not  have  dis- 
charged the  defendant,  because  it  was  expressly  provided  by  the  par- 
ties to  it  that  it  should  not  have  that  effect. 

In  Solly  V.  Forbes,  cited  and  approved  by  Wilde,  C.  J.,  in  Thomp- 
son v.  Lack,  3  Com.  B.  551,  it  was  authoritatively  decided  that  a  re- 
lease of  a  joint  debtor  or  surety  might  be  qualified  and  prevented  from 
operating  a  release  of  a  codebtor  or  surety.  And  Patterson,  J.,  North 
v.  Wakefield,  13  Q.  B.  541,  sajd :  "Now  the  deed  contained  an  ex- 
press clause  that  the  release  to  Goddard  should  not  operate  to  dis- 
charge any  one  jointly  or  otherwise i liable  to  plaintiff  for  the  same 
debts.  It  is  plain,  therefore,  that  it  did  not  release  the  defendant. 
The  reason  why  a  release  to  one  debtor  releases  all  jointly  liable  is. 
unless  it  be  held  to  do  so,  the  co-debtor,  alter  paying  the  debt,  might 
sue  him  who  was  released  for  contribution,  and  so  in  effect  he  would 
not  be  released;  but  that  reason  does  not  apply  when  the  debtor 
released  agrees  to  such  a  qualification  of  the  release  as  will  leave  him 
liable  to  the  rights  of  the  co-debtor." 

As  the  debtors  released  in  the  case  before  us  agreed  to  the  continu- 
ation of  the  right  of  contribution  on  the  part  of  the  defendant,  the  lat- 
ter was  not  discharged. 

Section  1-543  of  the  Civil  Code  seems  to  give  the  same  effect  to  a 
release  in  general  terms  as  was  given  by  the  English  courts  to  the 
qualified  release,  expressly  providing  that  the  joint  debtors  not  men- 
tioned in  the  release  should  not  be  discharged.  The  section  provides 
in  effect  that  the  joint  debtor  who  accepts  a  release  shall  be  held  to 
have  consented  that  the  liability  of  his  joint  debtor  should  be  con- 
tinued, together  with  his  own  liability  to  contribution.  It  is  enough 
for  the  present  case,  however,  to  decide  that  defendant  was  not  dis- 
charged by  the  release  of  Jacobs  and  Easton. 

Judgment  affirmed. 


288  PARTNERSHIP  LIABILITY.  (Ch.  4 


II.  Partnership  Liability  and  Joint  Liability. 

WHELAN  V.  SHAIN  et  al. 

(Supreme  Court  of  California,   1896.     115  Cal.  32G,   47  Pac.  57.) 

Action  by  R.  I.  Whelan,  sheriff,  to  determine  the  rights  of  Joseph 
E.  Shain  and  J.  S.  Reid  as  claimants  of  a  fund  arising  from  execution 
sale.  From  a  judgment  in  favor  of  the  defendant  Reid,  the  defend- 
ant Shain  appeals. 

Belcher,  C.     On  January  5,  1895,  the  defendant  Joseph  E.  Shain 
commenced  an  action  against  William  Binz  and  L.  Martella  upon  their 
joint  promissory  note,  signed:  "Wm.  Binz.    L.  ^lartella"— and  caused 
to  be  attached  certain  personal  property  belonging  to  a  copartnership 
of  which  they  were  the  only  members.     On  January  16,  1895,  j'udg- 
ment  was  entered  in  the  action  that  he  "have  and  recover  from  L. 
Martella  and  William   Binz,   defendants,"  the  sum  of  $1,410.60,  as 
prayed  for.    On  January  8,  1895,  the  defendant  J.  S.  Reid  commenced 
an  action  against  the  same  defendants  as  copartners,  doing  business 
under  the  firm  name  of  Binz  &  Martella,  upon  certain  partnership 
obligations,   and   caused  to  be  attached  the  same  property  that  had 
been  attached  by  Shain.    On  January  22,  1895,  judgment  was  entered 
that  he  "have  and  recover  from  William  Binz  and  Lawrence  INIartella, 
copartners,"  the  sum  of  $986.48,  as  prayed  for.     Under  executions 
issued  on  both  of  the  said  judgments  the  plaintiff,  Whelan,  as  sheriff, 
sold  the  said  attached  property  for  the  sum  of  $1,200,  and,  after  de- 
ducting his  proper  fees  and  charges,  there  was  left  in  his  hands  the> 
sum  of  $1,059.     Shain  and  Reid  each  claimed  and  demanded  of  the 
plaintiff  that  the  proceeds  of  the  said  sale  be  applied  in  satisfaction  of 
his  judgment,  and  the  plaintiff,  being  uncertain  as  to  how  the  money 
should  be  applied,  commenced  this  action,  setting  forth  the  facts,  and 
asking  that  the  defendants  be  required  to  interplead  and  set  up  their 
respective  rights  to  the  money  in  his  possession,  and  that  the  matter 
be  determined  by  the  court.     And  subsequently,  with  the  consent  of 
the  parties  and  under  an  order  of  court,  plaintiff  paid  the  money  into 
court.     The  defendants  answered  the  complaint,  each  setting  up  his 
claim  and  right  to  the  money  as  against  his  codefendant.     Upon  the 
issues  thus  framed  the  case  was  tried,  it  being  admitted,  during  the 
trial,  that  the  property  sold  was  the  partnership  property  of  Binz  & 
Martella.     The  court  found  the  facts  and  gave  judgment  in  favor  of 
defendant  Reid,  from  which  judgment  and  an  order  denying  his  mo- 
tion for  a  new  trial  defendant  Shain  appeals. 

The  law  is  well  settled  in  this  state  that  partnership  property  must 
first  be  applied  to  the  payment  of  partnership  debts.  "The  debts  of 
a  partnership  must  be  discharged  from  the  joint  property  before  any 
portion  of  it  can  be  applied  to  the  individual  debts  of  the  partners." 
Chase  v.  Steel,  9  Cal.  64.     "The  fact  that  an  individual  creditor  ob- 


Sec.  1)  NATURE    OF   LIABILITY   IN   CONTRACT.  289 

tains  judgment,  issues  execution,  and  levies  on  firm  property,  gives 
him  no  right  to  the  property  as  against  firm  creditors  who  have  not 
obtained  judgment."  Conroy  v.  Woods,  13  Cal.  C?G,  73  Am.  Dec. 
605.  "It  has  been  repeatedly  decided  by  this  court  that  the  creditors 
of  a  partnership  are  entitled  to  a  preference  over  the  creditors  of  the 
individual  partners  in  the  payment  of  their  debts  out  of  the  partner- 
ship property,  or  moneys  arising  therefrom,  without  regard  to  the 
priority  of  attachment  liens."  Bullock  v.  Hubbard,  23  Cal.  501,  83 
Am.  Dec.  130.  And  see,  also,  Jones  v.  Parsons,  25  Cal.  100;  Robin- 
son v.  Tevis,  38  Cal.  611 ;  California  Furniture  Co.  v.  Halsey,  54  Cal. 
315,  and  Commercial  Bank  v.  Mitchell,  58  Cal.  42.  In  his  answer 
Shain  alleged,  on  his  information  and  belief,  in  substance,  that  the  note 
on  which  he  obtained  judgment  was  executed  by  Binz  &  ^lartclla  as 
copartners,  and  was  a  partnership  contract  and  obligation,  and  that 
the  money  received  thereon  from  the  payee  was  invested  and  used 
in  and  about  the  partnership  business,  and  in  furtherance  of  its  ob- 
jects. The  court,  however,  found  against  him  on  this  issue,  to  the  effect 
that  the  said- note  was  not  executed  by  Binz  &  Martella  as  copartners 
and  was  not  a  partnership  obligation,  and  that  the  money  obtained 
thereon  was  not  invested  or  used  in  or  about  the  said  partnership  busi- 
ness, or  in  furtherance  of  its  objects,  ''but  that  the  obligation  to  pay 
said  sum  was  the  obligation  of  William  Binz  and  L.  Martella  as  in- 
dividuals, and  not  otherwise."  There  was  evidence  tending  to  sup- 
port this  finding ;  but,  if  it  were  otherwise,  under  the  law  laid  down 
in  Bank  v.  Mitchell,  supra,  the  result  would  not  be  changed.  The 
court  below  was  right,  therefore,  in  adjudging  that  respondent  Reid 
was  entitled  to  have  the  said  money  first  applied  to  the  payment  of 
his  judgment.  The  judgment  and  order  appealed  from  should  be 
affirmed. 


CITIZENS'  BANK  OF  PERRY  v.  WILLIAMS  et  al. 

(Court  of  Appeals 'of  New  York,  1891.     12S  N.  Y.  77,  28  N.  E.  3S.  20  Am.  St. 

Rep.  454.) 

Earl,  J.  The  defendants  were  copartners  in  the  mercantile  busi- 
ness at  Perry,  Wyoming  county,  under  the  firm  name  of  Williams  & 
Co.,  and  in  their  firm  name  they  executed  a  note  to  the  plaintiff  fof 
borrowed  money.  It  commenced  this  action,  and  obtained  an  attach- 
ment against  them  on  the  ground  that  they  had  assigned  their  property 
with  intent  to  defraud  their  creditors.  They  made  a  motion  to  set 
aside  the  attachment,  based  upon  the  same  papers  upon  which  it  was 
granted,  and  the  motion  was  denied  at  the  Special  Term,  and  the  de- 
cision there  was  affirmed  at  the  General  Term,  and  then  the  defend- 
ants appealed  to  this  court.  The  allegation  of  fraud  against  the  de- 
fendants is  based  upon  the  following  facts :  At  the  time  the  defend- 
ants became  partners,  Helen  A.  Williams  owed  E.  M.  Clark  about 
Gil.  Part.— 19 


290  PARTNERSHIP  LIABILITY.  (Ch.  4 

$800,  and  for  that  indebtedness  they  gave  him  their  two  joint  and  sev- 
eral promissory  notes,  signed  by  them.  L.  Sophia  WiUiams,  however, 
bigned  the  notes  simply  as  surety  for  Helen  A.  Williams,  who  was 
and  remained  the  principal  debtor.  Thereafter,  in  February,  1890, 
the  defendants  having  become  insolvent  both  as  a  firm  and  as  individ- 
uals, executed  a  general  assignment  of  all  their  firm  and  individual 
property  for  the  benefit  of  their  creditors,  in  which  they  directed  the 
two  notes  held  by  Clark  to  be  paid  out  of  the  proceeds  of  the  firm 
property;  and  the  fraud  alleged  by  the  plaintiff  consists  in  this  direct 
tion  the  claim  being  that  the  notes  were  not  firm  debts,  but  the  indi- 
vidual debts  of  Helen  A.  Williams,  for  which  L.  Sophia  Williams  was 
only  surety,  and  that,  therefore,  it  was  necessarily  a  fraud  in  law  up- 
on the  firm  creditors  to  appropriate  the  proceeds  of  firm  property  for 
their  payment.  We  think  the  learned  courts  below  fell  into  error  in 
granting  and  upholding  the  attachment  upon  the  grounds  specified. 
These  notes  were  joint  debts  of  the  defendants  for  which  they  were 
jointly  hable  to  Clark,  and  it  was  therefore  not  a  fraud  to  appropriate 
their  joint  property  for  their  payment.  Clark  could  have  recovered 
a  judgment  upon  the  notes  against  the  defendants,  and  could,  by  ex- 
ecution, have  seized  the  firm  property  to  satisfy  the  judgment,  and  a 
purchaser  at  the  execution  sale  would  have  obtained  a  full  and  abso- 
lute title  to  the  firm  property  purchased.  Although  the  defendants 
were  insolvent,  they  could  have  paid  these  debts  either  in  money  or  in 
property  belonging  to  the  firm,  and  in  so  doing  they  would  have  per- 
petrated no  fraud  upon  their  creditors.  As  they  could  thus  pay  the 
debts,  either  with  firm  money  or  firm  property,  we  cannot  perceive 
why  they  could  not,  through  an  assignee,  direct  the  same  debts  to  be 
paid  out  of  the  proceeds  of  the  firm  property.  It  certainly  cannot 
be  a  fraud  upon  firm  creditors  to  apply  firm  property  to  the  payment 
of  debts  for  the  satisfaction  of  which  such  property  could  be  taken. 
It  is  a  mistake  to  suppose  that  the  firm  property  is  now  in  the  hands 
of  a  court  of  equity  for  distribution  and  application  upon  equitable 
principles.  No  suit  whatever  is  pending  in  equity,  and  no  application 
has  been  made  to  a  court  of  equity  in  reference  to  the  firm  property. 
The  defendants  have  made  an  assignment  of  their  firm  property  au- 
thorized by  law,  and  the  assignee  is  to  dispose  of  it,  not  in  accordance 
with  the  directions  of  any  court,  but  in  precise  accordance  with  the 
terms  and  conditions  of  the  assignment.  It  may  be  that  if  these  firm 
assets  were  to  be  administered  in  a  court  of  equity,  according  to  equit- 
able principles,  the  court  would  direct  the  firm  debts  to  be  paid  before 
these  debts  to  Clark,  although  it  is  not  certain  that  it  would  do  so, 
and  it  is  not  now  necessary  to  determine  whether  it  would  or  not. 
Hoare  v.  Oriental  Bank  Corp.,  L.  R.  2  App.  Cas.  589.  These  defend- 
ants, being  jointly  liable  to  Clark,  have  themselves  provided  that  his 
claims  shall  be  paid  out  of  the  firm  assets,  and  there  is  no  room  for  the 
interference  of  any  court.  As  between  him  and  them,  his  claim  upon 
the  firm  property  is  just  as  meritorious  and  equitable  as  the  claim  of 


Sec.  1)  NATURE   OF   LIABILITY   IN    CONTRACT.  291 

firm  creditors.  After  the  execution  of  the  assignment,  and  the  provi- 
sion made  therein  for  the  payment  of  these  debts,  L.  Sophia  Wilhams 
had  no  equiialjle  claim  that  the  firm  property  should  not  be  applied 
precisely  as  she  had  directed  that  it  should  be  applied.  Hence,  on  the 
principles  of  subrogation,  the  firm  creditors  can  take  no  equity  from 
her  which  they  can  enforce  against  the  firm  property,  upon  principles 
laid  down  in  the  case  of  Saunders  v.  Reilly,  105  N.  Y.  12,  12  N.  E. 
170,  59  Am.  Rep.  472,  and  cases  therein  cited.  If  these  notes  had 
been  the  individual  debts  of  Helen  A.  Williams,  for  which  L.  Sophia 
Williams  was  in  no  way  liable,  then  the  provision  in  the  assignment 
for  their  payment  out  of  firm  assets  would  have  been  a  fraud  upon  the 
tirm  creditors,  within  the  case  of  Wilson  v.  Robertson,  21  N,  Y.  587. 
The  ground  of  that  decision  was  that  the  joint  property  was  appro- 
priated for  the  payment  of  an  individual  debt  of  one  of  the  members 
of  the  firm  for  wdiich  the  other  member  was  in  no  way  liable.  But  no 
case  can  be  found  holding  that  it  is  a  fraud  upon  the  firm  creditors 
for  the  members  of  a  firm  to  appropriate  the  firm  property  to  the  pay- 
ment of  debts  for  which  they  are  all  liable.  It  is  never  a  fraud  upon 
the  creditors  of  any  person  to  appropriate  his  property  for  the  pay- 
ment of  a  debt  for  which  he  is  liable ;  and  so  one  who  is  jointly  liable 
with  others  as  a  member  of  a  firm,  or  otherwise,  may  appropriate  his 
individual  property,  for  the  payment  of  a  joint  debt,  for  the  reason 
that  he  is  liable  to  pay  the  joint  debt,  and  his  property  could  be  seized 
by  virtue  of  an  execution  issued  upon  a  judgment  for  the  joint  debt 
to  satisfy  the  same.  Crook  v.  Rindskopf,  105  N.  Y.  476,  12  N.  E. 
174.  No  benefit  or  ultimate  advantage  is  secured  to  L.  Sophia  Wil- 
liams by  the  appropriation  of  the  firm  property  for  the  payment  of 
debts  which,  as  between  her  and  Helen  A.  Williams,  are  the  debts  of 
the  latter.  Upon  payment  of  these  debts,  there  will  be  in  the  hands  of 
the  assignee  a  claim  for  the  reimbursement  of  the  firm  against  the  in- 
dividual estate  of  Helen  A.  Williams.  That  claim  will  be  in  the  hands 
of  the  assignee,  to  be  administered  and  disposed  of  under  the  assign- 
ment, and  no  benefit  therefrom  can  come  to  either  member  of  the  firm 
until  after  the  payment  of  all  the  firm  and  individual  debts.  We  there- 
fore see  no  reason  to  doubt  that  the  assignment  was  valid  and  free 
from  the  imputation  of  fraud.  The  orders  of  the  General  and  Special 
Terms  should  be  reversed,  and  the  motion  granted,  with  costs  in  all 
the  courts,  and  $10  costs  of  the  motion. 


292  PARTNERSniP  LIABILITY.  (Ch.  4 


III.  Quasi  Severable  Character  in  Equity. 
THORPE  V.  JACKSON. 

(Court  of  Exchequer,  1837.     2  Y.  &  C.  553.) 

Alderson,  B.  This  was  a  demurrer  to  the  plaintiff's  bill  on  two 
grounds :    First,  for  want  of  equity ;   secondly,  for  want  of  parties. 

The  first  is  the  only  material  question.  The  bill  is  filed  by  the  pub- 
lic officer  of  the  Northern  &  Central  Bank  of  England  against  four 
defendants,  viz.,  Thomas  Jackson  and  Luke  Trotter,  the  executors  of 
Edmund  Hamer,  deceased,  and  James  Lomax  and  Patrick  Magee, 
two  of  the  surviving  partners  of  the  said  Edmund  Hamer.  The  facts 
stated  in  the  bill  are  that  Hamer,  Lomax,  and  Magee,  together  with 
one  William  Dakin,  who  is  stated  since  to  have  become  wholly  in- 
solvent, opened  a  banking  account  jointly  with  the  bank,  paid  in  mon- 
eys from  time  to  time,  and  received  advances;  that  at  the  time  of 
Hamer's  death  they  were  indebted  to  the  Northern  &  Central  Bank 
in  a  considerable  sum  on  their  joint  banking  accotmt;  and  that  Hamer 
died,  leaving  Jackson  and  Trotter  his  executors,  who  were  possessed 
of  assets  sufficient  for  the  payment  of  this  debt  after  discharging  all 
their  testator's  separate  debts.  The  bill  prays  an  account  against  the 
defendants,  and  that  the  executors  of  Hamer  may  pay  the  same,  when 
ascertained,  out  of  the  assets  in  their  hands.  To  this  bill  there  is  a 
demurrer  for  want  of  equity,  on  the  ground  that  this  debt  survived 
at  law,  and  that  there  is  no  claim  in  equity  against  the  representatives 
of  the  deceased  party. 

After  looking  through  all  the  cases  referred  to  in  the  argument, 
I  have  come  to  a  different  conclusion,  and  think  that,  as  to  this  point, 
the  demurrer  must  be  overruled.  I  take  the  rule  to  be  as  laid  down 
by  Lord  Eldon  in  Ex  parte  Kendall,  17  Ves.  525,  namely :  "That  where 
a  man  has  chosen  to  take  the  joint  contract  of  several,  though  at  law 
his  security  is  wearing  out  as  each  of  his  debtors  dies,  yet  it  is  fit  that 
the  creditor,  whose  debt  remains  at  law  only  against  the  survivors, 
should  resort  to  the  assets  of  a  deceased  debtor;  and  a  court  of  equity 
will,  under  certain  modifications,  constitute  that  demand."  Now,  in 
this  proposition,  I  find  no  trace  of  the  distinction,  set  up  in  the  course 
of  the  argument,  that  such  debt  must  be  a  mercantile  debt  incurred 
by  joint  traders.  Nor  can  I  perceive  why  that  should  be  so.  It  is  true 
that  the  question  has  most  frequently  arisen  in  such  cases.  But  this 
would  naturally  occur;  for  courts  of  equity,  as  stated  in  Gray  v.  Chis- 
well,  9  Ves.  118,  by  Lord  Eldon,  have,  in  establishing  the  rule,  acted 
upon  the  intention  of  the  parties,  and  in  all  mercantile  transactions  such 
intention  is  more  obvious,  for  such  contracts  by  the  mercantile  law  are 
joint  and  several.  But  in  Cowell  v.  Sikes,  1  Russ.  191,  the  two  joint 
debtors  were  not  partners  in  any  trade,  and  yet  the  decision  there  was 
that  the  creditor  might  recover  against  the  deceased  partner's  effects. 


I 


SeO,  J)  NATURE   OF   LIABILITY    IN    CONTRACT.  293 

It  is  said  that  in  Sleach's  Case,  1  ?vlcr.  5G4,  Sir  \V.  Grant  has  decided 
upon  the  distinction  now  contended  for.  I  do  not  apprehend  this  to 
have  been  the  case.  He  says,  indeed,  that  by  the  mercantile  law  a  part- 
nership contract  was  several  as  well  as  joint,  and  then  he  adds  that  this 
may  probably  be  the  reason  why  courts  of  equity  have  considered  joint 
contracts  of  this  sort  (that  is,  contracts  joint  in  form)  as  standing  on  a 
different  footing  from  others.  I  conceive,  therefore,  that  partnership 
trading  debts  are  only  orfe,  and  that  the  most  frequent,  case  of  the 
general  rule,  which  is  that,  wherever  a  court  of  equity  sees  that  in  a 
contract  joint  in  form  the  real  intention  of  the  parties  is  that  it  shall 
be  joint  and  several,  it  will  give  effect  to  such  intention.  Xow,  I 
think  that  a  contract  for  a  loan  of  money,  giving  to  the  creditor  the 
benefit  of  the  security  of  several  persons,  is  of  that  description.  Here 
it  is  a  loan  of  money  by~ bankers  to  certain  persons,  their  joint  cus- 
tomers. Is  it  not  obviously  the  intention  of  both  parties  that  the 
property  of  all  shall  be  responsible  for  the  money  thus  obtained?  In 
the  case  of  Simpson  v.  Vaughan,  2  Atk.  31,  Lord  Hardwicke,  upon 
this  obvious  intention,  corrected  the  mistake  in  the  joint  bond.  Then 
the  question  arises  whether  this  equity  exists  until  after  all  the  sur- 
viving contractors  have  been  found  incapable  of  paying  the  amount. 
I  think  that  question  concluded  by  the  case  of  Wilkinson  v.  Hender- 
son, 1  M.  &  K.  583,  to  the  reasons  of  which  I  fully  accede. 

The  other  question  raised  upon  the  present  demurrer  is  whether 
Dakin  ought  not  to  have  been  joined  as  a  party  to  this  suit.  I  think 
he  ought.  In  the  first  place,  it  is  not  sufficiently  stated  whether  his 
insolvency  is  of  a  permanent  description ;  and,  secondly,  he  is  at  all 
events  interested  in  taking  the  account  as  to  the  amount  of  the  joint 
debt,  although  it  is  true  no  decree  can  be  made  against  him,  nor 
against  the  two  solvent  partners. 

Demurrer  for  want  of  equity  overruled.  Demurrer  for  want  of 
parties  allowed. 


KENDALL  et  al.  v.  HAMILTON. 

(House  of  Lords.  1879.    L.  R,  4  App.  Cas.  504.)i 

The  plaintiflfs,  Kendall  and  others,  in  consequence  of  contracts  made 
with  the  firm  of  Wilson  &  McLay,  accepted  certain  bills  and  entered 
into  other  transactions,  the  result  of  which  was  that  a  large  sum  was 
owing  to  them  from  said  firm.  They  brought  several  actions  against 
Wilson  &  McLay  to  recover  this  indebtedness  and  obtained  judgments 
in  their  favor.  These  judgments  were  not  satisfied.  Wilson  &  Mc- 
Lay being  in  bankruptcy,  the  plaintiflfs  proved  their  claims  in  the  bank- 
ruptcy proceedings  and  received  a  small  dividend.  The  plaintiflfs, 
subsequently  learning  for  the  first  time  that  the  defendant  Hamilton 

t  The  eoncurrine:  opinions  of  Hatliorley.  O'Hasau,  Blnclcburn,  and  Gordaa. 
LL.,  and  the  dissenting  opinion  of  rcnzanrc.  L..  are  omitted. 


294  PARTNERSHIP  LIABILITY.  (Ch.  4 

was  a  partner  with  Wilson  &  IMcLay  in  the  transactions  in  which  they 
had  made  their  advances,  brought  action  against  Hamilton,  seeking 
to  hold  him  jointly  liable  for  said  indebtedness.  In  the  trial  court 
judgment  was  given  for  plaintiffs.  On  appeal  this  judgment  was  re- 
versed. From  this  judgment  of  the  reversal  the  present  appeal  was 
taken  to  the  House  of  Lords. 

Cairns,  L.  C.  (after  disposing  of  the  case  against  the  plaintiffs  on 
the  ground  of  agency).  My  Lords,  if  the  view  which  Ihave  taken  of 
the  facts  and  of  the  law  applicable  to  them  is  correct,  it  is  not  neces- 
sary to  look  at  Wilson,  ]\IcLay,  and  Hamilton  in  the  position  of  co- 
contractors  ;  but,  looking  at  them  in  this  light,  I  must  say  that  the 
case  of  King  v.  Hoare,  13  M.  &  W.  494,  appears  to  me  to  have  been 
decided  on  satisfactory  grounds.  It  is  the  right  of  persons  jointly  li- 
able to  pay  a  debt  to  insist  on  being  sued  together.  If,  then,  there 
are  three  persons  so  liable,  and  the  creditor  sues  two  of  them,  and 
those  two  make  no  objection,  the  creditor  may  recover  judgment  against 
those  two.  But,  should  he  afterwards  bring  a  farther  action  against 
the  third,  that  third  may  justly  contend  that  the  three  should  be  sued 
together.  It  is  no  answer  to  him  to  say  that  the  other  two  were  first 
sued  and  made  no  objection,  for  the  objection  is  the  objection,  of  the 
third,  and  not  of  the  other  two.  Nor  is  it  any  answer  to  him  to  say 
that  whatever  he  pays  on  the  judgment  against  himself  he  may  have 
allowed  in  account  with  the  others,  because  he  may  fairly  require, 
with  a  view  to  his  right  of  account  or  contribution,  to  have  the  iden- 
tity and  the  amount  of  the  debt  constituted  and  declared  in  one  and 
the  same  judgment  wdth  his  co-contractors.  If,  therefore,  when  the 
third  is  sued,  and  requires  that  the  other  two  should  be  joined  as  par- 
ties, the  creditor  has  to  admit  that  he  cannot  join  the  other  two  be- 
cause he  has  already  recovered  a  judgment  against  them  in  the  same 
cause  of  action,  this  is  equivalent  to  saying  that  he  has  disabled  him- 
self from  suing  the  third  in  the  way  in  which  the  third  has  a  right  to 
be  sued.^ 

It  has  been  suggested  that,  even  assuming  the  case  of  King  v.  Hoare, 
13  M.  &  W.  494,  to  have  been  rightly  decided,  the  law  as  laid  down  in 
that  case  has  been  altered  by  the  judicature  acts  and  by  the  abolition 

2  "The  doctrine  of  law  regarding  merger  is  perfectly  intelligible.  Where 
security  of  one  kind  or  nature  has  been  superseded  by  a  security  of  a  higher 
kind  or  nature,  it  is  reasonable  to  insist  that  the  party  seeking  redress 
should  rest  upon  the  latter,  and  not  fall  back  on  the  former.  In  like  man- 
ner, when  that  which  was  originally  only  a  right  of  action  has  been  advanced 
into  a  judgment  of  a  court  of  record,  the  judgment  is  a  bar  to  an  action 
brought  on  the  original  cause  of  action.  The  reasons  for  this  result  are  given 
by  Baron  Parke  in  King  v.  Hoare," supra.  He  says:  'The  judgment  is  a  bar 
to  the  original  cause  of  action,  because  it  is  thereby  reduced  to  a  certainty, 
and  the  object  of  the  suit  attained  so  far  as  it  can  be  at  that  stage;  and  it 
would  be  useless  and  vexatious  to  subject  the  defendant  to  another  suit  for 
the  purpose  of  attaining  the  same  result.  Hence  the  legal  maxim,  "Transit 
in  rem  judicatam."  The  cause  of  action  Is  changed  into  matter  of  record, 
which  is  of  a  higher  nature,  and  the  inferior  remedy  is  merged  in  the  higher.'  " 
Per  Penzance,  D.,  in  Kendall  v.  Hamilton,  supra. 


Sec.  1)  NATURE    OF   LIABILITY    IN    CONTUACT.  205 

of  the  plea  in  abatement.  I  am  unable  to  agree  to  this  suggestion.  I 
cannot  think  that  the  judicature  acts  have  changed  what  was  formerly 
a  joint  right  of  action  into  a  right  of  bringing  several  and  separate 
actions.  And,  although  the  form  of  objecting  by  means  of  a  plea  in 
abatement  to  the  nonjoinder  of  a  defendant  who  ought  to  be  included 
in  the  action,  is  abolished,  yet  I  conceive  that  the  application  to  have 
the  person  so  omitted  included  as  a  defendant  ought  to  be  granted  or 
refused  on  the  same  principles  on  which  a  plea  in  abatement  would 
have  succeeded  or  failed.  In  this  particular  case,  indeed,  I  observe 
the  judgment  against  Wilson  &  McLay  was  obtained  before  the  ju- 
dicature act  came  into  operation;  and  if  this  judgment  then  became 
pleadable  in  bar,  according  to  King  v.  Hoare,  supra,  by  Hamilton  in 
answer  to  an  action  against  himself,  I  cannot  see  how  this  defense  is 
taken  away  from  him  by  the  judicature  act  subsequently  coming  into 
operation. 

If,  then,  this  was  the  attitude  of  defense  which  Hamilton  was  en- 
titled to  take  up  in  opposition  to  the  present  action,  it  does  not  appear 
to  me  that  any  difference  is  made  by  the  doctrines  of  the  court  of 
equity  with  regard  to  partnership  debts.  There  is  no  doubt  that  in  many 
cases  and  text-books  we  find  the  expression  that  a  partnership  debt  is  in 
equity  joint  and  several.  This,  however,  is  only  a  compendious  ex- 
pression, which  must  be  interpreted  with  reference  to  what  were  the 
functions  of  the  court  of  equity  as  to  partnership  debts.  The  only  in- 
terposition of  a  court  of  equity  with  regard  to  partnership  debts  took 
place  in  the  administration  of  the  assets,  either  of  the  partnership  or 
of  a  deceased  member  of  the  partnership.  Where  a  member  of  the 
partnership  died,  the  debts  became  in  the  eye  of  a  court  of  law  the 
debts  of  the  survivors;  but  the  survivors,  on  the  other  hand,  in  a 
court  of  equity,  had  the  right,  as  against  the  estate  of  a  deceased  part- 
ner, to  say  that  his  representatives  should  not  withdraw  any  part'  of 
the  partnership  property  until  all  the  debts  were  paid  or  provided  for. 
If,  therefore,  a  court  of  equity  was  administering  the  assets  of  a  de- 
ceased partner,  it  would,  in  order  to  clear  his  estate,  ascertain  his  lia- 
bilities to  the  partnership,  and  for  this  purpose  would  ascertain  the 
debts  due  from  the  copartnership  at  his  death.  From  this  the  transi- 
tion was  easy  to  giving  the  creditors  of  the  partnership  a  direct  right, 
and  not  merely  an  indirect  right,  through  the  surviving  partners,  to 
come  for  payment  against  the  assets  of  the  deceased  partner ;  and 
from  this  again  the-  transition  was  easy  to  the  expression  which  said 
that  partnership  debts,  in  the  eye  of  a  court  of  equity,  were  joint 
and  several — not  thereby  meaning  that  a  court  of  equity  altered  or 
changed  a  legal  contract,  but  merely  that  the  court,  in  order,  before 
distributing  assets,  to  administer  all  the  equities  existing  with  regard 
to  them,  would  go  behind  the  legal  doctrine  that  a  partnership  debt 
survived  as  a  claim  against  the  surviving  partners  only,  and  would 
give  the  creditor  the  benefit  of  the  equity  which  the  surviving  part- 
ners might  have  insisted  on. 


296  PARTNERSHIP  LIABILITY.  (Cll.  4 

If,  therefore,  this  case  is  to  be  looked  at  as  a  case  in  which  judg- 
ment has  been  recovered  for  a  partnership  debt  against  two  out  of 
three  copartners,  it  appears  to  me  that,  on  the  principle  of  King  v. 
Hoare,  13  Mees.  &  W.  494,  the  judgment  would  be  a  bar  at  law  to  a 
subsequent  action  against  the  third  copartner;  and  I  know  of  no  prin- 
ciple on  which  a  court  of  equity  could  hold  the  debt  to  be  several  for 
the  purpose  of  preventing  such  a  result. 

In  any  view  of  the  case,  therefore,  I  am  of  opinion  that  the  judg- 
ment of  the  Court  of  Appeal  was  correct,  and  I  have  to  move  your 
Lordships  to  dismiss  the  appeal,  with  costs. 

Shelborne,  L.  My  Lords,  the  argument  of  the  appellants  was 
chiefly,  if  not  wholly,  founded  upon  the  course  of  the  Court  of  Chan- 
cery in  the  administration  of  the  assets  of  a  deceased  person  who  has 
been  a  partner  in  a  trading  firm,  and  upon  the  language  held  by  several 
judges  of  high  authority  with  respect  to  the  equitable  position  of  part- 
nership creditors. 

If  that  language  were  found  to  be  technically  exact,  when  tested  by 
the  practice  of  courts  of  equity,  upon  all  occasions  when  the  rights  of 
partnership  creditors  have  come  in  question,  it  might  (perhaps)  be  a 
sound  conclusion  that  its  principle  ought  to  be  extended  to  such  a  case 
as  the  present,  though  no  precedent  directly  in  point  has  been  produced. 
But  the  fact  is  otherwise.  If  every  debt  of  a  trading  partnership  were 
regarded  in  equity  as,  from  its  commencement,  joint  and  several,  in 
the  proper  sense  of  those  words,  there  could  be  no  reason  why,  in 
bankruptcy,  where  equitable  are  regarded  as  much  as  legal  rights,  it 
should  not  have  been  treated  in  the  same  way  as  any  other  joint  and 
several  debt;  nor  why  Lord  Eldon  should  have  made  such  a  decree 
as  he  did  in  the  case  of  Gray  v.  Chiswell,  9  Ves.  118.  Nor  do  I  think 
it  possible  that  if,  in  equity,  a  separate  debt  due  from  a  creditor  of  a 
firm  to  one  of  the  partners  could  be  set  off  against  the  debt  of  the  firm, 
there  would  not  have  been  ample  authority  for  that  proposition. 

If  no  rule  had  been  established  in  equity,  giving  partnership  credit- 
ors a  remedy  against  the  assets  of  a  deceased  partner,  it  would  have 
seemed  clear,  on  principle,  that  in  all  these  cases,  when  there  was  no 
mistake  to  be  rectified  in  any  written  instrument,  the  legal  contract 
between  the  creditor  and  the  debtors  was  the  only  contract,  and  that 
its  construction  must  be  the  same  in  equity  as  at  law. 

I  conclude,  therefore,  that  those  expressions  of  eminent  judges  in 
which  partnership  debts  have  been  spoken  of  as  in  equity  joint  and 
several  were  not  meant  by  them  to  be  understood  in  the  proper  and 
technical  sense  of  those  words,  and  that  they  cannot  safely  be  used  to 
establish  any  rule  or  principle  extending  beyond  those  limits  within 
which  courts  of  equity  have  hitherto  given  to  creditors  of  a  partner- 
ship remedies  which  they  could  not  have  obtained  at  law. 

It  is  undoubtedly  true  that  the  remedy  which  a  court  of  equity  gives 
to  a  partnership  creditor  in  the  administration  of  the  assets  of  a  de- 
ceased partner  has  the  effect  of  preserving  to  him  the  liability  of  an 


Sec.  1)  NATUUE    OF    LIABILITY    IN    CONTRACT.  297 

estate  which,  by  the  survivorship  of  the  codebtor  or  codebtors,  has  at 
law  become  exonerated.  Great  judges,  such  as  Lord  Eldon  and  Lord 
Thurlow,  have  felt  difficuhy  in  referring  this  course  of  practice  to 
any  very  clear  or  satisfactory  principle.  It  has  been  said  to  depend  up- 
on, or  to  arise  out  of,  the  adjustment  of  the  rights  and  liabilities  of 
the  deceased  and  the  surviving  partners  inter  se;  but  this  explana- 
tion does  not,  to  my  mind,  remedy  the  difficulty,  because,  upon  that 
principle,  it  would  seem  that  the  creditors  ought  to  be  limited,  in  each 
jDarticular  case,  by  the  extent  of  the  rightful  claims  of  the  surviving 
partners  upon  the  deceased  partner,  and  to  be  wholly  excluded  if  the 
state  of  the  accounts  between  them  were  such  as_  to  make  it  just  to 
leave  the  whole  liability  where  the  law  had  cast  it,  viz.,  upon  the  sur- 
viving partners.  The  actual  course  of  administration  (subject  to  the 
distinction  between  a  personal  action  and  proof  against  assets)  has 
been  to  give  the  creditor  as  large  and  unqualified  a  remedy  against  the 
estate  of  the  deceased  partner  as  he  w^ould  have  had  by  action  at  law 
in  his  lifetime.  There  is  (as  it  seems  to  me)  only  one  really  consist- 
ent explanation  of  this  course  of  practice,  when  taken  in  connection 
with  the  rule  1n  bankruptcy,  and  with  the  general  principles  of  law 
and  equity,  viz.,  that  derived  from  the  doctrine,  "}us  iccrescendi  inter 
mercatores  locum  non  habet."  As  in  several  other  well-known  classes 
of  cases  (of  which  mortgages  and  security  bonds,  with  penalties,  may  be 
taken  as  examples) ,  equity  controls  the  operation  of  a  legal  contract  so  as 
to  give  effect  to  the  purposes  and  objects  to  which  it  was  meant  to  be 
subsidiary,  so  in  these  partnership  cases  it  controls,  inter  mercatores, 
the  legal  efi"ect  of  survivorship.  If  that  is  the  principle  of  the  rule,  it 
is  one  which  arises  upon  death  only.  The  partnership  is  dissolved 
by  death;  but  in  equity  it  is  taken  as  still  subsisting,  for  every  pur- 
pose of  liquidation,  just  as  if  it  had  been  dissolved  inter  vivos,  and  the 
creditors  are  taken  as  still  creditors  of  that  partnership.  What  was 
before  joint  thus  becomes  several,  by  the  dissolution,  and  by  the  ex- 
clusion in  equity  of  the  survivorship  which  takes  effect  in  law;  and 
although,  when  this  rule  was  first  established,  it  might  well  have  been 
doubted  whether  it  did  not  give  creditors  rights  for  which  they  had 
never  contracted,  there  could  be  no  doubt,  after  it  had  once  become  a 
settled  rule,  that  the  rights  resulting  from  it  were  necessarily  implied 
in  all  subsequent  onerous  contracts  by  copartners.  For  this  purpose 
(and,  as  it  seems  to  me,  for  this  purpose  only,  and  only  by  the  opera- 
tion of  death)  all  such  contracts  may  be  described  as  in  equity  joint 
and  several. 

My  conclusion  is  that  in  the  present  case  there  is  no  equity  upon 
which  the  appellants  can  be  entitled  to  be  relieved  from  the  legal  ef- 
fect of  the  judgment  obtained  by  them  against  Wilson,  McLay  &  Co.,  if 
(as  the  equitable  argument  assumes)  that  judgment  had  the  effect  of 
extinguishing,  in  the  lifetime  of  all  the  partners,  the  legal  liability  of 
the  respondent  as  a  partner  for  the  debt  previously  due  from  the  part- 
nership of  which  he  was  a  member.    There  is  no  question  here  of  jus 


298  PARTNERSHIP  LIABILITY.  (Cll.  4 

accrescendi.  The  question  relates  simply  to  the  constitution  of  the  ap- 
pellants' debt.  Before  the  action  it  was  a  joint  debt;  but  by  the  re- 
sult of  the  action  (if  the  decision  in  King  v.  Hoare,  supra,  is  right, 
and  is  applicable  to  this  case),  it  became  the  separate  debt  of  Wilson, 
;\IcLay  &  Co.  only.  If  the  joint  debt,  for  which  alone  the  respondent 
was  ever  liable,  was  merged  and  extinguished  at  law  by  this  judgment 
(on  which  the  respondent  is  clearly  not  liable,  either  at  law  or  in 
equity),  it  seems  to  me  to  be  impossible  that  equity  should,  on  that 
ground,  raise  or  imply  against  him,  out  of  the  original  contract,  a  sep- 
arate liability  to  the  appellants  from  which  he  is  free  at  law,  whatever 
may  be  the  rights,  by  way  of  contribution,  indemnity,  or  otherwise, 
which  Wilson,  McLay  &  Co.  may  possess  against  him  in  respect  of 
this  judgment. 

Appeal  dismissed,  with  costs. 


VOORHIS  V.  CHILDS'  EXECUTOR. 
(Court  of  Appeals  of  New  York,  1858.    17  N.  Y.  354.) 

Selden,  J,  Prior  to  the  enactment  of  the  Code  of  Procedure  there 
was  a  conflict  of  opinion  between  the  courts  of  this  state  and  those  of 
England  as  to  the  remedy  allowed  to  the  creditors  of  a  partnership 
against  the  representatives  of  a  deceased  partner.  It  was  conceded  by 
both  that  only  the  surviving  partners  could  be  sued  at  law;  but  it  was 
held  by  the  English  courts  that  the  representatives  of  the  deceased 
partner  might  be  immediately  proceeded  against  In  equity  and  com- 
pelled to  pay  the  entire  debts  of  the  firm,  without  any  previous  resort 
to  the  surviving  members,  or  any  evidence  that  such  debts  could  not  be 
collected  from  them,  while,  on  the  other  hand,  our  courts  held  either 
that  the  remedy  against  the  survivors  must  first  be  exhausted  or  it 
must  appear  that  they  were  insolvent  and  unable  to  pay. 

Prior  to  the  case  of  Devaynes  v.  Noble,  1  Mer.  397,  the  decisions 
of  the  Court  of  Chancery  in  England  appear  to  have  been,  for  a  con- 
siderable time  at  least,  in  accordance  with  those  in  this  state.  The 
precise  ground  of  the  change  seems  to  have  been  this :  In  the  earlier 
cases  it  had  been  assumed  that  the  liability  in  equity  of  the  estate  of 
the  deceased  partner  was  produced  by  a  sort  of  equitable  transfer  to 
the  creditor  of  the  right  of  the  surviving  partners  to  insist  that  the  es- 
tate of  their  deceased  associate  should  contribute  to  the  payment  of 
the  debts  of  the  firm ;  but,  upon  its  being  afterwards  held  that  the  ob- 
ligations of  partners  were  to  be  regarded  as  joint  and  several,  the  Eng- 
lish courts  said  that  in  all  cases  of  that  kind  creditors  had  a  right  to 
pursue  their  remedies  against  all  or  either  of  their  debtors.  They  there- 
fore held  that  they  might  proceed  immediately  in  equity  against,  the 
representatives  of  a  deceased  partner,  without  resorting  to  their  legal 
remedies  against  the  survivors.    The  courts  in  this  state,  however,  re- 


Sec.  1)  NATURE   OF   LIABILITY   IN    CONTRACT.  209 

fused,  for  what  appear  to  be  substantial  reasons,  to  adopt  the  change. 
Its  effect  was  to  apply  to  a  proceeding  in  equity  the  strict  legal  rules 
applicable  to  suits  at  law.  It  obviously  overlooked  many  equitable  con- 
siderations of  great  force.  The  surviving  partners  succeed  primarily 
to  all  the  rights  and  interests  of  the  partnership.  They  have  the  entire 
control  of  the  partnership  property,  and  the  sole  right  to  collect  the 
partnership  dues.  The  assets  of  the  firm  are,  of  course,  to  be  regard- 
ed as  the  primary  fund  for  the  payment  of  the  partnership  debts,  and 
it  would  seem  equitable  at  least  that  the  parties  having  the  exclusive 
possession  of  thi^  fund  should  be  first  called  upon.  The  answer  given 
to  this  by  the  English  courts,  that  the  representatives  of  the  deceased 
partner  have  their  remedy  over,  seems  hardly  satisfactory.  The  pre- 
sumption is  that  the  primary  fund  is  sufficient  to  meet  the  demands 
upon  it.  Why,  then,  permit  in  equity  a  resort  to  another  fund,  and 
thus  give  rise  to  a  second  action  for  its  reimbursement.  Besides,  these 
English  decisions,  permitting  the  creditor  to  proceed  in  the  first  in- 
stance in  equity  against  the  estate  of  the  deceased  partner,  are  in  con- 
flict with  the  established  doctrine  that  parties  must  first  exhaust  their 
legal  remedies  before  resorting  to  courts  of  equity. 

But,  whether  these  considerations  are  sufficient  to  justify  the  posi- 
tion assumed  by  our  courts  or  not,  it  may  be  regarded  as  having  been 
settled  in  this  state,  prior  to  the  Code,  that  the  creditor  in  such  a  case 
could  not  come  into  a  court  of  equity  without  showing  either  that  the 
surviving  partners  had  been  proceeded  against  to  execution  at  law  or 
that  they  were  insolvent.  Grant  v.  Shurter,  1  Wend.  148  ;  Hamersly  v. 
Lambert,  2  John.  Ch.  508;  Leake  &  Watts  Orphan  House  v.  Law- 
rence, 11  Paige,  80;  ,Id.,  2  Denio,  577.  In  the  last  of  these  cases  the 
English  cases  referred  to  were  cited  and  distinctly  overruled.  There 
are  many  American  cases,  both  in  the  state  and  United  States  courts 
supporting  and  confirming  the  doctrine  of  the  courts  of  this  state  upon 
this  subject.  Pendleton  v.  Phelps,  4  Day  (Conn.)  481,  Fed.  Cas.  No. 
10,923;  Van  Rcimsdyk  v.  Kane,  1  Gall.  (U.  S.)  385,  Fed.  Cas.  No. 
16,871;  Sturges  v.  Beach,  1  Conn.  509;  Alsop  v.  Mather,  8  Conn. 
584,  21  Am.  Dec.  703;  Caldwell  v.  Stileman,  1  Rawle  (Pa.)  212; 
Hubble  v.  Perrin,  3  Ham.  (Ohio)  287.  [After  holding  that  section 
118  of  the  New  York  Code  did  not  authorize  the  action,  the  opinion 
concludes:] 

As,  therefore,  the  present  action  must  be  regarded  as  one  of  a 
purely  legal  nature,  brought  against  the  surviving  partners  upon  their 
legal  liability,  it  follows  that  the  executors  of  the  deceased  partner,  who- 
is  liable  only  in  equity,  were  improperly  made  parties.  If  we  are  right 
jn  our  reasoning,  the  complaint  is  clearly  defective  in  this  respect,  and 
the  judgment  of  the  Supreme  Court  should  therefore  be  affirmed. 

Judgment  affirmed. 


300  PARTNERSHIP  LIABILITY.  (Ch.  4 

DOGGETT  V.  DILL. 

(Supreme  Court  of  Illiuois,  1884.     108  111.  560,  48  Am.  Rep.  5G5.) 

Craig,  J.  William  E.  Doggett  died  April  3,  1876,  testate,  and  Kate 
E.  Doggett,  appellant,  who  was  named  as  executrix,  qualified  as  such 
in  the  probate  court  of  Cook  county.  Doggett,  at  the  time  of  his  death 
and  for  many  years  before,  was  a  member  of  the  firm  of  Doggett,  Bar- 
rett &  Hills.  In  1871,  T.  C.  H.  and  Lucy  W.  Smith  executed  their 
two  promissory  notes  for  certain  sums  of  money,  payable  to  Charles 
H.  Dill.  The  two  notes,  on  the  date  of  their  execution,  were  guaran- 
teed by  Doggett,  Barrett  &  Hills,  the  firm  name  to  the  guaranty  being 
executed  by  Doggett.  No  effort  was  made  by  Dill  to  collect  the  amount 
due  on  the  notes  from  the  firm  assets,  or  from  the  surviving  members 
of  the  firm  of  Doggett,  Barrett  &  Hills ;  but  after  the  death  of  Doggett 
he  presented  his  claim  to  the  probate  court,  to  be  allowed  against  the 
estate  of  deceased.  The  probate  court,  upon  the  evidence  introduced, 
allowed  the  claim,  and  the  executrix  appealed  to  the  circuit  court, 
where  a  second  trial  was  had,  resulting  in  a  judgment  against  the  es- 
tate. An  appeal  was  then  taken  to  the  Appellate  Court,  where  the 
judgment  of  the  circuit  court  was  affirmed,  and  this  record  is  brought 
here  by  the  executrix  for  the  purpose  of  reversing  the  judgment  of  the 
Appellate  Court. 

It  is  insisted  by  appellant  that  a  partnership  demand  cannot  be  al- 
lowed against  the  individual  estate  of  a  deceased,  partner  until  the  legal 
remedy  against  the  partnership  assets  and  surviving  partners  has  been 
exhausted. 

In  Mason  v.  Tiffany,  45  111.  392,  which  was  a  proceeding  in  chancery 
by  a  creditor  of  a  firm  to  enforce  payment  of  a  firm  debt  against  the 
estate  of  Tiffany,  a  deceased  member  of  the  firm,  it  was  held  that, 
every  partnership  debt  being  joint  and  several,  it  follows,  necessarily, 
that  resort  may  be  had  in  the  first  instance  for  the  debt  to  the  surviv- 
ing partners  or  to  the  assets  of  the  deceased  partner.  In  the  decision 
of  the  case  it  is  said:  "If  it  was  a  fact  that  the  surviving  partners  re- 
mained solvent  for  a  long  time  before  the  assignment,  and  the  as- 
signed assets  were  sufficient  to  pay  this  claim,  still  these  did  not  re- 
quire the  complainant  to  press  his  claim  against  them;  the  estate  of 
the  deceased  partner  being  equally  a  fund  on  which  he  had  a  right  to 
rely."'  This  case  seems  to  establish  the  doctrine  in  plain  words  that  a 
creditor  in  equity  has  the  right,  where  he  holds  a  claim  against  a  firm, 
one  member  of  which  has  died,  to  proceed  against  the  estate  of  the 
deceased  member  or  the  surviving  partners  as  he  may  elect. 

In  Silverman  v.  Chase,  90  111.  37,  the  same  question  arose,  and,  fol- 
lowing the  doctrine  of  the  case  last  cited,  it  was  said :  "A  partnership 
debt  is  joint  and  several,  and  the  creditor  has  the  right  to  elect  whether 
he  will  proceed  against  the  assets  in  the  hands  of  the  surviving  partner 
or  against  the  estate  of  the  deceased  partner,  as  held  by  this  court  in 


Sec.  1)  NATURE    OF   LIABILITY    IN    CONTRACT.  301 

Mason  v.  Tiffany,  45  111.  392.  Nor  will  the  laches  of  the  creditor  in 
following  the  assets  of  the  firm  preclude  a  recovery.  The  creditor  has 
the  right  to  proceed  against  the  estate  at  any  time  before  the  statute 
of  limitations  has  run,  and  a  failure  to  pursue  the  partnership  assets 
cannot  be  relied  upon  as  a  defense  when  suit  is  brought  against  the 
estate." 

These  two  cases  would  seem  to  be  conclusive  of  the  question  pre- 
sented, so  far,  at  least,  as  this  court  is  concerned,  as  they  in  terms  de- 
cide the  same  question  involved  in  the  record  before  us,  and  it  would 
not  be  deemed  necessary  to  say  anything  more  on  the  question,  were 
it  not  for  the  fact  that  it  is  claimed  that  these  cases  are  in  conflict  with 
prior  decisions  of  this  court,  and  the  doctrine  therein  announced  is  not 
sound  and  in  harmony  with  the  current  of  authority  on  the  subject. 
We  have  therefore  concluded  to  briefly  refer  to  some  of  the  authori- 
ties which  have  a  bearing  on  the  question,  with  the  view  of  showing 
that  the  decisions  of  this  court  are  fully  sustained  by  the  weight  of 
authority. 

Story  on  Partnership,  §  362,  says:  "The  doctrine  formerly  held  up- 
on this  subject  seems  to  have  been  that  the  joint  creditors  had  no  claim 
whatsoever  in  equity  against  the  estate  of  the  deceased  partner,  except 
when  the  surviving  partners  were  at  the  time,  or  subsequently  became, 
insolvent  or  bankrupt.  But  that  doctrine  has  been  since  overturned, 
and  it  is  now  held  that  in  equity  all  partnership  debts  are  to  be  deemed 
joint  and  several,  and  consequently  the  joint  creditors  have  in  all 
cases  the  right  to  proceed  at  law  against  the  survivors,  and  an  election 
also  to  proceed  in  equity  against  the  estate  of  a  deceased  partner, 
\vhether  the  survivors  be  insolvent  or  bankrupt,  or  not."  The  same 
doctrine,  but  in  different  language,  is  declared  by  Story  in  his  work 
on  Equity  Jurisprudence  (section  676). 

Collyer  on  Partnership,  §  580,  declares  the  law  in  the  following  lan- 
guage :  "It  is  now  established  beyond  controversy  that  in  the  consider- 
ation of  courts  of  equity  a  partnership  debt  is  several  as  well  as  joint, 
and  that  upon  the  death  of  a  partner  a  joint  creditor  has  a  right  in 
equity  to  proceed  immediately  against  the  representative  of  the  de- 
ceased partner  for  payment  out  of  his  separate  estate,  without  refer- 
ence to  the  question  whether  the  joint  estate  be  solvent  or  insolvent,  or 
to  the  state  of  accounts  amongst  the  partners." 

Dixon  on  Partnership,  113,  says:  "When  a  liability  exists,  the  cred- 
itor may,  at  his  option,  either  pursue  his  legal  remedy  against  the  sur- 
vivor, or  resort  in  equity  to  the  estate  of  the  deceased;  and  this  alto- 
gether without  regard  to  the  state  of  the  accounts  between  the  part- 
ners themselves,  or  to  the  ability  of  the  survivor  to  pay." 

Lindley  on  Partnership,  1053,  says:  "Whatever  doubt  there  may 
formerly  have  been  upon  the  subject,  it  was  clearly  settled  before  the 
judicature  acts  that  a  creditor  of  the  firm  could  proceed  against  the 
estate  of  the  deceased  partner  without  first  having  recourse  to  the  sur- 
viving partners,  and  without  reference  to  the  state  of  the  accounts  be- 


I 


302  PARTNERSHIP  LIABILITY.  (Ch.  4 

tween  them  and  the  deceased."  See,  also,  Pars.  Merc.  Law,  192; 
Adams,  Eq.  173;  Smith,  Merc.  Law,  48;  3  Kent,  Com.  63,  64,  and 
note. 

From  the  citations  made,  it  would  seem  that  the  law,  as  declared 
in  jMason  v.  Tiffany  and  Silverman  v.  Chase,  supra,  is  fully  sustained, 
at  least  by  text-writers  of  high  authority,  both  in  this  country  and  in 
England.  But  it  will  not  be  necessary  to  rely  alone  on  the  text-books 
for  a  solution  of  the  question,  as  the  decisions  in  England  and  many 
of  the  states  are  in  harmony  with  the  rule  declared  in  the  text-books. 
In  England,  as  early  as  1816,  in  Devaynes  v.  Noble,  1  Mer.  529,  it 
was  decided  that  in  equity  partnership  debts  are  joint  and  several,  and 
a  creditor  holding  a  firm  debt  could  resort  to  the  estate  of  the  de- 
ceased partner  for  payment,  without  showing  the  insolvency  of  the 
survivor.  The  rule  adopted  in  the  case  cited  was  subsequently  adhered 
to  and  followed  in  Wilkinson  v.  Henderson,  1  M.  &  K.  582,  and  since 
the  decision  of  these  cases  the  doctrine  there  announced  has  been  re- 
garded as  the  settled  law  of  England.  In  Nelson  v.  Hill,  5  How.  127, 
12  L.  Ed.  81,  the  Supreme  Court  of  the  United  States  held  that  the 
creditor  of  a  partnership  may,  at  his  option,  proceed  at  law  against 
the  surviving  partner  or  go  in  the  first  instance  into  equity  against  the 
representatives  of  the  deceased  partner;  that  it  was  not  necessary 
to-  exhaust  his  remedy  at  law  against  the  surviving  partner  before  pro- 
ceeding in  equity  against  the  estate.  In  support  of  the  rule  announced 
Story  on  Partnership,  §  362,  note  3,  is  cited.  In  a  later  case  (Lewis 
V.  United  States,  92  U.  S.  622,  23  L.  Ed.  513)  Nelson  v.  Hill  is  cited 
with  approval.  In  Camp  v.  Grant,  21  Conn.  41,  54  Am.  Dec.  321,  the 
Supreme  Court  of  Connecticut,  in  an  able  opinion,  adopt  the  rule  of 
the  courts  of  England.  In  Weyer  v.  Thornburgh,  15  Ind.  124,  the 
question  arose,  and  the  Supreme  Court  of  that  state  adopt  the  rule  in 
the  language  of  Story  on  Partnership,  cited  supra,  and  this  decision 
was  followed  in  a  number  of  subsequent  cases.  Dean  v.  Phillips,  17 
Ind.  406 ;  Plardy  v.  Overman,  36  Ind.  549.  In  Freeman  v.  Stuart,  41 
Miss.  1^1,  the  question  arose,  and  the  Supreme  Court  of  that  state 
held  that  in  equity  all  partnership  debts  are  joint  and  several,  and  a 
creditor  has  the  right  to  proceed  in  law  against  the  survivor,  and  an 
election  also  to  proceed  against  the  separate  estate  of  the  deceased 
partner,  whether  the  survivor  be  solvent  or  not.  See,  also,  Irby  v. 
Graham,  46  Miss.  428,  where  the  English  rule  is  fully  approved.  The 
same  doctrine  has  been  adopted  in  Vermont,  in  Washburn  v.  Bank, 
19  Vt.  278;  in  Tennessee,  in  Saunders  v.  Wilder,  2  Head,  579;  in 
Arkansas,  in  McLain  v.  Carson,  4  Ark.  165,  37  Am.  Dec.  777;  in  New 
Jersey,  in  Wisham  v.  Lippincott,  9  N.  J.  Eq.  353;  in  Alabama,  in 
Travis  v.  Tartt,  8  Ala.  577 ;  in  Florida,  in  Fillyan  v.  Laverty,  3  Fla. 
72 ;  in  Texas,  in  Gaut  v.  Reed,  24  Tex.  46 ;  and  in  New  Hampshire, 
in  Bowker  v.  Smith,  48  N.  H.  Ill,  2  Am.  Rep.  189.  In  New  York 
and  Georgia  a  contrary  rule  has  been  adopted,  as  will  be  found  in  the 


Sec.  1)  NATURE    OF   LIABILITY    IN    CONTMACT.  303 

following-  cases:  Leake  &  Watts  Orphan  House  v.  Lawrence,  11 
Paige  (N.  Y.)  80;  Voorhis  v.  Childs,  17  N.  Y.  354;  Bennett  v.  Wool- 
folk,  15  Ga.  213.  Upon  an  examination  of  the  New  York  cases  it 
appears  that  the  rule  there  adopted  was  supposed  to  be  predicated  on 
the  old  English  cases,  and  when  the  courts  of  England  established  the 
doctrine  which  is  laid  down  as  the  law  in  Devaynes  v.  Noble  and  Wilk- 
inson V.  Henderson,  supra,  the  New  York  courts  refused  to  follow  the 
English  rule,  but  adhered  to  what  was  supposed  to  be  the  law  in  Eng- 
land as  declared  in  that  court  prior  to  that  time.  Georgia  seems  to 
follow  the  New  York  rule.  In  a  late  case  in  Wisconsin,  Sherman  v. 
Kreul,  42  Wis.  33,  the  Supreme  Court  say :  "We  are  disposed  to  adopt 
the  New  York  rule,  that  in  order  to  recover  against  the  administrators 
the  plaintiff  should  allege  and  show  that  the  surviving  partner  is  in- 
solvent." It  is  also  claimed  by  appellant  that  the  New  York  rule  has 
been  adopted  in  North  and  South  Carolina,  Ohio,  and  Pennsylvania; 
but,  without  stopping  to  determine  precisely  what  the  rule  of  the  courts 
of  these  states  may  be,  we  are  satisfied  that  the  decided  weight  of  au- 
thority is  in  harmony  with  the  rule  adopted  in  this  state,  and  we  are 
not  inclined  to  change  the  rule  heretofore  adopted  in  this  state,  and 
follow  the  doctrine  established  by  the  courts  of  New  York  and  Geor- 
gia, although  we  fully  recognize  the  great  ability  of  those  courts. 
*     *     ♦ 

But,  independent  of  the  authorities,  we  are  satisfied  that  the  rule 
holding  the  estate  of  a  deceased  partner  primarily  liable  in  equity  is 
sound  in  principle.  Doggett,  in  his  lifetime,  was  individually  liable 
for  this  debt,  and  if  he  had  been  sued,  and  a  judgment  obtained  against 
him,  any  of  his  individual  property  would  have  been  liable  to  be  taken 
and  sold  in  satisfaction  of  the  debt.  It  is  true,  if  he  had  been  sued  at 
law  in  his  lifetime,  it  would  have  been  necessary  to  join  his  partners 
as  defendants  in  the  action;  but  after  judgment  it  was  not  necessary 
to  exhaust  the  partnership  assets  before  individual  property  could  be 
taken,  but  the  creditor  could  resort  to  such  property  in  the  first  in- 
stance, if  he  saw  proper.  Did  the  death  of  Doggett  in  any  manner 
change  the  liability  which  existed  on  this  contract  before  his  death? 
We  think  not.  The  liability  continued  as  before,  but  the  remedy  to 
enforce  that  liability  was  changed  from  a  court  of  law  to  a  court  ex- 
ercising equitable  powers.  Before  his  death  the  liability  could  only 
be  enforced  by  a  joint  action  against  Doggett  and  his  partners.  After 
his  death  the  liability  continued,  but  could  only  be  enforced  in  the 
probate  court,  which  in  the  allowance  of  claims  exercises  equitable 
powers.  The  death  of  a  debtor  may  extinguish  a  legal  remedy  on  a 
joint  contract;  but  we  are  not  aware  that  it  has  ever  been  held  that 
the  death  of  a  debtor  could  extinguish  the  debt  or  discharge  the  estate 
of  the  deceased. 

In  conclusion,  we  are  satisfied,  under  the  facts  as  disclosed  by  this 
record,  appellee's  claim  was  a  proper  one  to  be  allowed  against  the 


304  PARTNERSHIP  LIABILITY.  (Cll.  4 

estate  of  the  deceased,  and  that  it  was  properly  allowed  by  the  probate 
court. 

The  judgment  of  the  Appellate  Court  will  therefore  be  affirmed. 

Judgment  affirmed. 


IMcLAIN  &  BADGETT  v.  CARSON'S  EXECUTOR. 

(Supreme  Court  of  AxUansas,  1^42.     4  Ark.  164,  37  Am.  Dec.  777.) 

The  firm  of  Sarah  Percifull  &  Co.,  composed  of  Samuel  P.  Carson 
and  Sarah  Percifull,  purchased  a  quantity  of  articles  of  McLain  & 
Badgett.  Some  time  afterwards  Carson  died,  and  McLain  &  Badgett 
exhibited  their  account,  duly  authenticated,  to  his  executor,  Robert 
Hamilton,  for  allowance.  He  having  refused  to  allow  the  account,  Mc- 
Lain &  Badgett  presented  it  to  the  probate  court  of  Lafayette  county, 
where  it  was  allowed,  and  directed  to  be  paid  in  "class  4."  The  exec- 
utor appealed  to  the  circuit  court  of  Lafayette,  aind,  that  court  having 
reversed  the  judgment  of  the  probate  court,  McLain  &  Badgett  brought 
up  the  case  by  appeal  to  this  court. 

There  was  no  controversy  as  to  the  facts,  and  the  appellant's  right 
to  an  allowance  was  made,  by  express  agreement  on  the  record,  to 
depend  upon  the  decision  of  the  legal  question  whether  payment  could 
be  coerced  from  the  estate  of  Carson,  in  the  hands  of  the  executor, 
without  resort  first  being  had,  and  proceedings  taken,  against  the  part- 
nership funds,  if  any,  in  the  hands  of  the  surviving  partner,  Sarah 
Percifull. 

Lacy,  J.  The  doctrine  of  partnership,  in  these  cases,  is  well  settled 
in  England.  At  law  the  contract  was  always  treated  as  a  joint  agree- 
ment, and  upon  the  death  of  one  partner  a  joint  creditor  could  not 
proceed  against  his  separate  estate.  The  reason  is  that  by  the  death 
of  the  joint  partner,  the  joint  contract,  as  to  him,  becomes  extinguished. 
The  creditor  may  have  his  action  against  the  survivor  or  joint  con- 
tractor. 1  Ch.  PI.  57 ;  Collier  on  Part.  337.  In  equity  there  is  some 
conflict  between  the  authorities.  The  creditor  in  equity  will  be  per- 
mitted to  receive  satisfaction  of  his  debt  out  of  the  estate  of  the  de- 
ceased partner  under  certain  restrictions,  through  the  medium  of  sub- 
sisiing  equities  between  the  parties  themselves;  and  Lord  Eldon  has 
pithily  remarked  "that  separate  creditors  must  take  the  separate  estate, 
and  the  joint  creditors  the  surplus."  Greer  v.  Chiswell,  9  Vesey,  118 ; 
Jacomb  v.  Hartwood,  2  Vesey,  265.  And  Lord  Brougham  said,  in 
Sumner  v.  Powell,  1  I\Ier.  73,  "that  a  partnership  debt  has  been  treated 
in  equity  as  the  several  debt  of  each,  though  in  law  it  is  only  the  joint 
debt  of  all." 

The  general  rule  upon  the  subject  is  that  if,  upon  the  decease  of  a 
partner,  the  creditor's  contract  is  to  be  treated  as  several,  as  well  as 
joint,  in  respect  to  the  firm,  then  he  will,  of  course,  be  entitled  to  re- 
ceive satisfaction  in  equity  immediately  out  of  the  estate  of  the  de- 


Sec  1)  NATURE    OF    LIABILITY    IN    CONTKACT,  305 

ceased  partner,  and  to  take  his  portion  pari  passu  with  separate  credit- 
ors. 

Under  our  laws  no  such  thing  as  a  joint  contract,  in  the  sense  in 
which  it  is  used  in  England,  can  be  allowed.  Our  statute  regulating 
proceedings  upon  such  subjects  enacts  "that  all  joint  debts  or  obliga- 
tions shall  survive  against  the  heirs,  executors,  and  administrators  of 
such  joint  debtor  or  obligor,  as  may  die  before  the  discharge  of  such 
joint  debt  or  obligation."  Rev.  St.  1837,  p.  475,  §§  1-6.  This  act 
makes  a  partnership  debt  a  several  as  well  as  a  joint  contract;  and  the 
partnership  creditor  is,  consequently,  invested  with  a  legal  right  to 
proceed  immediately  against  the  estate  of  the  deceased  partner,  and  to 
be  paid  at  the  same  time  with  separate  creditors.  The  debt  against 
the  firm  being  separate  as  well  as  joint,  the  death  of  the  one  partner 
cannot  extinguish  the  separate  demand  against  his  estate.  That  con- 
tingency leaves  his  right  in  full  operation,  and  the  deceased  partner's 
estate  bound  separately  for  the  debt. 

Judgment  reversed. 


HALL  V.  COOK. 

(Supreme  Court  of  Alabama,  1881.    69  Ala.  87.) 

This  was  a  suit  by  Bolivar  H.  Cooke  against  Oliver  L.  Hall,  Alex- 
ander H.  Mackey,  and  Luther  C.  Hall,  on  an  account  for  goods,  wares, 
and  merchandise  sold  and  delivered  to  the  defendants  by  the  plain- 
tiff, and  was  tried  on  the  plea  of  the  general  issue.  On  the  trial  the 
depositions  of  the  plaintiff  and  another  witness  examined  on  his  be- 
half, taken  upon  interrogatories,  were  offered  in  evidence  by  the  plain- 
tiff". In  the  interrogatories  propounded  to  the  plaintiff  he  was  asked 
whether  there  was  any  thing  due  to  him  from  Hall,  Mackey  &  Co., 
and,  if  so,  how  much,  and  for  what  it  was  due.  To  this  question  he 
answered,  in  substance,  that  they  owed  him  $140.50  for  goods  sold 
and  delivered  to  them  by  him.  To  the  question  and  answer  the  defend- 
ants objected,  on  the  ground  that  the  question  "called  for  an  indebt- 
edness due  from  Hall,  Mackey  &  Co.,  and  the  answer  purported  to 
prove  an  account  due  from  Hall,  IMackey  &  Co.,  and  not  these  de- 
fendants," and  that,  therefore,  there  was  a  variance  between  the  proof 
offered  and  the  allegations  of  the  complaint.  On  the  statement  of  the 
plaintiff'  that  he  would  show  that  the  defendants  were  members  of  the 
firm  of  Hall,  Mackey  &  Co.,  the  court  overruled  the  defendants'  ob- 
jection and  allowed  the  answer  to  be  read  to  the  jury,  and  the  defend- 
ants excepted.  Other  objections  of  like  character  were  made  by  the 
defendants  to  other  interrogatories  propounded  to  the  plaintiff"  and  the 
other  witness,  and  their  answers  thereto,  which  were  also  overruled  by 
the  court,  and  exceptions  reserved  to  the  rulings  of  the  court  thereon 
by  the  defendants.  The  plaintiff  afterwards  proved  that  his  attorney 
presented  the  claim  sued  on  to  the  defendants,  "who  were  members 
Gil.Pakt.— 20 


806  PARTNERSHIP  LIABILITY.  (Ch.  4 

of  the  firm  of  Hall,  Mackey  &  Co.,  and  they  each  admitted  the  justness 
of  the  amount  of  the  claim."  The  depositions  read  in  evidence  also 
tended  to  prove  the  correctness  of  the  account  sued  on.  The  defend- 
ants offered  no  evidence.  The  court  charged  the  jury,  at  the  request  of 
the  plaintiff,  in  writing,  that  it  was  sufficient  if  the  evidence  showed 
that  the  defendants  were  members  of  the  firm  of  Hall,  Mackey  &  Co. 
To  the  giving  of  this  charge  the  defendants  excepted.  The  giving  of 
this  charge  and  the  rulings  of  the  circuit  court  on  the  evidence  are 
here  assigned  as  error. 

Stoni-:,  J.  Under  our  statute  (Code  1876,  §  2904),  when  there  are 
"two  or  more  persons  associated  together  as  partners  in  any  business 
or  pursuit,  who  transact  business  under  a  common  name,  whether  it 
comprise  the  names  of  such  persons  or  not,  *  *  *  any  one  of  the 
associates,  or  his  legal  representative  may  be  sued  for  the  obligation 
of  all."  The  effect  of  our  statutes  is  to  make  the  promises,  contracts, 
and  obligations  of  partnerships,  given  within  the  scope  of  their  part- 
nership dealings,  the  promises,  contracts,  and  obligations  of  the  part-, 
nership  and  of  each  and  every  member  thereof.  The  contract  itself 
makes  it  joint,  and  our  statute  makes  it  also  several;  this  because, 
when  the  promise  is  given  or  obligation  entered  into  within  the  scope 
of  the  partnership  dealings,  it  is  alike  the  contract  or  obligation  of  all 
and  of  each  member  of  the  firm.  Such  promise  need  not  be  in  writing, 
unkss  it  is  of  the  nature  which  the  law  requires  to  be  in  writing;  and 
joint  contracts  may  be  made,  with  or  without  writing.  In  McCulloch 
V.  Judd,  20  Ala.  703,  it  was  said :  "A  creditor  may  sue  one  or  all  the 
members  of  a  firm  on  a  debt  contracted  in  the  firm  name,  and  may  de- 
clare on  the  demand  as  the  individual  liability  of  the  partner  or  part- 
ners sued." 

We  find  no  error  in  this  record,  and  the  judgment  of  the  circuit 
court  is  affirmed.* 


SECTION  2.— NATURE  AND  EXTENT  OF  LIABILITY  IN 

TORT. 


WHITE  v.  SMITH. 

(Court  of  Appeals  and  Court  of  Errors  of  South  Carolina,  1860.    12  Rich.  Law, 

595.) 

Wardlaw,  J.  This  is  an  action  on  the  case  to  recover  damages 
from  the  defendant  for  negligence  in  the  care  of  a  slave  committed  to 
his  custody  on  hire,  by  means  whereof  the  slave  was  destroyed  and 
wholly  lost  to  the  plaintiff.     The  first  ground  of  appeal  insists  that 

1  In  Sandusky  v.  Sidwell,  173  111.  493,  50  N.  E.  1003  0898).  it  -^as  held 
that  a  statute  providing  that  "all  joint  obligations  and  covenants  shall   be 


Sec.  2)  NATURE    AND    EXTENT   OF    LIABILITY    IN    TORT.  307 

there  is  a  variance  between  the  allegation  that  the  slave  was  hired  to 
defendant  and  the  proof  of  hiring  to  defendant  and  his  partner,  Moore, 
fatal  to  the  action  against  one  of  tiie  partners,  inasmuch  as  both  should 
have  been  sued.  In  actions  ex  contractu  it  was  formerly  the  rule  that 
the  nonjoinder  of  one  or  more  joint  contractors  was  fatal  on  motion 
for  nonsuit,  where  the  general  issue  was  pleaded ;  but  it  is  settled 
since  Rice  v.  Shute,  5  Burr.  2G11,  in  avoidance  of  the  delay  and  ex- 
pense of  a  trial,  that  this  objection  is  waived  by  pleading  the  general 
issue,  and  that  advantage  of  it  can  be  taken  only  by  plea  in  abatement, 
even  where  the  plaintiff  fully  knew  who  were  the  joint  contractors. 
And  whatever  may  be  the  form  of  action,  wherever  the  nonperform- 
ance of  a  contract  is  the  basis  of  the  suit  and  the  contract  must  be 
proved,  as  in  case  for  breach  of  a  warranty  of  sale,  the  nonjoinder  of 
a/ joint  contractor  is  fatal  on  plea  in  abatement;  for  the  plaintiff  will 
not  be  allowed,  by  varying  the  form  of  his  action,  to  annul  or  obviate 
the  rules  of  legal  procedure  concerning  parties  to  contracts.  1  Chit. 
PI.  87 ;  Max  v.  Roberts,  12  East,  94 ;  ^Weall  v.  King,  12  East,  4541 ; 
Stockfleet  v.  Fryer,  2  Strob.  307;  Patton  v.  Magrath,  Rice,  162,  33 
Am.  Dec.  98.  On  the  contrary,  in  actions  ex  delicto  generally,  and 
always  where  a  contract  is  not  the  gravamen  of  suit  and  is  merely  a 
matter  of  inducement  or  recital,  a  plaintiff  may,  at  his  option,  treat  the 
tort  committed  by  two  or  more  persons  as  either  joint  or  several,  and 
accordingly  sue  all  or  any  of  the  tort-feasors;  and  if  one  of  the  wrong- 
doers be  sued  alone,  as  the  tort  attaches  upon  each  individually,  he 
cannot  plead  the  nonjoinder  of  the  others  in  bar  or  abatement,  nor 
give  it  in  evidence  under  the  general  issue.  1  Chit.  PI.  87 ;  Atty.  Gen. 
v.  Burgess,  Bunb.  223;  Govett  v.  Radnidge,  3  East.  62;  6  Taunt. 
29,  35,  42;  6  Jno.  31.  Now,  in  this  case,  the  gist  of  the  action  is  the 
negligence  of  the  defendant  in  the  safe-keeping  of  a  slave  under  his 
charge,  and  the  contract  of  hiring  is  merely  matter  of  preliminary 
statement,  to  explain  that  the  slave  was  really  under  the  charge  of 
defendant,  and  proof  of  any  other  process  by  which  the  charge  re- 
sulted would  have  been  admissible. 

In  his'  first  ground  of  appeal  defendant  also  insists  that  if  there 
were  any  negligence  it  was  on  the  part  of  the  agent  of  the  partners, 
Moore  &  Smith  (and  not  his  individual  agent),  for  the  torts  of  whom 
he  is  not  separately  liable.  From  the  community  of  interests  between 
partners,  each  is  responsible  for  the  contracts  of  all  or  any  one  of 
them  in  the  prosecution  of  the  business  of  the  partnership.  Jackson 
was  no  less  the  agent  of  the  defendant  because  he  was  also  the  agent 
of  the  partner,  Moore.  Gow,  in  his  treatise  on  Partnership,  184,  185, 
and  notes  there,  and  160,  after  laying  down  the  doctrine  that  in  such 
actions  as  case  for  malfeasance  the  tort  as  between  partners  attaches 
upon  each  of  the  wrongdoers  individually,  and  that  one  may  be  sued 

taken  and  held  to  be  Joint  and  several  obligations  and  covenants"  applies 
only  to  contracts,  obligations,  and  covenants  made  jointly  by  persons  in 
Uieir  individual   capacity,  and   has  no  reference  to  partnership  obligationa 


308  PARTNERSHIP   LIABILITY.  (Ch.  4 

alone,  proceeds :  "Nor  in  such  an  action  is  it  material  whether  the  tort 
was  committed  by  the  partners  personally,  or  by  their  servant  in  the 
prosecution  of  their  business,  since,  in  the  latter  case;  the  rule  'qui 
facit  per  alium,  facit  per  se,'  applies,  and  renders  them  and  each  of 
them  responsible  for  the  consequences."  To  the  same  effect,  other 
text-writers  on  partnership  express  the  doctrine.  Story,  Part.  167; 
Story,  Agency,  308 ;  3  Collyer,  Part.  p.  414,  c.  1,  §  6 ;  Id.  p.  640,  c.  6, 
§  3 ;  Watson,  Part.  p.  235,  c.  4.  In  Mitchell  v.  Tarbutt,  5  T.  R.  649, 
in  an  action  on  the  case,  against  some  of  several  partners  in  the  own- 
ership of  a  ship,  for  negligence  in  their  servant  or  agent,  in  running 
down  a  ship  of  plaintiffs  laden  with  sugar,  whereby  the  sugar  was 
lost,  it  was  held  that  defendants  could  not  plead  in  abatement  that  there 
are  other  partners  not  sued.  Qarthew,  171,  294;  7  T.  R.  257. 
Defendant's  motion  for  new  trial  refused. 


LOOMIS  et  al.  v.  BARKER. 
(Supreme  Court  of  Illinois,  1873.    69  111.  360.) 

This  was  an  action  of  trover  by  Richard  P.  'Barker  against  William 
R,  Loomis,  Chauncey  Lewis,  and  Charles  F.  Bogue,  for  the  conversion 
of  a  span  of  horses.  Bogue  not  being  found,  the  suit  was  dismissed 
as  to  him.  There  was  a  verdict  and  judgment  in  favor  of  the  plain- 
tiff for  $311.15.    The  leading  facts  are  stated  in  the  opinion. 

ScHOLFiELD,  J.  The  proof  is  sufficiently  clear  that  the  horses  be- 
longed to  appellee  and  that  at  the  time  they  were  taken  they  were 
merely  in  the  possession  of  Cook  as  a  general  agent,  who  was  author- 
ized to  sell  them  for  appellee  and  required  to  account  to  him  for  the 
proceeds  of  their  sale.  This  did  not  invest  Cook  with  any  title  to  the 
horses,  so  as  to  render  them  liable  to  be  seized  on  execution  or  at- 
tachment against  him  and  sold  for  the  payment  of  his  debt. 

Although  it  does  not  appear  that  Lewis  was  actually  present  when 
the  horses  were  levied  upon  or  sold,  yet  it  does  appear  that  he  placed 
the  claim  upon  which  this  was  done  in  the  hands  of  the  constable, 
Bogue,  and  that  his  partner  and  codefendant,  Loomis,  treated  and 
spoke  of  the  property  as  having  been  taken  and  sold  on  an  attachment 
issued  upon  this  claim,  that  he  was  present  and  a  bidder  at  the  sale, 
and  that  he  received  the  proceeds  of  the  sale  from  Bogue  as  a  payment 
upon  this  claim. 

The  rule  is  that  partners  are  liable  in  solido  for  the  torts  of  one,  if 
that  tort  were  committed  by  him  as  a  partner  and  in  the  course  of  the 
business  of  the  partnership.  Parsons  on  Partnership,  150.  "So,"  it 
is  said,  "in  an  action  of  trover  it  is  not  necessary  that  there  should  be 
a  joint  conversion  in  fact  in  order  to  implicate  all  the  partners,  for  such 
a  conversion  may  arise  by  construction  of  law.  Thus  an  assent  "by 
some  of  the  partners  to  a  conversion  by  the  others  will  make  them 


Sec.  3)  EXTENT    OF    LIABILITY    IN    CONTRACT.  309 

wrongdoers  equally  with  the  rest  provided  the  conversion  was  for  their 
use  and  benefit,  and  that  they  were  in  a  situation  to  have  originally 
commanded  the  conversion."  Gow  on  Partnership,  175.  See,  also, 
Bane  et  al.  v.  Detrick  et  al.,  52  111.  20. 

We  think  the  verdict  was,  under  the  evidence,  in  conformity  with  the 
law,  and  the  judgment  of  the  court  below  is  therefore  affirmed. 

Judgment  affirmed. 


SECTION  3.— EXTENT  OF  LIABILITY  IN  CONTRACT. 


HALLOWELL  v.  BLACKSTONE  NAT.  BANK. 

(Supreme  Judicial  Court  of  Mnssacliu setts,  ISOl.     154  Mass.  3.j9,  28  N.  E.  281, 

13  L.  R.  A.  315.) 

Holmes,  J,  This  is  a  bill  to  redeem  certain  stock  given  by  one 
Smith,  the  plaintiff's  insolvent,  to  the  defendant  as  collateral  security 
for  a  loan  to  Smith.  The  main  question  is  whether  the  defendant  can 
hold  the  stock  as  security,  not  only  for  the  loan  mentioned,  but  also 
for  two  acceptances  of  a  firm  of  which  Smith  was  a  member,  which 
acceptances  the  defendant  had  discounted  before  the  date  of  the  loan 
in  question.  The  note  given  by  Smith  for  the  loan  authorizes  the  de- 
fendant to  sell  the  stock  "on  the  nonperformance  of  this  promise,  said 
bank  applying  the  net  proceeds  to  the  payment  of  this  note,  and  ac- 
counting to  me  for  the  surplus,  if  any."  It  then  goes  on,  and  these 
are  the  important  words,  "and  it  is  hereby  agreed  that  such  surplus, 
or  any  excess  of  collaterals  upon  this  note,  shall  be  applicable  to  any 
other  note  or  claim  against  me  held  by  said  bank." 

The  counsel  for  the  plaintiff  based  his  argument  on  the  proposition 
that  the  right  to  apply  the  excess  of  collaterals  to  any  other  note  or 
claim  was  conditional  upon  Smith's  nonperformance  of  his  promise. 
We  think  it  doubtful  at  least  whether  that  is  the  true  construction  of 
the  words  which  we  have  quoted.  We  are  disposed  to  read  the  agree- 
ment as  an  absolute  pledge  or  mortgage  of  the  securities  for  other 
notes  and  claims.  But  if  this  be  not  so  we  are  of  opinion  that  Smith 
did  not  perform  his  promise  within  the  meaning  of  the  note.  The 
bank  demanded  payment  of  Smith  on  January  3,  1889,  and  he  made 
partial  payments,  but  failed  to  pay  the  residue  and  requested  the  bank 
to  make  the  balance  a  time  loan,  which  the  bank  refused.  This  was 
a  nonperformance  of  his  promise  by  Smith.  It  is  true  that  the  report 
states  that  it  was  understood  that  the  demand  should  not  be  pressed 
without  further  notice.  But  this  did  not  take  away  the  effect  of  the 
breach.  It  merely  called  on  the  bank  to  give  notice  before  taking  fur- 
ther steps,  such  as  selling  the  security,  and  this  it  did.     Wc  neither 


310  PARTNERSHIP  LIABILITY.  (Ch.  4 

construe  the  report  as  meaning,  nor  do  we  infer  from  it,  that  the 
breach  of  Smith's  promise  by  his  failure  to  pay  on  demand  was  waived 
by  the  bank.  On  January  3d,  if  not  before,  the  bank's  right  vested  to 
apply  any  -excess  of  collaterals  upon  other  claims. 

The  question  remains  whether  the  bank  is  entitled  to  hold  the  se- 
curity for  the  bills,  which  were  accepted  by  Smith's  firm  and  not  by 
him  individually.  It  cannot  be  denied  that  the  acceptances  were 
"claims  against  him,"  and  that  the  words  used  in  his  note  were  broad 
enough  to  embrace  firm  acceptances,  unless  there  is  some  reason  in  the 
contract,  the  circumstances,  or  mercantile  practice,  to  give  them  a  nar- 
rower meaning.  Singer  Mfg.  Co.  v.  Allen,  123  Mass.  467 ;  Chuck  v. 
Freen,  Moody  &  M.  259.  If  Smith  had  had  private  dealings  and  a 
private  account  with  the  bank  as  a  depositor,  and  his  firm  also  had  had 
dealings  and  an  account  there,  and  Smith  had  given  security  in  the 
terms  of  his.  note  in  order  to  be  allowed  to  overdraw  or  to  obtain  a 
discount,  it  may  be  that  the  generality  of  the  language  would  be  re- 
strained to  the  line  of  dealings  in  the  course  of  which  it  is  used.  Ex 
parte  ]\rcKenna  (City  Bank  Case)  3  De  Gex,  F.  &  J.  G29.  See  Lindl. 
Partn.  (5th  Ed.)  119,  and  note.  But  we  are  called  on  to  construe  a 
printed  form  used  by  the  bank,  and  presented  by  it  for  those  who  bor- 
row from  it  to  sign.  The  question  is,  what  is  the  reasonable  inter- 
pretation of  such  words?  When  insisted  on  as  a  general  formula  to 
be  used  by  would-be  borrowers,  irrespective  of  any  special  course  of 
business  of  the  particular  person  who  signs  it,  which,  for  the  matter 
of  that,  there  does  not  appear  to  have  been  in  this  case.  For  all  that 
appears,  the  note  mentioned  may  have  been  the  only  transaction  that 
ever  took  place  between  the  defendant  and  the  plaintiff  alone.  The 
printed  form,  it  may  be  assumed,  would  have  been  used  by  the  bank 
equally  in  a  case  where  the  borrower  was  the  principal  man  in  his 
firm,  and  the  only  one  known  to  the  bank,  was  borrowing  for  his  firm 
daily,  and  had  never  borrowed  for  himself  but  in  this  instance,  and  in 
a  case  where  the  borrower's  membership  in  a  firm  whose  notes  the 
bank  held  was  unknown.  This  being  so,  in  the  opinion  of  a  majority 
of  the  court  there  is  no  sufficient  reason  for  not  giving  the  words  their 
full  legal  effect.  The  clause  pledging  the  property  for  any  other  claim 
against  the  debtor  is  not  inserted  with  a  view  to  certain  specific  debts, 
but  as  a  dragnet  to  make  sure  that  whatever  comes  to  the  creditor's 
hands  shall  be  held  by  the  latter  until  its  claims  are  satisfied.  Corey 
on  Accounts  and  Lindley  on  Partnership  have  made  it  popular  to  refer 
to  a  mercantile  distinction  between  the  firm  and  its  members.  But 
we  have  no  doubt  that  our  merchants  are  perfectly  aware  that  claims 
against  their  firms  are  claims  against  them,  and  when  a  merchant  gives 
security  for  any  claim  against  him,  and  there  is  nothing  to  cut  down 
the  literal  meaning  of  the  words,  he  must  be  taken  to  include  claims 
^against  him  as  partner. 
Bill  dismissed. 


Sec.  3)  EXTENT   OF    LIABILITY    IN    CONTRACT.  311 

.   BANK  OF  BUFFALO  v.  THOMPSON  et  a1. 

(Court  of  Appeals  of  New  York.  1890.     121  N.  Y.  2S0,  24  N.  E.  473.) 
See  ante,  p.  152,  for  a  report  of  the  case. 


JUDD  LINSEED  &  SPERM  OIL  COMPANY  v.  HUBBELL  et  al. 

(Court  of  Appeals  of  New  York.   1879.     76  N.   Y.  543.) 

Danfortii,  J.  There  are  appeafs  in  this  case  from  two  orders  of 
the  General  Term  of  the  Court  of  Common  Pleas  in  the  city  of  New 
York — one  (of  January  6th)  reversing  an  order  of  the  Special  Term 
of  that  court  and  directing  an  amendment  of  the  judgment  in  this 
action,  and  the  other  (of  February  3d)  denying  a  motion  made  by 
the  plaintifif  to  amend  and  resettle  the  first  order.  If  the  court  had 
power  to  make  the  order  of  January,  they  could  amend  or  refuse  to 
amend  it,  and  their  determination  is  final ;  and,  although  many  ques- 
tions have  been  argtied  by  counsel  concerning  this  matter,  one  only  is 
properly  before  us  for  review.  Had  the  court  power  to  make  the 
order?  Evidently  it  had,  unless  restrained  by  that  provision  of  the 
statute  which  declares  that  "no  judgment  in  any  court  of  record  shall 
be  set  aside  for  irregularity  on  motion,  unless  such  motion  is  made 
within  one  year  aitet  the  time  such  judgment  was  rendered."  Title 
4,  pt.  3,  c.  6,  art.  1,  §  2,  p.  359  (1st  Ed.)  2  Rev.  St.  As  the  judg- 
ment was  rendered  on  the  27th  of  April,  1872,  and  the  order  did  in 
effect  set  it  aside  and  was  made  on  motion,  notice  of  which  was  not 
served  until  January,  1S77,  it  is  apparent  that  it  is  necessary  to  de- 
termine whether  the  cause  upon  which  the  court  acted  was  or  not 
an  irregularity  and  nothing  more. 

At  the  outset  the  plaintiff  was  called  upon  "to  show  cause  why  the 
judgment  should  not  be  vacated  and  set  aside  as  irregular,  in  that  a 
several  judgment  is  entered  against  the  defendant  Hubbell  for  $40,- 
950.29,  and  a  several  judgment  is  entered  against  the  defendant  Tay- 
lor for  $43,420.70,  instead  of  a  judgment  against  the  defendants  joint- 
ly, pursuant  to  the  summons  and  complaint,  also  as  unauthorized  by 
law."  The  moving  papers  establish  beyond  controversy  that  the  cause 
of  action  was  a  joint  liability  on  the  part  of  Hubbell  and  Taylor  as  co- 
partners. This  the  complaint  alleged,  the  defendant  Hubbell  by  his 
default  admitted,  and  the  defendant  Taylor  has  had  that  fact  found 
against  him  by  a  referee,  and  by  his  silence  acquiesces  in  the  finding. 
Upon  that  determination  the  plaintiffs,  at  the  same  time  and  by  means 
of  the  same  record  or  judgment  roll,  took  judgments  against  the  de- 
fendants separately,  as  stated  in  the  order  to  show  cause.  This  was 
clearly  irregular;  but  we  think  it  was  nothing  more.  The  plaintiffs 
did  not  adhere  "to  the  prescribed   rule  or  mode  of  proceeding,"  by 


312  PARTNERSHIP  LIABILITY.  (Ch.  4 

which  they  were  entitled  to  a  joint  judgment,  and  which  a  due  and 
orderly  conduct  of  the  suit  required  them  to  take.  But  this  defect 
was  merely  technical,  and  does  not  affect  any  substantial  right  of  the 
adverse  party.  It  does  not  in  any  way  increase  the  liability  of  the 
defendant,  for  upon  each  partner  rests  an  absolute  liability  for  the 
whole  amount  of  every  debt  due  from  the  partnership  (Parsons  on 
Partnership  [2d  Ed.]  63)  ;  and,  although  originally  a  joint  contract, 
it  may  be  separate  as  to  its  effects.  Though  all  are  sued  jointly,  and 
a  joint  judgment  obtained,  and  a  joint  execution  taken  out,  yet  it  may 
be  enforced  against  one  only.  Each  partner  is  answerable  for  the 
whole,  and  not  merely  for  his  proportionable  part;   and,  as  the  judg- 

.  ments  were  taken  against  each  partner  for  a  partnership  debt,  the 
partnership  property  is  bound  to  the  same  extent  as  if  there  had  been 
but  one  judgment  for  the  whole  against  both  partners.    Brinkerhoff  v. 

/  Marvin,  5  Johns.  Ch.  326.  Nor  does  the  form  of  the  judgment  in 
any  Avay  affect  the  debtor's  relations  with  his  copartner ;  for,  if  he 
pays  the  debt  or  judgment,  he  will  be  entitled  to  contribution,  or  to 
a  credit  for  the  sum  paid,  in  any  accounting  respecting  the  partnership 
affairs. 

The  order  of  the  General  Term,  made  Janu^try,  1879,  reversing 
the  order  of  the  Special  Term,  should  be  reversed,  and  the  order  of 
Special  Term  affirmed;  and  the  appeal  from  the  order  of  the  General 
Term,  made  February,  1879,  should  be  dismissed,  without  costs  to 
either  party. 


HOLMES  V.  BURTON  et  al. 

(Supreme  Court  of  Vermont,  1837.  '  9  Vt.  2.j2,  31  Am.  Dec.  621.) 

This  was  an  action  of  assumpsit,  in  three  counts,  against  the  de- 
fendants, as  joint  partners  with  one  Levi  Blood,  under  the  firm  of 
Levi  Blood  &  Co.  The  first  count  was  upon  a  note,  alleged  to  have 
been  signed  by  said  Levi  Blood,  "for  the  interest,  profit,  and  benefit 
of  the  said  firm  of  Levi  Blood  &  Co."  The  second  and  third  counts 
were  for  a  horse  sold  by  plaintiff  to  defendants.  The  defendants  plead- 
ed non  assumpsit.  Issue  joined  to  the  court.  On  the  trial  of  said 
issue  the  plaintiff  proved  the  following  facts,  to  wit :  In  the  years  1834 
and  1835,  the  defendants,  together  with  Levi  Blood,  were  copartners 
in  trade,  and  carried  on  a  retail  store  at  Post  Mills  village,  under  the 
name  and  style  of  Levi  Blood  &  Co.  The  business  was  conducted  by 
said  Levi  Blood.  He  occasionally  purchased  and  exchanged  horses, 
sometimes  paying  therefor,  in  part,  in  goods  from  said  store.  Of  this 
course  the  defendants  had  occasionally  expressed  disapprobation. 
Neither  of  the  defendants  resided  in  the  immediate  vicinity  of  the  store. 
In  February  or  March,  1835,  Blood  purchased  of  the  plaintiff  a  horse, 
for  which  he  gave  the  note  in  question,  signed  in  his  own  name.  This 
horse,  together  with  two  others,  he  sold  in  April,  1835,  for  $275.    The 


Sec.  3)  EXTENT   OF   LIABILITY    IN    CONTRAC3T.  313 

price  at  which  he  sold  this  horse  was  $100.  This  money  was  by  him 
put  into  the  other  money  of  the  concern,  and  entered  on  their  cash 
book  as  money  received  for  horses  sold.  In  June,  1S3.5,  Blood  bought 
a  horse  of  J.  Eastman,  for  which  he  first  executed  his  own  note;  but, 
Eastman  insisting  on  the  name  of  the  company,  Blood  added  to  his 
name  the  words  "&  Co."  After  this  the  defendants  and  Blood  dis- 
solved, and  Blood  left  the  country.  Upon  this  dissolution  it  appeared 
that,  in  taking  an  account  of  the  condition  of  the  concern,  among  the 
debts  outstanding  against  the  firm  was  entered  this  note  of  Harry 
Holmes.  When  Blood  left  the  concern,  one  Brown  was  received  by 
the  defendants  as  the  acting  partner,  and  to  this  new  concern  passed 
all  the  goods  of  the  former  one,  and  the  horse  so  bought  of  Eastman 
and  two  other  horses,  which  Blood  then  had.  It  did  not  appear  directly 
that  the  defendants  knew,  at  the  dissolution,  in  what  manner  this  note 
was  signed.  Brown,  for  the  new  concern,  paid  Eastman  his  note  afore- 
said. These  were  the  whole  facts  proved.  The  court  rendered  judg- 
ment for  the  plaintifif,  to  which  the  defendants  excepted,  and  the  cause, 
passed  to  this  court. 

Phelps,  J.  We  are  of  opinion  that  the  plaintiff  cannot  recover 
upon  either  count  in  his  declaration.  Not  upon  the  first  count,  for 
the  note  is,  on  the  face  of  it,  the  individual  note  of  Blood,  and  not  of 
the  partners.  Here  is  an  open,  notorious  partnership,  and  the  paper 
does  not  profess  to  bind  them.  Had  the  defendants  been  dormant 
partners,  the  case  would  have  been  different.  The  signature  might 
then  be  understood  to  be  that  of  the  firm,  and,  with  proper  averments 
and  proof,  the  plaintiff  might  recover  against  them.  But  here  there 
is  a  partnership,  open  and  notorious,  and  upon  the  face  of  the  note 
the  presumption  is  that  the  plaintiff  relied  upon  the  responsibility  of 
Blood  alone. 

Under  the  second  count  the  question  is  whether  the  plaintiff  can 
resort  to  the  consideration  of  the  note  and  recover  as  for  goods  sold. 
The  first  difficulty  in  this  course  is  that  the  note  itself  is  evidence  that 
the  horse  was  not  sold  to  the  firm,  nor  upon  their  credit.  It  has  been 
held  that,  if  money  be  advanced  to  a  firm  upon  the  individual  secur- 
ity of  one  partner,  the  firm  are  not  liable.  This  rule  holds  where 
the  partnership  is  public,  although  it  may  not  apply  to  the  case  of  a 
dormant  partnership.  It  goes  upon  the  ground  that  the  creditor  elects 
to  take  the  individual  security.  Secondly.  This  not  being  the  case 
of  a  dormant  partnership,  the  plaintiff  cannot  recover  upon  his  gen- 
eral count,  unless  he  is  at  liberty  to  repudiate  the  note,  and  can  also 
recover  upon  the  sale,  as  if  no  note  had  been  given.  He  cannot  re- 
pudiate the  note,  because  there  was  no  fraud  nor  concealment;  and, 
further,  it  is  not  a  case  where  the  presumption  would  arise  that  the 
purchase  was  made  in  behalf  of  the  partnership.  The  purchase  of 
horses  is  not  within  the  legal  scope  of  the  partnership,  and  one  part- 
ner has  no  authority  to  bind  the  other  in  this  way.  It  is  said  it  is 
customarv  for  mercantile  firms  in  the  countrv  to  deal  in  horses.     This 


314  PARTNERSHIP  LIABILITY.  (Ch.  4 

will  not  vary  the  case.  If  a  particular  firm  have  dealt  in  this  way,  it 
will  afford  evidence  in  such  case  of  an  authority  in  one  partner  to 
bind  the  other;  but,  although  the  practice  is  common,  it  does  not 
follow  that  it  is  a  legal  consequence  of  the  connexion.  Here,  then, 
is  a  case  where  a  contract  is  made,  not  within  the  scope  of  the  part- 
nership, and  where  the  partner  has  not  pledged  the  credit  of  the  part- 
nership, but  his  own.  He  had  neither  authority  to  bind  his  fellows, 
nor  did  he  attempt  to  do  so.  How,  then,  can  the  plaintiff  recover? 
The  cases  cited  by  the  plaintiff  are  cases  where  the  purchase  was  within 
the  scope  and  for  the  benefit  of  the  partnership.  It  is  said,  also,  that 
the  defendants  may  be  considered,  quoad  this  purchase,  as  dormant 
partners.  Such  a  precedent  would  be  dangerous  in  the  extreme.  It 
w^ould  obliterate  the  distinction  between  partnership  debts  and  the 
individual  debts  of  the  partner,  and  it  would  be  at  variance  with  the 
settled  law  on  the  subject.  The  defendants  may,  indeed,  have  had 
the  ultimate  proceeds  of  the  transaction.  But  this  is  not  enough. 
Property  may  go  to  the  ultimate  benefit  of  a  firm,  and  still  the  part- 
ners may  not  be  liable.  If  there  be  any  case  in  which  one  partner  can 
purchase  property  or  loan  money  to  be  put  into  a  partnership  on  his 
own  account,  the  argument  fails.  But  there  is  no  satisfactory  evidence 
that  the  defendants  had  the  benefit  of  this  purchase.  The  money  for 
which  the  horse  was  sold  went  into  the  concern,  but  upon  what  con- 
ditions does  not  appear.  For  aught  we  know,  'Blood  credited  himself 
with  the  money.  As  to  the  supposed  adoption  of  the  proceeding  by 
the  defendants,  it  is  sufficient  to  say  that  it  does  not  appear  that  they 
ever  adopted  it  or  recognized  the  deJDt  as  their  own.  The  entering  it 
as  a  debt  of  the  concern  was  the  act  of  Blood,  and  it  does  not  appear 
that  the  defendants  then  knew  how  the  note  was  signed.  They  could 
not  be  bound  by  any  adoption  of  the  act,  unless  with  full  knowledge 
of  all  the  circumstances. 

Judgment  reversed,  and  cause  remanded.  \ 


PETERSON  V.  ROACH. 

(Supreme  Coiirt  Commission  of  Ohio,  1877.    32  Ohio  St.,  374.  30  .\m.  Rep.  607.) 

Scott,  J.  The  sole  question  in  this  case  is  as  to  the  sufficiency  of  the 
facts  stated  in  the  petition  of  the  plaintiff  in  the  court  below  to  con- 
stitute a  cause  ©fraction.    Was  the  demurrer  to  it  properly  sustained? 

The  action  was  brought  against  the  defendants,  McCreath  &  Roach, 
as  partners,  to  recover  a  sum  of  money  alleged  to  have  been  paid  by 
the  plaintiff  as  surety  for  the  firm.  This  payment  is  alleged  to  have 
been  made  in  satisfaction  of  a  judgment  recovered  against  him  and 
McCreath  alone,  upon  two  promissory  notes  executed  by  McCreath 
individually  and  by  the  plaintiff  as  surety,  for  money  borrowed  by 
McCreath  of  one  foberin  for  the  use  of  the  firm.     There  is  no  aver- 


Sec.  3)  EXTENT    OF   LIABILITY    IN    CONTRACT.  315 

mcnt  in  the  petition  that  the  money  borrowed  of  Toberin  was  loaned 
by  him  to  the  firm  of  AlcCreath  &  Roach.  On  the  contrary,  the 
averment  is  that  the  money  was  loaned  to  the  defendant,  William 
•  McCreath. 

It  is  not  alleged  tliat  said  firm  was  doing  business  under  the  firm 
name  of  William  McCreath,  or  that  the  notes  given  for  its'  payment 
were  executed  in  the  firm  name.  On  the  contrary,  it  is  averred  that 
"said  defendant,  William  McCreath,  signed  said  notes  in  his  in- 
dividual name."  A  recovery  is  not  sought  against  Roach  as  a  dormant 
or  secret  partner,  who  permitted  the  firm  business  to  be  carried  on 
in  the  sole  name  of  McCreath,  while  he  kept  his  own  connection  there- 
with concealed  from  the  world.  So  far  as  appears  from  the  petition, 
the  partnership  was  open,  public,  and  notorious ;  and  it  is  not  averred 
that  the  plaintiff  became  surety  on  the  notes  at  the  request  of  the  firm, 
or  of  Roach,  but  simply  at  the  request  of  McCreath. 

It  is,  however,  averred  that  the  money,  to  secure  the  repayment  of 
which  the  notes  were  given,  was  loaned  to  ]\IcCreath  on  account  of, 
and  for  the  use  of,  the  partnership,  and  was  in  fact  used  in  the  busi- 
ness of  the  partnership,  and  that  the  plaintiff  signed  said  notes  at  the 
request  of  McCreath,  as  surety  for  the  said  partners,  and  not  for  said 
McCreath  individually,  and  in  signing  the  same  understood  that  he 
was  becoming,  and  in  fact  did  become,  surety  for  said  partners  jointly, 
and  not  for  said  McCreath  as  an  individual. 

In  so  far  as  these  averments  may  be  understood  as  importing  that 
the  loan  was  made  to  the  firm,  or  on  its  credit,  and  that  the  plaintiflf 
became  surety  for  the  firm,  we  think  they  must  be  regarded  as  con- 
clusions of  law  drawn  by  the  pleader  from  the  facts  stated ;  that  is, 
from  the  facts  that  the  money  was  borrowed  for  the  use  of  the  firm, 
and  was  in  fact  applied  to  and  used  in  its  business  transactions.  A 
demurrer  does  not  admit  the  truth  of  such  conclusions.  If  they  are 
to-  be  regarded  as  allegations  of  fact,  they  are  inconsistent  with,  and 
are  negatived  by,  the  other  averments  of  the  petition ;  for  the  notes 
themselves  (copies  of  which  are  appended  to  the  petition),  in  con- 
nection with  the  averments  of  the  petition,  evidence  a  transaction  and 
contract  to  which  the  firm  was  not  a  party.  They  show  that  the  moneys 
were  loaned  on  the  credit  of  notes  executed  by  a  single  member  of 
the  firm,  in  his  individual  name,  and  by  the  plaintiff  as  his  surety. 
They  show  that,  if  the  plaintifif  signed  the  notes  as  a  surety,  his  sole 
principal  was  W^illiam  McCreath.  In  the  absence  of  any  allegation 
of  fraud  or  mistake,  the  plaintiff  cannot  be  permitted  by  averment 
to  contradict  the  plain  terms  of  his  own  written  contract.  The  notes 
must  speak  for  themselves,  and  they  purport  to  be  made  by  and  in 
behalf  of  William  McCreath  and  the  plaintifiE  only. 

The  questions  raised  by  the  demurrer  to  this  petition  are,  then,  as 
we  think,  substantially  these :  Where  a  partner,  on  the  security  of 
a  note  signed  by  him  individually  and  by  another  as  his  surety,  bor- 
rows money  for  the  use  of  the  partnership,  and  which  is  in  fact  ap- 


316  PARTNERSHIP  LIABILITT.  (Ch.  4 

plied  to  partnership  purposes,  does  the  money  so  borrowed  become 
a  partnership  debt?  And,  if  payment  of  the  note  be  enforced  against 
such  surety,  does  he  thereby  acquire  a  right  of  action  against  all  the 
partners,  as  his  principals?  Both  upon  principle  and  authority  we 
think  these  questions  must  be  answered  in  the  negative.  "Where  one 
partner  borrows  money  on  his  individual  credit,  and  afterward  ap- 
plies it  to  the  payment  of  partnership  debts,  or  loans  it  to  the  firm, 
it  does  not  entitle  the  original  lender  to  consider  himself  a  creditor 
of  the  firm,  and  to  enforce  payment  against  them."  Jaques  v.  Mar- 
quand,  6  Cow.  (N.  Y.)  497  (per  Sutherland,  J.,  citing  Ex  parte 
Hunter,  1  Atk.  223;  Parkin  v.  Caruthers,  3  Esp.  250).  The  plaintiff 
here  became  surety  for  an  individual  member  of  a  firm,  on  an  express 
separate  contract  made  between  him  and  Toberin.  If  the  money  bor- 
rowed was  subsequently  applied  by  McCreath  to  the  use  of  the  part- 
nership, he,  and  not  Toberin,  thereby  became  the  creditor  of  the  firm. 
For  moneys  procured  by  McCreath  on  his  individual  credit,  and  used 
for  the  partnership  benefit,  there  can  be  no  doubt  that  he  would  be 
entitled  to  a  credit  in  his  account  with  the  finn,  and  it  would  seem  un- 
reasonable that  the  other  partner  should,  besides,  be  liable  to  the  lender 
on  a' contract  to  which  he  was  not  even  an  ostensible  party  and  of 
wliich  he  may  have  had  no  knowledge. 

In  Beaven.  v.  Lewis,  2  Eng.  Ch.  376,  it  was  held  that,  if  a  partner 
borrows  a  sum  of  money  and  gives  his  own  security  only  for  it,  it 
does  not  become  a  partnership  debt  by  being  applied  to  partnership 
purposes  with  the  knowledge  of  the  other  partner. 

The  same  was  held  in  Willis  v.  Hill,  19  N.  C.  231,  31  Am.  Dec. 
412.  So,  in  a  recent  case  in  New  York,  it  was  held  by  the  Court  of 
Appeals  that  "where  money  is  loaned  upon  the  promissory  note  of 
one  member  of  a  copartnership,  and  upon  his  individual  credit,  the 
fact  that  the  money  was  applied  to  the  payment  of  the  partnership 
debts  does  not  constitute  the  lender  a  creditor  of  the  firm.  It  is  only 
in  cases  where  the  name  used,  and  to  which  credit  is  given,  is  that 
adopted  by  the  firm  and  used  to  designate  the  partnership,  that  it  is 
held  hable."  National  Bank  of  Salem  v.  Thomas,  47  N.  Y.  15.  See, 
also,  Emily  v.  Lye,  15  East,  7.  Such,  we  think,  is  the  well-settled 
rule  where  the  question  arises  between  the  lender  and  the  partnership. 
And  it  cannot  be  otherwise  where  the  surety  of  the  borrower  is  the 
plaintiff".  His  principal  can  only  be  one  who  is  liable  for  the  debt. 
And,  unless  such  liability  attaches  to  the  partnership,  he  cannot  claim 
that  the  relation  of  principal  and  surety  subsists  between  the  partners 
and  himself. 

We  are  therefore  of  opinion  that  the  court  of  common  pleas  did  not 
err  in  sustaining  the  demurrer  to  the  petition  of  the  plaintiff  below, 
and  that  its  judgment  was  properly  affirmed  by  the  district  court. 

Judgment  of  district  court  affirmed. 


Sec.  3)  EXTENT   OF   LIABILITY   IN    CONTRACT.  317 

YORKSHIRE  BANKING  CO.  v.  BEATSON  et  aL 

(L.   R.  5  C.  P.  D.    109.) 
See  ante,  p.  157,  for  a  report  of  the  case. 


MAFFET  et  al.  v.  LEUCKEL. 
(Supreme  Court  of   Pennsylvania,   1880.     93  Pa.   468.) 

Assumpsit  by  F.  Leuckel  against  W.  R.  Maffet  and  W.  T.  Rhoads, 
late  partners  as  Maffet  &  Rhoads,  for  a  sum  alleg-cd  to  be  due  to 
plaintiff  by  the  firm.  The  case  was  referred  to  a  referee,  G.  R.  Bed- 
ford, Esq.,  who  reported  the  facts  as  follows : 

'That  the  defendants,  during  the  year  1SC6,  were  partners  engaged 
in  building  a  section  of  the  Lehigh  &  Susquehanna  Railroad.  That 
upon  the  2Tth  day  of  November,  1S66,  W.  T.  Rhoads,  one  of  the  de- 
fendant firm,  applied  to  the  plaintiff  for  $200,  representing  that  he 
wished  the  same  for  the  purpose  of  paying  the  men  in  the  defendants' 
employ,  and  thereupon  the  said  amount  was  advanced  by  the  plaintiff, 
and  the  sum  was  used  by  Rhoads  for  the  purpose  mentioned ;  he  giving 
the  plaintiff  a  note,  of  which  the  following  is  a  copy : 
'"$200.  Mauch  Chunk,  Pa.,  Nov.  27,  1866. 

"  'One  day  after  date  I  promise  to  pay  to  the  order  of  F.  Leuckel, 
at  the  First  National  Bank  of  ]\Iauch  Chunk,  $200,  without  defalca- 
tion, for  value  received.  W.  T.  Rhoads.'  " 

The  referee  in  his  report,  inter  alia,  said : 

"That  a  note  given  by  one  partner  for  a  debt  of  the  firm  is  not  an 
extinguishment  of  the  original  debt,  unless  so  agreed  when  the  note 
was  given,  is  too  well  settled  to  admit  of  argument.  The  burden  of 
proof  is  upon  the  defendant  to  show  that  the  note  was  taken  in  pay- 
ment and  satisfaction,  and  «ot  as  collateral  security.  See  Mason  v. 
Wickersham,  4  Watts  &  S.  100;  Tams  v.  Hitner,  9  Barr,  441-418. 
As  the  referee  conceives,  it  makes  no  difference,  in  principle,  whether 
the  debt  is  an  antecedent  one  or  one  that  is  created  at  the  time  the 
security  is  given.  It  is  true  that  it  has  been  held  that,  if  a  partner 
borrow  money  and  give  his  own  security  for  it,  it  does  not  become  a 
partnership  debt  by  being  applied  to  partnership  purposes.  It  is  treated 
as  the  discount  of  a  note,  and  not  the  loan,  and  hence  is  not  affected 
by  the  subsequent  use  to  which  the  money  is  applied.  See  Graetl  v. 
Hitchman,  5  Watts,  454.  But  the  presumption  of  the  advance  on  the 
credit  of  the  individual  partner  may  be  rebutted;  and  where,  as  in 
this  case,  at  the  time  of  obtaining  the  money  the  reason  for  the  loan 
and  the  uses  to  which  it  was  to  be  applied  were  distinctly  stated,  and 
were  understood  by  both  the  lender  and  the  borrower,  and  the  money 
was  in  fact  so  used,  the  inference  is  a  fair  one  that  the  advance  was 
on  the  credit  of  the  partnership." 


818  PARTNERSHIP  LIABILITY.  (Ch.  4 

The  referee  was  therefore  of  opinion  "that,  though  the  defendant 
firm  are  not  liable  on  the  note  as  such,  yet  they  are  responsible  under 
the  money  counts,  and  hence  that  the  plaintiff  is  entitled  to  recover 
in  this  action  the  amount  mentioned  in  said  note,  with  interest  from 
the  27th  day  of  November,  1866." 

Exceptions  were  filed  to  the  report  of  the  referee,  which  the  court 
dismissed,  and  confirmed  the  report,  when  the  defendants  took  this 
writ. 

Per  Curiam.  There  was  nothing  in  the  form  of  the  note  produced 
in  evidence  to  preclude  the  plaintiff  from  showing  that  it  was  given 
for  a  partnership  debt — that  it  was  not  accepted  in  satisfaction,  but 
merely  as  collateral  security.  It  matters  not  that  the  making  of  the 
note  was  cotemporaneous  with  the  partnership  debt.  On  the  facts 
found  by  the  referee,  we  are  of  opinion  that  the  judgment  was  right. 

Judgment  affirmed. 


BROOICE  v.  WASHINGTON. 

(Supreme  Court  of  Virginia,  1851.    8  Grat,  248,  56  Aeq.  Dec.  142.) 

MoNCURE,  J.  The  suit  in  which  the  decree  from  which  the  appeal 
in  this  case  was  taken  was  rendered  was  a  suit  brought  to  recover  of 
dormant  partners  a  debt  for  which  the  ostensible  partners  had  given 
their  bonds,  but  which  the  latter  became  unable  to  pay  by  reason  of 
their  insolvency.  The  following  appear  to  be  the  facts  of  the  case, 
so  far  as  it  is  material  to  state  them:  In  1841  Perdue,  Nichols, 
Brooke,  and  Jewell  entered  into  partnership  for  carrying  on  the  iron- 
making  business  in  the  county  of  Jefferson,  and  accordingly  carried 
it  on  for  about  two  years.  Perdue  and  Nichols  resided  in  the  county 
of  Jefferson,  and  were  the  ostensible  partners.  Brooke  and  Jewell 
were  nonresidents  of  the  state,  and  their  names  did  not  appear  in  the 
style  of  the  firm,  which  was  "Perdue,  Nichols  &  Co."  It  does  not  ap- 
pear to  have  been  known  to  the  appellee,  nor  generally,  that  Brooke 
and  Jewell  were  partners;  and  it  was, proved  that  several  suits  were 
brought  by  different  attorneys  against  Perdue  and  Nichols  alone,  as 
constituting  the  firm  of  Perdue,  Nichols  &  Co.,  though  it  does  not  ap- 
pear that  there  was  any  designed  concealment  of  the  fact  that  Brooke 
and  Jewell  were  members  of  the  firm.  In  May,  1841,  the  appellee, 
Washington,  sold  and  conveyed  to  Perdue  and  Nichols  843  acres  of 
land  in  Jefferson  for  $G,200,  of  which  $1,100  was  paid  at  the  time,  and 
for  the  balance  they  gave  their  bonds,  payable  in  five  annual  install- 
ments, and  gave  a  deed  of  trust  on  the  land  to  secure  the  payment  of 
the  same.  The  cash  payment  was  made  by  the  check  of  Perdut,  Nich- 
ols &  Co.,  and  entries  were  made  on  their  books,  bearing  the  same  date 
with  the  deeds  and  bonds,  to  wit,  the  1st  of  May,  1841,  crediting 
Washington  in  account  with  the  firm  for  $G,200,  the  purchase  money 
of  the  land,  and  debiting  him  in  the  same  account  with  $1,100.  the 


Sec.  3)  EXTENT   OF   LIABILITY   IN    CONTRACT.  319 

cash  payment.  During  the  operations  of  the  partnership,  for  some  18 
months  after  the  purchase,  about  5,000  cords  of  wood  were  cut  from 
the  land  and  used  in  the  said  operations.  Portions  of  the  land  were 
also  rented  out,  and  the  rents  were  received  by  the  firm  and  entered 
on  their  books.  Brooke  had  access  to  the  books  and  looked  into  them, 
though  it  did  not  appear  that  he  ever  examined  any  account  but  his 
own.  In  December,  1842,  Perdue  and  Nichols,  in  their  individual 
names  and  by  the  partnership  name  of  Perdue,  Nichols  &  Co.,  executed 
a  deed  of  trust  to  secure  the  debts  of  the  firm  which  are  enumerated. 
Three  parcels  of  land,  besides  other  property,  were  embraced  in  the 
deed ;  but  the  land  bought  of  Washington  was  not  included,  and  the 
debt  due  to  him  was  not  mentioned  in  the  deed.  In  March,  1843, 
Washington  filed  his  bill,  charging  that  a  large  portion  of  the  value  of 
the  land  consisted  in  the  timber  and  trees  standing  on  it ;  that  the  ob- 
ject of  the  purchasers  in  buying  it  was  to  cut  off  the  timber  for  fuel 
to  supply  their  iron  \forks;  that  they  had  cut  down  and  carried  off  the 
timber  and  trees  on  the  land,  until  it  was  of  very  little  value;  that  he 
had  no  other  security  for  the  purchase  money  than  the  land  itself, 
under  the  deed  of  trust;  that  the  partnership  had  become  insolvent 
and  made  a  general  assignment  of  their  effects  for  the  benefit  of  their 
creditors,  and  his  only  mode  of  redress  to  recover  the  balance  due  him 
was  to  charge  the  same  on  the  individual  partners;  and  that  Brooke 
was  a  partner  at  the  time  of  the  sale,  though  he  was  then  ignorant 
of  the  fact,  the  name  of  Brooke  being  withheld  from  the  public — and 
seeking  to  charge  said  Brooke  as  a  member  of  the  firm  for  the  bal- 
ance of  said  debt.  Afterwards  an  amended  bill  was  filed,  charging 
that  Jewell  also  was  a  secret  partner  of  the  firm,  and  seeking  to  make 
him  liable.  Of  all  the  defendants,  Brooke  alone  filed  an  answer. 
He  placed  his  defense  upon  the  ground  that  the  purchase  was  not  made 
on  account  or  upon  the  credit  of  the  firm,  or  by  his  authority,  and 
was  not  within  the  scope  of  the  partnership,  and,  in  the  absence  of  any 
knowledge  on  the  subject  at  the  time  it  was  made,  *•  presumes  it  was 
by  Perdue  and  Nichols,  with  the  view  of  bringing  it  into  the  firm  as 
a' part  of  their  share  of  the  capital";  and  he  also  objected  to  the 
jurisdiction  of  the  court. 

The  circuit  court,  being  of  opinion  that  Brooke  and  Jewell  were 
secret  members  of  the  firm,  that  that  fact  was  unknown  to  the  appel- 
lee at  the  time  of  the  sale,  that  the  land  was  purchased  for  partnership 
purposes,  that  the  chief  value  thereof  consisted  in  its  timber  required 
as  fuel  for  the  iron  works,  and  therefore  that  such  purchase  was  a 
transaction  in  the  ordinary  course  of  business  in  conducting  the  iron 
works,  rendered  a  decree  against  all  the  parties  for  the  balance  due  to 
Washington,  after  crediting  the  proceeds  of  the  sale  of  the  land.  From 
that  decree  the  appeal  in  this  case  was  taken. 

The  case  of  Weaver  v.  Tapscott,  9  Leigh,  424.  seems  to  rule  this 
case,  and  to  show  that  there  is  no  error  in  the  decree  of  the  circuit 
court.    In  that  case  Weaver  and  Trimble  were  partners  in  the  boating 


320  PARTNERSHIP  LIABILITY.  (Ch.  4 

business  upon  James  river,  between  Rockbridge  and  Richmond.    Trim- 
ble went  to  Buckingham  and  hired  hands  to  be  employed  in  the  busi- 
ness, which  were  actually  so  employed  during  a  portion  of  the  time  that 
the  partnership  continued,  and  for  the  hire  he  executed  his  bond,  with 
Tapscott  as  surety.    Trimble,  the  principal  obligor,  havixig  become  em- 
barrassed and  left  the  state,  Tapscott,  the  surety,  waa  compelled  to 
pay  the  money,  and  filed  his  bill  to  recover  it  of  the  other  partner, 
Weaver,  who  had  not  signed  the  bonds.     He  obtained  a  decree;   and 
this  court,  consisting  of  five  judges,  unanimously  affirmed  it.     Many 
expressions  used  by  the  judges  in  that  case  are  very  apposite  to  this. 
Parker,  J.,  says:     "A  dormant  partner,  to  whom  a  vendor  gives  no 
credit,  and  whose  responsibility  constituted  no  part  of  the  considera- 
tion moving  him  to  sell,  is  liable  to  the  whole  extent  of  engagement  in 
matters  which,  according  to  the  usual  course  of  dealing,  have  reference 
tp  the  business  transacted  by  the  firm.     Robinson  v.  Wilkinson,   3 
Price,  538 ;   Saville  v.  Robertson,  4  T.  R.  720.    There  can  be  no  doubt 
that  the  hiring  of  hands  to  be  employed  in  the  boating  business  had 
immediate  reference  to  the  nature  of  the  dealings  between  Trimble 
and  Weaver.    The  trade  in  which  they  were  engaged  could  not  be  car- 
ried on  without  hands,  any  more  than  without  boats."     "If  Tapscott 
was  ignorant  of  Weaver's  being  a  partner,  it  brings  this  case  within 
the  influence  of  those  upon  secret  partnership.     Gow  on  Part.   176. 
If  he  knew  it,  but  dealt  with  Trimble  alone,  without  intending  to  re- 
lease the  partnership,  it  must  be  governed  by  the  cases  of  Bond  v. 
Gibson,  1  Camp.  185,  and  Gouthwaite  v.  Duckworth,  12  East,  421. 
It  is  only,  I  think,  in  cases  where  a  separate  credit  is  clearly  given  to 
one  of  the  partners,  to  the  exclusion  of  the  rest,  that  the  latter  are 
absolved."    "When  one  deals  with  a  partner  in  matters  relating  to  the 
partnership  business,  it  ought  to  be  inferred  that  he  deals  on  the  credit 
of  the  partnership,  unless  the  circumstances  prove  that,  though  ap- 
prised  of  the  partnership,   he  meant  to  give   individual   credit.     It 
w^ould  be  hard  to  hold  him  bound  to  prove  that  he  knew  of  the  part- 
nership and  dealt  on  its  credit."     "The  presumption  is  in  the  affirma- 
tive ;   and  to  discharge  the  firm  it  ought  to  appear  clearly  that  he  gave 
credit  to  the  individual  alone,  and  intended  to  absolve  the  other  part- 
ners."   Cabell,  J.,  says:    "It  is  perfectly  clear  that  Weaver  was  equally 
liable  with  Trimble, 'even  if  Tapscott,  at  the  time  of  the  contract,  was 
ignorant  of  the  fact  that  Weaver  was  a  partner.     And,  if  the  fact  of 
the  partnership  was  known  to  Tapscott,  Weaver  is  a  fortiori  liable, 
unless,  indeed,  it  can  be  shown  that  Tapscott,  with  this  knowledge, 
contracted  on  the  individual  credit  of  Trimble,  in  exclusion  of  that  of 
Weaver.     Nothing  of  the  kind  is  attempted  to  be  proved,  and  it  can- 
not be  presumed  without  proof.    Weaver,  therefore,  was  clearly  liable 
on  the  hiring;    and  the  cases  of  Sale  v.  Dishman,  3  Leigh,  548,  and 
McCullough  V.  Summerville,  8  Id.  415,  show  that  this  objection  wa^ 
not  extinguished  by  the  execution  of  a  bond  by  his  partner."    Tucker, 
P.,  referring  to  the  arrangement  alleged,  that  Weaver  should  find  the 


Sec.  3)  EXTENT   OF    LIABILITY    IN    CONTRACT.  321 

hands  and  Trimble  the  boats,  says  that,  even  if  it  was  made  between 
the  parties,  "yet  the  pubHc  had  nothing  to  do  with  that  arrangement, 
and,  as  Weaver  was  to  get  half  the  profits,  he  was  responsible  for  the 
hires,  since  that  interest  in  the  profits  ipso  facto  constituted  him  a 
partner."  Again  he  says :  "  'It  is  possible,'  says  Chief  Baron  Mac- 
donald,  in  Barton  v.  Hanson,  2  Camp.  97,  'that  separate  credit  may  be 
given  to  one  of  two  partners  individually;  but  the  presumption  of 
law  is  otherwise,  and  that  presumption  must  be  rebutted  by  very  clear 
evidence.  And  this  is  reasonable;  for  why  should  the  partner  desire 
to  bind  himself  and  absolve  the  concern?  Or  why  should  the  dealer 
with  him  prefer  to  bind  him  individually,  when,  if  bound  as  a  partner, 
he  is  personally  not  less  bound,  and  there  is  the  additional  security  of 
his  partner?'  In  this  case  it  is  absurd  to  suppose  that  Tapscott  took 
Trimble's  individual  responsibility,  if  he  knew  of  Weaver's  connec- 
tion with  him;  and,  if  he  did  not  know  of  it,  then  the  execution  of  a 
sealed  instrument  could  not  have  been  with  a  view  to  indicate  his  in- 
dividual responsibility,  in  contradistinction  to  that  of  the  concern." 

These  copious  extracts  are  made  from  the  opinions  of  the  judges 
in  Weaver  v.  Tapscott,  because,  nomine  mutato,  they  are  as  applical^le 
to  this  case  as  they  were  to  that,  and  because  they  leave  little  or  noth- 
ing more  to  be  said  in  this  case.  It  seems  to  be  difficult  to  find  a  dis- 
tinction between  that  case  and  this,  unless  it  be  in  the  fact  that  in  that 
case  the  bonds  were  given  for  negro  hire,  and  in  this  they  were  given 
for  the  purchase  money  of  land;  and  that  is  a  distinction  without  a 
difference,  at  least  in  principle.     *    *     * 

In  the  case  now  under  consideration  the  evidence  is  conclusive  that 
the  land  was  bought  for  partnership  purposes,  paid  for  in  part,  and 
intended  by  the  purchasers  to  be  paid  for  entirely,  out  of  partnership 
funds,  and  applied  to  partnership  purposes.  The  purchase  was  with- 
in the  scope  of  the  partnership,  for  the  operations  of  the  furnace  could 
not  be  carried  on  -  .-.hout  fuel;  and  the  best  mode  of  obtaining  it  was 
to  purchase  land  in  the  neigb.borhood  well  covered  with  wood,  as  was 
the  land  of  Washington.  All  the  partners  are  therefore  bound  for  the 
purchase  money  on  the  authority  of  the  cases  before  cited.     *     *     * 

The  court  is  therefore  of  opinion  to  affirm  the  decree. 

Decree  affirmed.^ 


BISEL  et  al.  v.  IIOBBS  et  al. 
(Siipronie  Court  of  Indiana,  1S43.     6  BlackP.  479.) 

Sullivan,  J.  Assumpsit  by  the  appellees  against  the  appellants  for 
goods,  etc.,  sold  and  delivered.  Plea,  the  general  issue.  At  the  Octo- 
ber term,  1842,  there  was  a  trial  of  the  cause,  and  a  verdict  was  ren- 
dered for  the  appellants.  A  new  trial  was  granted  at  the  April  term, 
18-43.     The  appellees  obtained  a  judgment. 

1  North  ronnsylvnnia  Coal  Co.'s  Appeal,  4.")  Pa.  ISl,  S4  .\m.  Dec.  4S7,  coutra. 
GiL.r.inT.— 21 


322  PARTNERSHIP  LIABILITY.  (Ch.  4 

At  the  request  of  the  plaintiffs  tlie  court  gave  the  following  instruc- 
tions to  the  jury,  to  which  the  defendants  excepted,  viz.:  "If  the  jury 
believe  from  the  evidence  that  Peter  Bisel  and  Selden  Martin  were  in 
partnership  in  a  distillery  at  the  time  the  corn  was  purcliased,  and  if 
they  believe  it  was  purchased  by  one  of  the  partners  for  the  use  of 
the  firm,  they  should  hold  both  liable,  although  the  plaintift's  did  not 
know  at  the  time  of  the  existence  of  the  partnership.  There  was  no 
error  in  that  instruction.  The  principle  asserted  is  that  to  give  to  the 
plaintiffs  a  right  of  action  against  the  defendants  for  the  corn  sold 
and  delivered  to  one  of  the  defendants  for  the  use  of  the  firm,  it  was 
not  necessary  that  the  plaintiffs  should  know,  at  the  time  of  the  sale 
and  the  delivery,  that  the  defendants  were  partners.  This  is  un- 
doubtedly the  law.  Even  in  respect  to  secret  partnerships,  where  the 
credit  is  given  to  the  ostensible  party,  if  it  be  in  the  course  of  the 
business  of  the  partnership  and  for  the  common  benefit,  the  secret  and 
silent  partners  are  bound;  for  those  who  are  to  receive  the  benefit 
are  also  bound  to  bear  the  burthens.  Bank  of  U.  S.  v.  Binney  et  ah, 
5  IMason  (U.  S.)  176,  Fed.  Cas.  No.  16,791.  In  the  case  of  Swan 
et  al.  V.  Steele  et  al.,  7  East,  210,  it  is  said  there  may  be  partnerships 
where  none  of  the  existing  partners  have  their  names  in  the  firm. 
Third  persons  may  not  know  who  they  are;  and  yet  they  are  all 
bound  by  the  acts  of  any  of  the  partners  in  the  name  of  the  partner- 
ship. The  same  doctrine  is  recognized  in  Vere  et  al,  v.  Ashby  et  al., 
10  B.  &  C.  288. 

The  judgment  is  affirmed. 


RICHARDSON  et  al.  v.  FARMER  et  aL 
(Supreme  Court  of  Missouri,  1865.    36  ]Mo.  36,  88  Am.  Dec.  129.) 

Wagner,  J.  This  was  an  action  brought  in  the  Greene  county  cir- 
cuit court  by  the  respondents  against  the  appellants.  The  petition  is 
founded  on  two  notes,  and  contains  two  counts.  In  the  title  to  the 
cause  Jopes  and  Farmer  are  declared  to  be  partners  in  trade  doing 
business  under  the  firm  name  of  W.  H.  Jopes.  The  first  count  then 
avers  that  defendants  executed  the  note  in  their  firm  name  in  pay- 
ment for  a  bill  of  drugs  and  medicines  bought  by  them  of  plaintiffs 
and  used  in  their  business.  The  second  count  is  the  same  as  the  first, 
except  that  it  is  alleged  that  the  defendants  executed  the  note  sued  on 
in  their  firm  name  of  W.  H.  Jopes. 

Jopes  did  not  appear  to  the  action.  Farmer  filed  his  answer,  denying 
the  existence  of  the  partnership  under  the  name  and  style  of  W.  H. 
Jopes,  or  under  any  other  name  or  style,  and  averring  that  the  notes 
sued  on  were  the  separate  and  individual  notes  of  the  said  Jopes,  and 
executed  for  his  own  benefit.  A  jury  was  impaneled  to  try  the  issue, 
and  at  the  instance  of  the  plaintiff  the  court  gave  several  instructions, 
the  fifth  and  last  of  which  is  as  follows:    "A  dormant  partner  is  lia- 


Sec.  3)  EXTENT   OF    LIABILITY   IN    CONTRACT.  323 

ble,  whenever  found,  for  goods  purchased  and  used  for  the  benefit 
of  the  firm,  and  the  accepting  by  plaintiffs  of  the  notes  sued  upon  in 
payment  for  a  bill  of  drugs  purchased  by  W.  H.  Jopes  of  them,  and 
the  acceptance  of  said  note  in  payment  therefor,  if  said  drugs  were 
used  for  the  partnership  benefit  of  W.  II.  Jopes  and  \V.  B.  Fanner, 
may  not  be  an  acceptance  of  the  liability  of  W.  H.  Jopes  alone,  or  an 
exclusive  credit  to  him,  but  was  binding  upon  all  for  whom  W.  H. 
Jopes  acted."  To  the  giving  of  all  of  said  instructions  the  defendants 
at  the  time  excepted. 

Defendants  then  asked  the  court  to  give  several  instructions  in 
their  behalf,  all  of  which  were  given  exdept  the  first ;  and  to  the  deci- 
sion of  the  court  in  refusing  to  g^ve  said  first  instruction  they  also  ex- 
cepted. 

The  jury  found  a  verdict  for  plaintiffs,  and  defendants  made  their 
motion  in  arrest  of  judgment,  and  also  a  motion  for  a  new  trial,  both 
of  which  motions  were  overruled  by  the  court,  and  defendants  duly 
excepted,  and  Farmer  now  prosecutes  his  appeal  in  this  court. 

1.  The  instructions  given  for  plaintiffs  below,  respondents  here, 
taken  together,  fairly  presented  the  law  to  the  jury.  The  first  in- 
struction asked  by  defendants,  which  the  court  refused,  whilst  enu- 
merating a  correct  abstract  principle  of  law,  is  not  applicable  to  this 
case.  The  other  instructions  prayed  for,  and  which  were  given,  were 
of  the  most  favorable  character.  The  great  mistake  made  in  the  line 
of  argument  pursued  by  the  appellants'  counsel  is  not  paying  proper 
regard  to  the  obvious  distinction  between  partnerships  where  all  the 
members  are  open  and  notorious  and  those  where  some  are  silent  or 
dormant.  Parties  have  a  right  to  make  their  own  contracts,  to  as- 
sume extraordinary  liabilities,  or  to  take  inferior  securities  when  they 
might  have  insisted  on  greater  ones.  When  they  are  fully  cognizant 
of  all  the  facts,  and  a  specific  credit  given,  or  a  personal  liability  in- 
curred, the  law  will  not  attempt  to  interfere  and  set  up  a  new  agree- 
ment for  them,  but  wdll  leave  them  to  abide  by  their  own  engagement. 
The  maxim  "modus  et  conventio  vincunt  legem"  then  fitly  applies. 

The  case  of  Sylvester  v.  Smith,  9  Mass.  119,  merely  decides  that 
where  an  agreement  was  entered  into  between  two  persons,  one  to 
find  the  stock  and  the  other  to  do  the  labor,  and  the  profits  were  to  be 
divided  among  them  equally,  an  action  might  be  maintained  against 
the  person  buying  the  stock,  notwithstanding  the  other  person  who 
was  to  perform  the  labor  was  not  joined  with  him ;  Judge  Parker  say- 
ing that,  "notwithstanding  a  copartnership,  either  of  the. copartners 
may  undoubtedly  contract  on  his  own  account,  and  make  himself  lia- 
ble for  merchandise  bouglit  for  the  copartnership  account,  if  the  ven- 
dor chooses  to  accept  him."  In  Loyd  v.  Freshfield,  2  Car.  &  P.  325, 
Abbott,  C.  J.,  held  that,  if  money  be  lent  to  one  partner  on  his  indi- 
vidual credit,  the  fact  that  it  is  applied  in  discharge  of  the  liabilities 
of  the  firm  will  not  enable  the  lender  to  sue  the  firm  for  its  repayment. 
In  Le  Roy  v.  Johnson,  2  Pet.  (U.  S.)  1S6,  7  L.  Ed.  391,  Hofiman  & 


324  PARTNERSHIP  LIABILITY.  (Cll.  4 

Johnson  were  copartners  in  trade,  a  bill  of  exchange  was  drawn  by 
Hoffman  after  the  dissolution  of  his  partnership  with  Johnson,  and 
the  proceeds  of  the  bill  went  to  pay  and  did  pay  the  partnership  debts  of 
Hoffman  &  Johnson,  which  Hoff'man  on  the  dissolution  of  the  firm  had 
assumed  to  pay.  It  was  decided  by  the  court  that  the  holder  of  the 
bill,  after  its  dishonor,  could  have  no  claim  on  Johnson  in  conse- 
quence of  the  particular  appropriation  of  the  proceeds  of  the  bill.  It 
was  admitted  that,  if  one  partner  contract  with  a  third  person  in  the 
name  of  the  firm  after  the  dissolution,  but  the  fact  of  such  dissolution 
not  being  made  public  or  known  to  such  third  person,  the  law  would 
consider  the  contract  as  being  made  with  the  firm  and  on  their  credit. 
But  when  the  partner  made  an  agreement  or  entered  into  a  contract 
with  another  in  his  individual  name,  and  upon  his  sole  personal  re- 
sponsibility, it  was  of  no  importance  for  the  other  to  know  that  the 
partnership  was  dissolved,  because  he  was  dealing,  not  with  the  firm 
and  upon  their  credit,  but  with  the  individual  with  whom  he  was  act- 
ing upon  his  own  credit. 

It  will  be  perceived  that  in  all  the  foregoing  cases  the  partnerships 
were  known,  and  their  existence  brought  home  to  the  knowledge  of 
tlie  parties  dealing  with  them.  They  were  placed  in  a  situation  to  ex- 
ercise their  right  of  election,  and  were  unquestionably  bound  by  their 
own  deliberate  acts.  They  were  not  deprived  of  the  right  of  choosing 
their  debtors,  and  there  is  no  hardship  or  injustice  in  holding  them 
to  their  choice.  But  in  the  case  of  a  dormant  or  secret  partner,  while 
the  credit  is  manifestly  given  to  the  ostensible  partner  because  no 
other  is  known  to  the  party,  yet  the  credit  is  not  deemed  to  be  exclu- 
sive; the  creditor  having  had  no  opportunity  to  elect  or  choose  his 
debtor.  , 

The  credit  will  not,  therefore,  be  presumed  to  have  been  given  on 
the  sole  arid  separate  responsibility  of  the  ostensible  partner,  but  will 
bind  all  for  whom  the  partner  acts,  if  done  in  their  business  and  for 
their  benefit.  Story  on  Part.  §  138 ;  1  Story  on  Cont.  §  226 ;  Thomp- 
son V.  Davenport,  9  Barn.  &  C.  78;  Bracken  v.  ]\Iarch,  4  Mo.  74; 
Ra>TOond  v.  Mills,  2  Mete.  (Mass.)  319;  U.  S.  Bank  v.  Binney,  5 
Mason  (U.  S.)  176,  Fed.  Cas.  No.  16,791;  Winship  v.  Bank  of  U.  S., 
5  Pet.  (U.  S.)  529,  8  L.  Ed.  216.     *     *     * 

The  judgirient  is  affirmed. 


Sec.  4)  COililENCEMENT   AND    DURATION    OF    LIABILITY.  325 

SECTION  4.— COMMENCEMENT  AND   DURATION   OF 

LIABILITY. 

I.  Assumption  of  Firm  Obligations. 


WOLFF  V.  MADDEN  et  al. 
(Supreme  Court  of  Washington,  1893.    6  Wash,  514,  S3  Pac.  975.) 

Action  by  Samuel  Wolff  against  M.  J.  Madden  and  Joshua  Green 
on  an  acceptance  of  the  Midland  Lumber  Company,  a  partnership  com- 
posed of  M.  J.  Madden  and  Wiley  J.  Brown,  of  which  firm  defendant 
Green  became  a  member  after  the  date  of  such  acceptance.  Defend- 
ant Madden  was  not  served  with  summons,  and  did  not  appear.  From 
a  judgment  in  favor  of  plaintiff,  against  defendant  Green,  the  latter 
appealed. 

Dunbar,  C.  J.  It  is  not  necessary  for  us  to  notice  appellant's  ob- 
jections to  respondent's  contention  that  the  relation  assumed  by  appel- 
lant towards  the  Midland  Lumber  Company  was  that  of  an  incoming 
partner;  for,  assuming,  for  the  purposes  of  this  decision,  that  the 
jury  correctly  found  upon  that  proposition,  we  are  unable  to  find  any- 
thing in  the  record  which  would  bind  him  as  an  incoming  partner  to 
pay  debts  of  the  partnership  which  were  contracted  prior  to  his  con- 
nection with  the  partnership.  *  *  *  Considered,  then,  as  an  incom- 
ing partner,  is  he  responsible  for  pre-existing  debts  of  the  company? 
It  is  a  universally  conceded  doctrine  that,  when  a  new  member  is  ad- 
mitted to  a  firm,  he  becomes  one  of  the  firm  for  the  future,  and  not 
for  the  past.  There  is  not  only  no  presumption  that  the  incoming 
partner  assumes  pre-existing  debts,  but  the  presumption  is  that  he 
does  not.  Without  citing  authorities,  which  are  uniform  on  this  sub- 
ject, the  rule  seems  to  be  briefly  and  concisely  stated  by  Lindley  on 
Partnership  (volume  1,  §  208)  as  follows:  "In  order  to  render  an  in- 
coming partner  liable  to  the  creditors  of  the  old  firm,  there  must  be 
some  agreement,  express  or  tacit,  to  that  effect  entered  into  between 
him  and  the  creditors,  and  founded  on  some  sufficient  consideration.  If 
there  be  any  such  agreement,  the  incoming  partner  will  be  bound  by  it, 
but  his  liabilities  in  respect  of  the  old  debts  will  attach  by  virtue  of 
the  new  agreement,  and  not  by  reason  of  his  having  become  a  part- 
ner." In  this  case  there  is  no  showing  of  anything  that  was  said  or 
done  by  appellant  that  could  reasonably  be  construed  into  a  promise 
to  become  liable  for  the  debt  sued  upon.  The  testimony  of  himself 
and  the  creditors  proves  no  more  than  that  appellant,  as  manager  for 
the  company,  recognized  the  company's  indebtedness.  He  could  do 
no  less  than  this,  as  it  was  a  fact  of  which  he  was  no  doubt  cognizant, 
but  this  is  a  different  proposition   entirely    from   acknowledging   his 


326  PARTNERSHIP  LIABILITY.  (Ch.  4 

personal  liability;  and,  even  if  there  could  be  any  such  construction 
placed  upon  his  acts  or  words,  there  is  no  showing  of,  or  attempt  to 
show,  any  consideration  for  the  promise.  In  our  judgment,  the  tes- 
timony offered  by  plaintiff  was  utterly  insufficient  to  sustain  the  judg- 
ment, and  defendant's  motion  for  a  nonsuit  should  have  been  grant- 
ed. *  *  *  The  judgment  is  reversed,  and  the  cause  remanded 
to  the  lower  court,  with  instructions  to  grant  defendant's  motion  for 
a  nonsuit,  as  prayed  for. 


R.  S.  CROSS  V.  BURLINGTON  NATIONAL  BANK. 

(Supreme  Court  of  Kansas,  1876.    17  Kan.  336.) 

Brewer,  J.  This  action  was  on  a  note  given  by  D.  Cross  &  Sons 
to  the  defendant  in  error.  The  case  was  tried  by  the  court,  without  a 
jury.  No  special  findings  were  made,  but  only  a  general  finding  in 
favor  of  the  bank.     *     *     * 

•  But  the  point  of  difficulty  lies  in  the  fact  that  the  loan  for  which 
this  note  was  given  was  originally  made  several  months  prior  to  the 
time  at  which  it  is  claimed  plaintiff  in  error  joined  the  firm,  and  it  is 
said  that  an  incoming  partner  is  not  lia,ble  for  a  prior  debt  of  the 
firm  without  a  special  promise.  As  Chancellor  Kent  says,  in  volume  3 
of  his  Commentaries,  at  page  36 :  "It  is  a  general  and  well-established 
principle  that,  when  a  person  joins  a  partnership  as  a  member,  he  does 
not,  without  a  special  promise,  assume  the  previous  debts  of  the  firm, 
nor  is  he  bound  by  them."  In  reference  to  this,  these  facts  appear: 
The  firm  of  D.  Cross  &  Sons  was  in  existence  at  least  as  far  back  as 

1871,  and  engaged  in  the  flouring  mill  business.  The  firm  then  con- 
sisted of  D.  Cross,  S.  K.  Cross,  and  Thomas  Cross.  In  the  spring  of 
1872  the  firm  borrowed  $3,500  of  the  bank,  and  gave  their  60-day  note 
therefor.  The  loan  was  continued  by  renewals  of  the  note  until  Feb- 
ruary 26,  1873,  when  the  note  in  controversy  was  given.  In  the  sum- 
mer of  1872  Thomas  Cross  went  out  of  the  firm;    and  in  the  fall  of 

1872,  as  claimed,  plaintiff  in  error  became  a  partner.  The  name  of  the 
firm  was  not  changed.  Now,  while  an  incoming  partner  does  not  by 
the  mere  fact  of  joining  the  firm  become  liable  for  its  prior  debts,  yet 
he  may  assume  such  liability,  and  it  is  a  question  of  fact  whether  he 
did  so.  And  very  slight  testimony,  the  books  say,  will  be  sufficient 
to  show  that  he  did.  Thus,  in  Ex  parte  Jackson,  1  Ves.  Jr.  131,  Lord 
Thurlow  said:  "If  any  interest  had  been  paid  upon  that  bond  by  both, 
I  should  have  considered  it  as  adopting  the  debt,  and  making  the  part- 
nership liable  for  it.  *  *  *  If  one  man,  having  debts,  takes  an- 
other into  partnership  with  him,  a  very  little  matter  respecting  those 
debts  will  make  both  liable."  And  in  Parsons  on  Part.  §  435: 
"Whether  the  new  incoming  partner  has  assumed  the  old  debts  is 
sometimes  a  difficult  question  of  law  and  fact.     It  certainly  may  be 


Sec.  4)  COMMENCEMENT    AND    DURATION    OF    LIABILITY.  327 

implied  by  circumstances;  and  what  circumstances  should  in  any  case 
imply  it  is  a  question  partly  for  the  court,  and  partly  for  the  jury. 
Paying  of  interest  on  a  debt,  or  a  knowledge  without  objection  that 
the  new  firm  pays  the  interest,  would  warrant  a  jury  in  finding  such 
an  assumption  of  the  old  debt;  and  perhaps  any  single  fact  of  a  like 
kind  would  have  the  same  effect."  See,  also,  Story  on  Part.  §§  152, 
153;  Updike  v.  Doyle,  7  R.  I.  447;  Ex  parte  Peele,  6  Ves.  Jr.  COl; 
Ex  parte  Williahis,  Buck,  16;  Ex  parte  Freeman,  Buck,  474.  And 
there  is  manifest  justice  in  this.  Where  one  joins  a  partnership,  as  in 
this  case,  he  makes  himself  a  part  of  an  entity  already  existing,  which 
has  acquired  certain  property  and  business,  and  in  acquiring  it  has 
incurred  certain  indebtedness.'  The  firm  owns  the  property,  holds  the 
business,  and  owes  the  debts.  He  becomes  one  of  that  firm.  Should 
it  require  much  evidence  to  show  that  in  entering  that  firm  he  identi- 
fies himself  fully  with  it,  becomes  in  all  respects  a  part  of  it,  and 
shares  in  its  obligations,  as  well  as  in  its  property  and  business?  It 
is  true  that  as  to  the  other  partners  there  is  a  rearrangement  of  inter- 
ests ;  but  as  to  the  property  and  business  it  is  a  continuous  thing.  When 
one  buys  a  share  in  a  corporation,  he  buys  an  interest  subject  to  debts. 
And,  while  there  is  not  the  same  legal  obligation  in  entering  a  firm, 
there  is  much  of  practical  similarity.  Applying  that  rule  to  this  case, 
we  must  sustain  the  judgment..  The  plaintiff  in  error  knew  of  the 
existence  of  this  debt.  The  interest  on  it  was,  without  any  objection 
by  him,  charged  up  to  the  firm  by  the  bank  and  entered  in  its  pass 
book.  Thus  appears  the  very  matter  specified  by  Parsons  as  sufficient 
to  warrant  a  finding  of  the  assumption  of  the  debt.  Again,  while  he 
did  not  sign  the  new  note,  and  was  not  present  when  it  was  signed,  he 
knew  that  the  bank  was  seeking  a  renewal,  and  made  no  objection  to  it. 
The  note  was  executed  in  the  name  of  the  firm,  and  was  prima  facie, 
therefore,  binding  on  all  the  members  of  the  firm  at  the  time  of  its 
execution.  It  was  a  negotiable  promissory  note,  at  90  days.  It  was 
such  a  note  as,  so  far  as  anything  in  the  record  shows,  he  would  nat- 
urally expect  a  bank  to  take.  For  banks,  as  every  one  knows,  as  a 
rule  ask  negotiable  paper.  Negotiated  for  value  before  due,  it  would 
be  eood  acrainst  all  those  who  were  members  of  the  firm  at  the  date  of 
its  execution.  With  this  before  him,  he  gives  no  caution  to  the  bank, 
and  makes  no  objection  to  the  renewal.  After  all,  there  is  but  a  ques- 
tion of  fact  in  regard  to  the  partnership,  and  the  assumption  of  the 
partnership  debts;  and.  being  but  a  question  of  fact,  it  is  a  matter 
for  the  determination  of  the  trial  tribunal.  And,  as  there  was  ample 
testimony  to  sustain  its  finding,  we  must  affirm  it,  although  the  testi- 
mony of  the  two  Crosses  is  plain,  direct,  and  positive  against  it. 
The  judgment  will  be  affirmed. 


328  PARTNERSHIP   LIABILITY.  (Cll.  4 

HICKS  et  al.  v.  WYATT  et  al. 
(Supreme  Court  of  Arkansas,  1861.    23  Ark.  .^G.) 

Hicks  and  Wyatt  being  partners  in  the  mercantile  business,  Hicks 
sold  his  interest  in  the  firm  to  one  Thompson  and  retired.  Wyatt  con- 
tinued the  business  witli  Thompson  under  the  firm  name  of  Wyatt  & 
Thompson.  This  new  firm  covenanted  with  Hicks  to  pay  all  out- 
standing debts  of  Hicks  &  Wyatt  and  to  hold  said  Hicks  harmless 
from  all  liability.  Hicks,  Arrington  &  Co.  sued  Wyatt  &  Thompson  for 
a  debt  due  plaintiffs  from  Hicks  &  Wyatt.  In  the  trial  court  judg- 
ment was  rendered  in  favor  of  defendants.     Plaintiffs  appeal. 

English,  C.  J.  *  *  *  Hicks,  Arrington  &  Co.  insist  that 
*  *  *  by  virtue  of  the  covenant  above  referred  to  the  firm  of 
Wyatt  &  Thompson  became  liable  to  pay  that  debt,  as  well  as  all  other 
debts  of  the  firm  of  Hicks  &  Wyatt.  But,  if  this  be  conceded  to  be 
true,  it  does  not  follow  that  the  firm  of  Hicks,  Arrington  &  Co.  had 
the  right  of  action  for  the  $66.66,  or  any  part  of  it,  against  the  firm 
of  Wyatt  &  Thompson.  There  was  no  privity  of  contract  between 
these  two  firms.  Wyatt  &  Thompson  covenanted  with  Hicks  to  pay 
all  of  the  debts  of  the  firm  of  Hicks  &  Wyatt,  and  to  save  him  harm- 
less on  account  of  said  debts,  and,  if  they  failed  to  pay  the  debt  in 
question,  Hicks  had  his  remedy  against  them  for  breach  of  their  cove- 
nant; .but  Hicks,  Arrington  &  Co.,  who  were  not  parties  to  the  cove- 
nant, had  no  right  of  action  against  the  firm  of  Wyatt  &  Thompson. 
Their  remedy  was  against  the  firm  of  Hicks  &  Wyatt,  and,  Hicks  be- 
ing a  member  of  both  firms,  the  remedy  was  in  equity,  and  not  at  law. 

The  judgment  must  be  affirmed.^ 


ARNOLD  et  al.  v.  NICHOLS. 

(Court  of  Appeals  of  New  York,  187G.    G4  N.  Y.  117.) 

Appeal  from  order  of  the  General  Term  of  tlie  Supreme  Court  in 
the  First  Judicial  Department,  reversing  a  judgment  in  favor  of  plain- 
tiff entered  upon  a  verdict,  and  granting  a  new  trial. 

This  action  was  brought  against  the  defendants,  as  members  of  the 
firm  of  J.  W.  Bowen  &  Co.,  to  recover  an  indebtedness  of  said  Bowen 
to  plaintiff's  testator,  which,  as  alleged  in  the  complaint,  the  said  firm 

1  In  holding  that  the  firm  creditor  cannot  take  advantage  of  a  promise,  not 
made  to  him,  to  assume  partnership  debts,  the  court  in  Shoemaker  Piano  Mfg. 
Co  V  Bernard,  2  Lea  (Teun.)  3o8,  said:  "The  rule  stands  upon  the  principle 
of  assent  by  the  party  to  be  charged  and  consent  of  the  creditor  to  accept  the 
new  liability."  In  a  similar  case,  Parmalee  v.  Wiggenhorn,  6  Neb.  322,  the 
court  said:  "There  must  be  a  novation  before  the  new  firm  is  liable;  and 
the  new  contract  must  receive  the  consent  of  all  the  parties,  and  must  have 
the  effect  to  exthiguish  the  old  contract  and  create  a  new  liability  of  debtor 
and  creditor,  •  *  •  and  such  new  contract  must  be  based  on  some  con- 
sideration." 


Sec.  4)  COMMENCEMENT   AND    DUIiATION    OF    LIABILITY.  329 

had  assumed  and  agreed  to  pay  in  consideration  of  the  transfer  to 
the  firm  by  said  Bowcn  of  the  property  and  assets  of  his  business. 

Earl,  J.  For  some  years  prior  to  the  15th  day  of  August,  18C7, 
the  defendant  Eowen  had  been  engaged  in  the  city  of  New  York  in 
the  business  of  importing  and  deaHng  in  fancy  goods,  and  on  that  day 
the  plaintiff's  testator,  Hinman,  loaned  to  him  to  be  used  in  his  busi- 
ness the  sum  of  $2,000.  Eowen  continued  in  business  alone  until  Jan- 
uary, 1868,  when  he  formed  a  copartnership  with  the  defendant  Nich- 
ols, and  Bowcn  and  Nichols,  under  the  firm  name  of  J.  M.  Bowen  & 
Co.,  continued  to  carry  on  the  business  until  May,  1869,  when  they 
dissolved.  At  the  time  of  the  formation  of  the  copartnership,  the 
evidence  tends  to  show,  and  we  must  assume  that  the  jury  found, 
that  Bowen  transferred  his  business  assets  to  the  firm  of  J.  M.  Bowen 
&  Co.,  and  that  in  consideration  thereof  the  firm  assumed  and  agreed 
to  pay  certain  specified  debts  of  Bowen,  among  which  was  Hinman's 
debt  for  the  money  loaned  as  above  stated.  It  was  expected  at  the 
time  that  the  assets  would  exceed  the  debts  assumed  by  the  firm  by 
at  least  $30,000,  and  this  excess  of  $30,000  was  to  be  credited  to  Bowen 
on  the  books  of  the  firm  as  his  share  of  capital  to  be  contributed.  The 
assets  were  not  as  large  as  expected,  but  were  shown  to  be  more  than 
sufHicient  to  pay  all  the  debts  assumed.  They  were  first  to  be  used  to 
pay  the  debts,  and  the  balance,  whatever  it  might  be,  was  to  be  cred- 
ited to  Bowen. 

Bowen  transferred  to  the  firm  the  assets  to  which  his  creditors  had 
the  right  to  look  for  the  payment  of  their  claims,  and  hence  the  prom- 
ise of  the  firm  to  pay  such  claims  must  be  deemed  to  have  been  made 
for  their  benefit.  It  was  not  made  to  exonerate  Bowen  from  the  pay- 
ment of  his  debts,  and  not  primarily  nor  directly  for  his  benefit,  as 
his  property  was  to  be  taken  to  pay  the  debts,  and  he  was  still  to  re- 
main liable  as  one  of  the  principals  to  pay  them.  This  case  is,  there- 
fore, unlike  the  case  of  Merrill  v.  Green,  55  N.  Y.  270,  and  the  ac- 
tion is  maintainable  upon  the  principles  laid  down  in  tlie  case  of 
Lawrence  v.  Fox,  20  N.  Y.  268,  and  also  recognized  in  Burr  v.  Beers, 
24  N.  Y.  178,  80  Am.  Dec.  327,  Thorp  v.  Coal  Co.,  48  N.  Y.  253,  and 
Claflin  v.  Ostrom,  54  N.  Y.  581.  Hinman  had  the  right  to  adopt  the 
promise  made  expressly  for  his  benefit.     *     *     * 

The  order  of  the  General  Term  must  be  reversed,  and  the  judg- 
ment entered  upon  the  verdict  affirmed,  with  costs. 

Order  reversed,  and  judgment  accordingly. 


330  PARTNERSHIP  LIABILITY.  (Ch.  4 

McAREAVY  v.  MAGIRL. 
(Supreme  Court  of  Iowa.  1904.     123  Iowa,  605.  99  N.  W.  193.) 

Action  in  equity  to  enjoin  collection  of  a  judginent.  Decree  for 
plaintiff,  and  defendant  appeals.     Reversed. 

Weaver,  J.  The  nature  of  the  controversy  here  presented  may  be 
stated  as  follows:  In  the  year  1889  one  D.  R.  Magirl  and  the  plain- 
tiff, McAreavy,  were  partners  in  business.  The  firm  borrowed  the 
sum  of  $200  from  Julia  McEnany  (now  Julia  Magirl,  the  defendant 
herein),  and  made  to  her  a  promissory  note  for  that  amount,  signed  in 
the  firm  name.  Thereafter,  and  while  said  note  was  still  outstanding 
and  unpaid,  the  partnership  was  dissolved,  D.  R.  Magirl  taking  the 
firm  property  and  agreeing  to  pay  the  firm  debts,  of  all  which  the  de- 
fendant had  notice.  Later  Magirl  married  the  defendant.  On  July 
28,  1898,  about  eight  years  after  the  maturity  of  the  note,  Mrs.  Ma- 
girl brought  suit  thereon  against  McAreavy,  without  making  her  hus- 
band a  defendant,  and  obtained  judgment  thereon  in  the  sum  of  $416 
and  costs.  The  judgment  has  never  been  paid.  On  November,  9, 
1900,  more  than  10  years  after  the  maturity  of  the  note,  which  had 
been  put  in  judgment  against  McAreavy,  the  latter  began  this  suit, 
alleging  that  by  virtue  of  the  terms  of  dissolution  of  partnership  by 
which  :\Iagirl  assumed  and  agreed  to  pay  this  debt  the  latter  became 
the  principal  debtor,  and  plaintiff  thereafter  stood  in  the  relation  of 
surety  only.  He  further  alleges  that,  plaintiff  having  failed  to  put 
the  note  in  judgment  against  her  husband,  her  right  of  action  therein 
has  become  barred  by  the  statute  of  limitations,  and,  having  thus  neg- 
ligently allowed  the  principal  debtor  to  escape  liability,  the  plaintiff, 
as  surety,  is  also  released,  and  upon  this  theory  he  asks  to  have  the 
collection  enjoined,  and  the  judgment  canceled. 

As  members  of  the  partnership,  both  plaintiff  and  D.  R.  Magirl  were 
equally  bound  as  principal  debtors  to  the  payee  of  the  note.  When 
Magirl  took  the  partnership  assets  and  assumed  payment  of  the  part- 
nership debts,  then,  as  between  him  and  the  plaintiff,  he  became  lia- 
ble as  the  sole  principal,  and-  plaintiff  became  his  surety  for  the  pay- 
ment of  said  note.  This  proposition  is  upheld  by  all  the  authorities, 
and  is  not;  denied  by  the  appellant.  When  we  advance  the  next  step, 
and  inquire  whether  this  change  in  the  relations  existing  between  the 
partners  affects  in  any  manner  their  relation  to  the  holder  of  the  note, 
we  find  a  marked  variance  of  views.  The  courts  of  several  states — 
notably  New  York  and  Michigan — hold  to  the  view  that,  when  a 
partner  retires  from  a  firm  under  such  an  agreement,  and  notice  thereof 
is  brought  home  to  the  creditor,  the  latter  is  bound  to  recognize  the 
new  relations  between  the  members  of  the  late  partnership,  and  any 
indulgence  thereafter  shown  to  the  partner  assuming  the  debt  which 
would  have  the  effect  to  discharge  an  original  surety  will  operate  to 
discharge   the  retiring  partner   from  further   obligation.     Millerd   v. 


Sec.  4)  COMMENCEMENT   AND    DURATION    OF   LIABILITY.  331 

Thorn,  56  N.  Y.  402 ;  Colgrove  v.  Tallman,  G7  N.  Y.  95,  23  Am.  Rep. 
90;  Smith  v.  Sheldon,  35  Mich.  42,  24  Am.  Rep.  529.  See,  also, 
Leithauser  v.  Baumeister,  47  Minn.  151,  49  N.  W.  6G0,  28  Am.  St. 
Rep.  336;  Brandt  on  Suretyship  (2d  Ed.)  §  36;  Stearns  on  Surety- 
ship, p.  24 ;  Baylies  on  Suretyship,  pp.  40,  4S1 ;  Shumaker  on  Part- 
nership, 341,  342.  The  reasoning  by  which  this  view  is  supported  is 
very  forcibly  stated  by  Folger,  J.,  in  the  Colgrove  Case,  and  by  Cooley, 
C.  J.,  in  the  Smith  Case,  and  the  writer  of  this  opinion  would  be  con- 
tent to  accept  it  as  authoritative.  The  majority  of  the  court  prefers  to 
follow  the  other  line  of  authorities  as  announcing  the  sounder  prin- 
ciple, and  the  result  arrived  at  cannot  be  said  to  be  essentially  unjust. 
It  is  in  accord  with  the  views  expressed  by  many  courts  and  law  writ- 
ers, and  is  bottomed  upon  the  proposition  that,  the  liability  of  the  part- 
ners as  principal  debtors  being  fixed  by  the  terms  of  the  original  con- 
tract, it  is  not  competent  for  them  by  any  agreement  between  them- 
selves to  change  the  nature  of  that  liability,  or  impose  upon  the  cred- 
itor, without  his  consent,  any  new  or  additional  obligation  or  duty,  a 
neglect  of  which  may  work  a  discharge  of  one  of  such  debtors  from 
his  obligation  to  pay.  The  agreement  between  the  partners  by  winch 
one  of  them  assumes  to  pay  the  entire  debt  is  regarded  res  inter  alios 
acta  as  respects  the  creditor,  who  is  neither  benefited  nor  prejudiced 
thereby.  Barnes  v.  Boycrs,  34  W.  Va.  303,  12  S.  E.  70S ;  B^ichanan 
v.  Clark,  10  Grat.  (Va.)  164;  Rawson  v.  Taylor,  30  Ohio  St.  389, 
27  Am.  Rep.  464;  2  Collyer  on  Partnership,  c.  24,  §  596;  1  Collyer 
on  Partnership,  c.  17,  §  407 ;  Story  on  Partnership,  §  334 ;  Parsons 
on  Partnership  (4th  Ed.)  §§  296,  313,  324;  Shapleigh  Hardware  Co. 
V.  Wells,  90  Tex.  110,  37  S.  W.  411,  59  Am.  St.  Rep.  783;  Hall  v. 
Jones,  56  Ala.  493 ;  White  v.  Boone,  71  Tex.  712,  12  S.  W.  51.    *    *    * 

There  is  a  class  of  cases  of  which  Lauman  v.  Nichols,  15  Iowa,  161, 
is  an  example,  in  which  it  is  held  that  a  person  signing  a  note  or  other 
obligation  as  a  joint  maker  may,  nevertheless,  allege  and  prove  that  he 
joined  in  the  execution  of  the  instrument  as  surety  only,  and,  upon 
notice  of  that  fact  being  given  to  the  holder  of  such  obligation,  even 
after  it  is  delivered,  he  is  bound  to  recognize  the  true  relations  of  the 
makers;  but  until  such  notice  is  received  he  may  enforce  payment 
against  all  makers  as  principal  debtors.  At  first  blush  these  two  lines 
of  cases  may  seem  inconsistent,  but  they  are  clearly  distinguishable. 
In  the  former  the  debtors  seek,  by  an  agreement  between  themselves 
alone,  to  change  their  relations  to  the  debt  without  the  consent  of  the 
creditor;  while  in  the  latter  the  original  and  true  relation  of  the  mak- 
ers to  the  debt  is  unchanged,  and  the  rights  and  position  of  the  surety 
are  protected  and  made  effectual  from  the  time  notice  of  such  relation 
is  brought  home  to  the  creditor.  This  distinction  is  recognized  and 
explained  in  Shapleigh  v.  Wells,  supra,  and  Rawson  v.  Taylor,  supra. 

Plaving  found  that  plaintiff  herein  is  not  entitled  to  the  rights  of 
a  surety  as  against  Mrs.  Magirl,  it  is  unnecessary  to  consider  other 
matters  presented  in  argument.    It  is  elementary  that  mere  indulgence 


332  PARTNERSHIP  LIABILITY.  (CIl.  4 

by  the  creditor  to  one  joint  debtor  will  not  serve  to  discharge  another 
joint  debtor  from  his  obligation  to  pay.  The  claim  has  been  put  in 
judgment  against  tlie  plaintiff,  and,  save  upon  the  theory  of  his  surety- 
ship, which  we  find  is  unsound,  he  offers  no  reason  why  it  should  "be 
canceled  or  annulled. 

The  decree  of  the  district  court  is  therefore  reversed. 


SMITH  V.  SHELDEN  et  al. 
(Supreme  Court  of  aiichigan,  1S76.    35  Mich.  42,  24  Am.  Rep.  529.) 

CooLEY,  C.  J.  Prior  to  June,  1867,  Eldad  Smith,  Isaac  Place,  and 
Francis  B.  Owen  were  partners  in  trade  under  the  firm  name  of  Place, 
Smith  &  Owen,  and  as  such  became  indebted  to  defendants  in  error 
in  the  sum  of  $969  on  book  account. 

In  the  month  mentioned  the  firm  was  dissolved  by  mutual  consent; 
Place  purchasing  the  assets  of  his  copartners  and  agreeing  to  pay  off 
the  partnership  liabilities,  including  that  to  the  defendants  in  error. 
On  the  '2d  day  of  the  following  month  Place  informed  the  defendants 
in  error  of  this  arrangement,  and  that  he  had  taken  the  assets  and 
assumed  the  liabilities  of  the  firm,  and  they,  without  the  consent  or 
knowledge  of  Smith  and  Owen,  took  from  Place  a  note  for  the  amount 
of  the  firm  indebtedness  to  them,  payable  at  one  day  with  10  per 
centum  interest.  They  did  not  agree  to  receive  this  note  in  payment 
of  the  partnership  indebtedness ;  but  they  kept  it  and  continued  their 
dealings  with  Place,  who  made  payments  upon  it.  The  payments, 
however,  did  not  keep  down  the  interest.  Place,  in  1ST2,  became  in- 
solvent and  made  an  assignment,  and  Smith  was  then  called  upon  to 
make  pa3'ment  of  the  note.  This  was  the  first  notice  he  had  that  he 
was  looked  to  for  payment.  On  his  declining  to  make  payment,  suit 
was  brought  on  the  original  indebtedness,  and  judgment  recovered. 

On  behalf  of  Smith  it  was  contended  that  by  the  arrangement  be- 
tween Place  and  his  copartners  the  latter,  as  between  the  three,  be- 
came the  principal  debtor,  and  that  from  the  time  when  the  creditors 
were  informed  of  this  arrangement  they  were  bound  to  regard  Place 
as  principal  debtor  and  Smith  and  Owen  as  sureties,  and  that  any 
dealing  of  the  creditors  with  the  principal  to  the  injury  of  the  sure- 
ties would  have  the  effect  to  release  them  from  liability.    *    *    * 

For  a  determination  of  the  question  whether  Smith  and  Owen  were 
entitled  to  the  rights  of  sureties,  it  seems  only  necessary  to  point  out 
the  relative  position  of  the  several  parties  as  regards  the  partnership 
debt.  Place,  by  the  arrangement,  had  agreed  to  pay  this  debt,  and  as 
between  himself  and  Smith  and  Owen  he  was  legally  bound  to  do  so. 
But  Smith  and  Owen  were  also  liable  to  the  creditors  equally  with 
Place,  and  the  latter  might  look  to  all  three  together.  Had  they  done 
so,  and  made  collections  from  Smith  and  Owen,  these  parties  would 


Sec.  4)  COMMENCEMENT   AND    DUUATION    OF    LIALILITY.  333 

have  been  entitled  to  demand  indemnity  from  Place.  This  we  believe 
to  be  a  correct  statement  of  the  relative  rights  and  obligations  of  all. 

Now  a  surety,  as  we  understand  it,  is  a  person  who,  being  liable  to 
pay  a  debt  or  perform  an  obligation,  is  entitled,  if  it  is  enforced  against 
him,  to  be  indemnified  by  some  other  person,  who  ought  himself  to 
have  made  payment  or  performed  before  the  surety  was  compelled  to 
do  so.  It  is  immaterial  in  what  form  the  relation  of  principal  and  sure- 
ty is  established,  or  whether  the  creditor  is  or  is  not  contracted  with 
in  the  two  capacities,  as  is  often  the  case  when  notes  are  given  or 
bonds  taken.  The  relation  is  fixed  by  the  arrangement  and  equities 
between  tne  debtors  or  obligors,  and  may  be  known  to  the  creditor, 
or  wholly  unknown.  If  it  is  unknown  to  him,  his  rights  are  in  no  man- 
ner affected  by  it;  but,  if  he  knows  that  one  party  is  surety  merely, 
it  is  only  just  to  require  of  him  that  in  any  subsequent  action  he  may 
take  regarding  the  debt  he  shall  not  lose  sight  of  the  surety's  equities. 

That  Smith  and  Owen  were  sureties  for  Place,  and  the  latter  prin- 
cipal debtor,  after  the  dissolution  of  the  copartnership,  seems  to  us 
unquestionable.  It  was  then  the  duty  of  Place  to  pay  this  debt  and 
save  them  from  being  called  upon  for  the  amount.  But  if  the  cred- 
itors, having  a  right  to  proceed  against  them  all,  should  take  steps  for 
that  purpose,  the  duty  of  Place  to  indemnify,  and  the  right  of  Smith 
and  Owen  to  demand  indemnity,  were  clear.  Every  element  of  surety- 
ship is  here  present,  as  much  as  if,  in  contracting  an  original  indebted- 
ness, the  contract  itself  had  been  made  to  show  on  its  face  that  one 
of  the  obligors  was  surety  merely.  As  already  stated,  it  is  immaterial 
how  the  fact  is  established,  or  whether  the  creditor  is  or  is  not  a  party 
to  the  arrangement  which  establishes  it. 

This  view  of  the  position  of  the  parties  indicates  clearly  the  right 
of  Smith  and  Owen  to  the  ordinary  rights  and  equities  as  sureties. 
The  cases  which  have  held  that  retiring  partners  thus  situated  are  to 
be  treated  as  sureties  merely  have  attempted  no  change  in  the  law,  but 
are  entirely  in  harmony  with  older  authorities,  which  have  only  ap- 
plied the  like  principle  to  different  states  of  facts  where  the  relative 
position  of  the  parties  as  regards  the  debt  was  precisely  the  same.  We 
do  not  regard  them  as  working  any  innovation  whatever  The  cases 
we  particularly  refer  to  are  Oakeley  v.  Pasheller,  4  CI.  &  Fin.  207; 
Wilson  v.  Lloyd,  L.  R.  16  Eq.  Cas.  GO,  and  Millerd  v.  Thorn,  56 
N.  Y.  402. 

And  it  follows,  as  a  necessary  result  from  what  has  been  stated,  that 
Smith  and  Owen  were  discharged  by  the  arrangement  made  by  the 
creditors  with  Place,  *  *  *  This  is  the  legal  view  of  such  a  transac- 
tion, and  in  most  cases  it  works  substantial  justice.  The  judgment 
must  be  reversed,  with  costs,  and  a  new  trial  ordered. 


fi'^^  PARTNERSHIP  LIABILITY.  (Ch.  4 


PRESTON    V.    GARRARD. 

(Supreme  Court  of  Georgia,  1904.    120  Ga.  689,  48  S.  E.  118,  102  Axo.  St.  Rep. 

124.) 

Garrard  brought  suit  against  J.  W.  <Preston  and  E.  M.  Brown,  as 
partners,  on  a  promissory  note  dated  February  2i-,  1S99,  and  due  one 
year  after  date.  Preston  filed  a  plea  setting  forth  that  the  firm  was 
dissolved  on  December  27,  1900,  all  of  the  debts  of  the  firm  being  as- 
sumed by  Brown;/  that  the  dissolution  was  known  to  plaintiff's  agent, 
who  acted  for  her  in  making  the  loan  for  which  the  note  was  given, 
and  that  the  fact  that  Brown  had  assumed  the  debts  of  the  firm  was 
also  known  to  this  agent,  who  recognized  Brown  as  the  principal  debtor 
by  treating  with  him  as  such  thereafter;  that  on  June  18,  1902,  plain- 
tiflf,  through  her  agent,  agreed  with  Brown,  upon  a  sufficient  con- 
sideration, that  she  would  extend  the  time  of  payment  of  the  note 
sued  on  to  February  24,  1903;  that  this  extension  was  granted  with- 
out the  knowledge  or  consent  of  the  defendant.  The  plea  alleges  that 
by  reason  of  these  facts  the  defendant  became,  after  the  dissolution 
of  the  firm,  merely  a  surety  for'  Brown  upon  the  debts  of  the  firm 
which  he  had  assumed  to  pay;  and  that  the  extension  of  the  time  of 
payment  of  the  note  sued  on  without  the  defendant's  knowledge  or 
consent  released  him  from  all  liability  on  the  debt.  The  court  struck 
this  plea  on  oral  motion,  and  the  defendant  excepted. 

Cobb,  J.  It  is  well  settled  that,  where  a  partnership  is  dissolved  by 
the  retirement  of  one  of  the  members,  and  the  continuing  partner  as- 
sumes the  payment  of  the  debts  of  the  firm,  the  retiring  partner,  as 
between  himself  and  his  copartner,  is  no  longer  a  principal  debtor,  but 
merely  a  surety  for  the  latter  upon  the  debts  of  the  firm.  See  22  Am. 
&  Eng.  Enc.  L.  (2d  Ed.)  185;  Shumaker  on  Part.  p.  342;  1  Bates' 
on  Part.  §  532.  Some  disagreement  among  the  courts  has  arisen  in 
fixing  the  rights  of  creditors  after  dissolution  by  the  retirement  of 
one  member  and  the  assumption  of  the  debts  by  the  other.  Of  course, 
if  a  creditor  is  a  party  to  the  agreement  made  between  the  partners, 
he  will  be  bound  by  it,  and  must  deal  with  the  retiring  partner  as  a 
surety.  All  are  agreed  as  to  this.  The  difficulty  has  arisen  in  deter- 
mining whether  mere  knowledge  by  the  creditor  of  the  dissolution 
and  the  agreement  of  the  partners  would  require  him  to  deal  thereafter 
with  the  retiring  partner  as  a  surety  with  reference  to  past  transactions 
of  the  firm.  The  case  of  Oakeley  v.  Pasheller,  4  CI.  &  F.  207,  a  de- 
cision made  by  the  House  of  Lords  in  1836,  was  supposed  to  have 
held  that  mere  knowledge  of  these  things  by  the  creditor  would  re- 
quire him  to  treat  the  retiring  partner  as  a  surety,  and  that,  if  he  ex- 
tended the  time  of  payment  of  his  debt  without  the  retiring  partner's 
knowledge  or  consent,  he  would  be  released.  But  in  the  case  of  Swire 
v.  Redman,  L.  R.  1  Q.  B.  536,  Cockburn,  C.  J.,  shows  very  clearly 
that  the  House  of  Lords  did  not,  in  Oakeley  v.  Pasheller,  intend  to 


Sec.  4)  COMMENCEMENT   AND    DURATION    OF    LIABILITY.  33.1 

rule  as  was  supposed,  but  merely  to  hold  that  the  retiring  partner  would 
be  released  only  in  the  event  the  creditor  consented  to  the  arrangement 
between  the  partners.  Some  American  courts  have  followed  what  was 
supposed  to  be  the  ruling  in  Oakeley  v.  Pasheller,  and  others  have 
adopted  the  decision  in  Swire  v.  Redman,  which  was  to  the  effect  that 
something  more  than  mere  knowledge  on  the  part  of  the  creditor  is 
required — that  he  must  expressly  consent  to  the  arrangement  between 
the  partners  before  he  will  be  bound  by  it;  and  that  in  the  absence 
of  such  consent  he  can  deal  with  the  retiring  partner  as  a  principal 
debtor  and  as  an  active  partner  so  far  as  past  transactions  are  con- 
cerned. Cases  like  Swire  v.  Redman  proceed  on  the  theory  that  when 
a  creditor's  rights  once  become  fixed  by  contract  no  agreement  on 
the  part  of  the  other  parties  to  the  contract  can  affect  those  rights  or 
change  their  relation  to  the  creditor  so  far  as  he  is  concerned ;  that 
it  is  wholly  immaterial  that  the  creditor  was  informed  of  such  an 
agreement ;  that  the  partnership  still  continues  relatively  to  his  debt ; 
and  that  any  arrangement  which  he  makes  with  the  continuing  partner 
in  behalf  of  the  partnership  will  be  binding  on  the  other.  The  other 
line  of  decisions  holds  that  whenever  the  relationship  of  principal  and 
surety  arises  between  partners  after  dissolution  and  the  assumption 
by  one  partner  of  the  debts  of  the  firm,  every  one  having  notice  of 
the  dissolution  and  the  agreement  between  them  is  bound  to  take 
notice  of  the  relationship  which  the  law  creates,  and  act  accordingly ; 
that  while  a  creditor  holding  an  obligation  of  the  firm  may  regard  the 
retiring  partner  as  an  active  partner,  so  far  as  his  debt  is  concerned, 
as  long  as  he  does  nothing  to  affect  the  status  of  his  claim,  the  moment 
he,  with  knowledge  of  the  dissolution  and  the  agreement,  does  anything 
which  would  release  an  ordinary  surety,  the  retiring  partner  will  be 
entirely  released  from  his  obligation;  that  this  is  no  hardship  on  the 
creditor,  because  he  can  protect  himself  by  granting  no  indulgence  to 
the  continuing  partner,  who  has  become  alone  the  principal  debtor, 
or  doing  anything  without  the  retiring  partner's  consent  which  would 
aft'ect  the  status  of  the  claim  to  the  prejudice  of  the  surety  partner. 
The  following  are  some  of  the  decisions  dealing  with  the  subject: 
Rawson  v.  Taylor,  30  Ohio  St.  389,  27  Am.  Rep.  464;  Gates  v. 
Hughes,  44  Wis.  332;  Millerd  v.  Thorn,  56  N.  Y.  402;  Ridgley  v. 
Robertson,  67  Mo.  App.  45 ;  Barber  v.  Gillson,  18  Nev.  89,  1  Pac.  452 ; 
Maier  v.  Canavan,  8  Daly  (N.  Y.)  272;  Johnson  v.  Young,  20  W. 
Va.  614 ;  Williams  v.  Boyd,  75  Ind.  286 ;  Leithauser  v.  Baumeister, 
47  Minn.  151,  49  N.  W.  060,  28  Am.  St.  Rep.  336;  Whittier  v.  Gould, 
8  Watts  (Pa.)  485;  Wilde  v.  Jenkins,  4  Paige  (N.  Y.)  481;  Thurber 
V.  Corbin,  51  Barb.  (N.  Y.)  215;  National  Cash  Register  Co.  v. 
Brown,  19  Mont.  200,  47  Pac.  995,  37  L.  R.  A.  515,  61  Am.  St.  Rep. 
498;  Smith  v.  Shelden,  35  Mich.  42,  24  Am.  Rep.  529.  *  *  *  Pre- 
vious decisions  of  this  court  have,  hov/ever,  settled  that  the  rule  to  be 
followed  in  this  state  is  the  one  supposed  to  have  been  announced  in 
Oakeley  v.  Pasheller.    *    *    *    The  extension  of  the  time  of  payment. 


336  PARTNERSHIP  LIABILITY.  (Ch.  4 

under  the  circumstances  alleged  in  the  plea,  had  the  effect  of  releasing 
the  defendant ;   and  the  court  erred  in  striking  the  plea. 
Judgment  reversed. 


II.  Novation. 

• 

LYTH  V.  AULT  &  WOOD. 

(Court  of  Exchequer,  18ri2.     7  Exch.  669.) 

Action  for  goods  sold  and  delivered  by  plaintiff  to  defendants.  De- 
fendant Ault  pleaded  that  the  goods  were  sold  to  defendants  as  part- 
ners; that  afterwards  defendants  dissolved  their  partnership;  that 
Wood  continued  the  business  alone ;  that  it  w^as  agreed  between  plain- 
tiff and  defendants  that  in  consideration  of  £12  part  payment  on  said 
indebtedness  and  the  promise  by  Wood  to  assume  and  pay  the  balance 
the  plaintiff  would  release  Ault  from  further  liability  and  look  only  to 
Wood.  Verdict  for  defendant  on  the  plea.  Motion  for  rule  on  de- 
fendant to  show  cause  why  judgment  for  plaintiff  should  not  be  en- 
tered on  the  plea  non  obstante  veredicto. 

Parker,  B.  *  *  *  The  principle  which  governs  this  case  is  to 
be  found  expounded  in  Tliompson  v.  Percival.  It  is  clear  that  where 
there  is  an  accord  and  satisfaction,  by  the  debtor  agreeing  to  give 
something  totally  different  in  its  nature  from  thie  debt,  and  which  the 
creditor  agrees  to  accept  in  satisfaction  of  the  debt,  the  court  cannot 
inquire  into  the  value  of  that  which  is  the  subject-matter  of  the  new 
agreement,  and  therefore  there  is  nothing  to  prevent  the  parties  from 
agreeing  that  a  horse,  or  bill  of  exchange,  or  any  other  commodity, 
shall  be  given  in  satisfaction  of  a  larger  demand.  There  is  a  very 
strong  case  to  be  found  in  Dyer,  of  Andrew  v.  Boughey,  Dyer,  75a, 
where,  to  a  declaration  for  delivering  373  pounds  of  bad  wax  upon 
an  assumpsit  for  400  pounds  of  good  wax,  stating  half  the  price  to 
have  been  paid  in  hand,  the  rest  to  be  paid  upon  a  day  agreed,  a  plea 
of  20  pounds  of  wax  given  and  accepted  in  satisfaction  was  held  good. 
The  court  proceeded  upon  the  ground  that  they  were  not  at  liberty 
to  go  into  the  value  of  the  consideration  of  the  new  agreement,  pro- 
vided the  thing  differed  from  the  debt  itself.  The  law  leaves  the  par- 
ties to  their  bargain.  Now  it  cannot  be  doubted  that  the  sole  security 
of  one  of  two  joint  debtors  may  be  more  beneficial  than  the  joint  re- 
sponsibility of  both.  In  the  latter  case  you  are  not  entitled  to  sue  one 
with  safety,  for  the  defendant  may  plead  in  abatement  the  nonjoinder 
of  his  co-contractor.  In  case  of  the  bankruptcy  of  one  of  the  partners, 
there  would  also  be  a  difference.  In  the  case  put  by  my  Lord  Cliief 
Baron  of  two  debtors,  where  one  is  a  rich  old  man  and  the  other  is 
young  and  without  property,  it  might  be  much  more  advantageous 
to  the  creditor  to  have  his  sole  remedy  against  the  former,  for  he  would 


Sec.  4)  COMMENCEMENT   AND    DUUATION    OF    EIABILITY.  337 

have  the  security  of  the  personal  and  real  estate  of  the  rich  debtor, 
Vvhich  he  would  not  have  at  law  in  case  the  old  man  were  to  die  first. 
Where  there  is  more  than  one  debtor,  the  creditor's  remedy  is  different. 
There  is,  therefore,  no  doubt  that  the  thing  substituted  is  altogether 
different  from  the  original  cfebt.  In  Thompson  v.  Percival  it  is  said 
by  the  Court  of  King's  Bejich  that  in  the  case  of  Lodge  v.  Dicas  the 
difference  between  the  joint  liability  of  two  and  the  separate  liability 
of  one  does  not  appear  to  have  been  brought  under  the  consideration 
of  the  court.  The  case  of  Lodge  v.  Dicas  rested  upon  a  totally  dif- 
ferent ground  from  the  present,  for  there  the  consideration  for  the 
discharge  of  the  one  defendant  (Dicas)  was  the  allowing  the  other 
partner  to  collect  the  partnership  debts,  and  the  court  held  that,  as 
there  was  no  evidence  that  that  fact  was  known  to  the  plaintiffs,  there 
was  no  consideration  whatever  for  the  plaintiffs'  promise ;  but  the 
point  which  now  arises  was  not  taken  by  the  counsel  or  acted  upon 
by  the  court.  This  point,  however,  was  much  considered  in  Thompson 
v.  Percival,  and  the  decision  there  was  wholly  irrespective  of  the  fact 
that  a  bill  had  been  given.  As  I  am,  therefore,  clearly  of  opinion  thaf 
the  sole  responsibility  of  one  of  several  joint  debtors  is  different  from 
their  joint  responsibility,  the  plea  discloses  a  sufficient  consideration 
for  the  plaintiff's  promise  to  exonerate  this  defendant  from  the  residue 
of  the  debt,  and  affords  a  good  answer  to  the  action. 
Rule  refused. 


MOTLEY  V.  WICKOFF. 

(Supreme  Court  of  Michigan,  3S97.    113  Mich.  231,  71  N.  TV.  520.) 

Montgomery,  J.  This  case  was  determined  by  the  circuit  court 
upon  an  agreed  state  of  facts.  The  defendant  and  one  Gill,  as  co- 
partners, became  indebted  to  the  plaintiff  in  the  sum  of  about  $140. 
In  April,  1891,  Wickoff  retired  from  the  firm  of  Wickoff  &  Gill,  and 
Gill,  in  consideration  of  the  partnership  property  all  being  turned  over 
to  him,  assumed  the  payment  of  all  the  partnership  debts.  After  the 
dissolution  of  the  firm,  and  before  this  action  was  brought,  the  amount 
had  been  reduced  from  $140  to  $116,  by  payments  to  plaintiff  made 
by  Gill.  It  further  appears  that  Gill,  shortly  after  the  dissolution, 
stated  to  plaintiff  that  he  had  assumed,  and  agreed  with  Wickoff'  to 
pay,  all  the  partnership  indebtedness,  and  that  to  said  statement  plain- 
tiff' replied,  "All  right;  pay  as  fast  as  you  can;"  that,  some  time  after 
the  dissolution,  defendant  saw  the  plaintiff,  and  stated  to  him  that, 
according  to  the  terms  of  the  dissolution  between  himself  and  Gill, 
Gill  was  to  pay  the  sum  due  and  owing  to  the  plaintiff,  and  asked  plain- 
tiff if  he  would  release  him  (defendant)  from  the  indebtedness,  to 
which  plaintiff  replied  that  he  would.  Upon  this  state  of  facts,  the 
case  was  submitted  to  the  court,  upon  a  stipulation  that  the  plaintiff 
was  entitled  to  recover  if  the  court  should  find  that  the' defendant  has 
Gil.Pakt.— 22 


338  PARTNERSHIP  LIABILITY.  (Ch.  4 

not  been  released  from  the  indebtedness.  The  court  found,  as  matter 
of  law,  that  there  was  no  consideration  for  the  promise  of  the  plaintiff 
to  defendant  to  release  him  from  his  liability  on  the  partnership  in- 
debtedness, and  entered  judgment  for  the  amount  claimed  with 
costs.     *     *     * 

The  case  must  turn  upon  the  question  of  whether  there  was  a  con- 
sideration to  support  the  promise  to  look  to  Gill  alone.  The  authori- 
ties are  not  agreed  upon  the  question  of  whether  the  agreement  of  one 
-joint  debtor  or  copartner  to  pay  the  debt  upon  which  the  two  are 
liable  is  a  sufficient  consideration  to  support  a  release  of  his  codebtor. 
The  modern  Knglish  doctrine  appears  to  be  that  such  an  undertaking 
is  a  sufficient  consideration,  on  the  ground  that  the  sole  liability  of  one 
of  two  debtors  may,  under  many  circumstances,  be  more  beneficial 
and  convenient  than  the  joint  liability  of  two,  and  that  whether  it  was 
actually  a  benefit  in  each  particular  case  will  not  be  inquired  into,  but 
that  the  changed  relation  will  be  held  to  be  a  sufficient  consideration. 
See  Thompson  v.  Percival,  5  Barn.  &  Adol.  925,  and  Lyth  v.  Ault, 
7  Welsh.,  H.  &  G.  669.  This  doctrine  has  also  found  support  in  this 
country,  to  the  extent  stated  in  Collyer  v.  Moulton,  9  R.  I.  90,  98  Am. 
Dec.  370,  in  which  it  was  said:  "If,  by  a  mutual  arrangement  between 
the  plaintiff  Collyer  and  the  two  defendants,  Moulton  had  been  re- 
leased from  his  liability  for  the  work  already  done,  and  a  new  promise 
made  by  Bromley,  the  other  defendant,  to  pay  for  it,  this  would  have 
been  a  release  for  a  valuable  consideration ;  one  debt  would  have  been 
substituted  for  the  other."  See,  also,  Bantz  v.  Basnett,  13  W.  Va. 
772;  Bowyer  v.  Knapp,  15  W.  Va.  277;  Waydell  v.  Luer,  3  Denio 
(N.  Y.)  410.  Contra,  Early  v.  Burt,  68  Iowa,  716,  28  N.  W.  35; 
Wild  v.  Dean,  3  Allen  (Mass.)  579.  In  the  case  of  Johnson  v.  Emer- 
ick,  70  ]\Iich.  215,  38  N.  W.  223,  Mr.  Justice  Champlin,  speaking  for 
the  court,  said:  "Such  discharge  from  liability  is  based  upon  the  ex- 
press or  implied  assent  of  the  creditor,  upon  a  sufficient  consideration ; 
and  a  creditor,  knowing  of  such  relation,  who  goes  on  and  deals  with 
the  other  partners  with  reference  to  the  debt,  may  well  be  held  to  have 
assented  to  the  arrangement,  and  to  have  accepted  the  responsibility 
and  promise  of  the  partner  assuming  to  pay  such  debt.  This  considera- 
tion need  not  be  a  money  consideration.  It  may  be  the  obtaining  of  an 
additional  security,  better  terms  of  payment,  negotiable  securities  which 
the  creditor  may  use  in  his  business,  or  any  other  benefit,  or  it  may  be 
the  loss  of  some  right  or  disadvantage  suffered  by  the  surety  through 
the  act  of  the  creditor."  In  the  present  case  it  will  be  noted  that  the 
transfer  of  the  firm  property  by  defendant  to  Gill  was  not  induced  by 
any  promise  of  plaintiff,  but  had  occurred  before  any  promise  of  release 
was  made;  nor  does  it  appear,  as  before  stated,  that  the  defendant 
lost  any  rights ;  nor  was  any  security  taken  or  accepted  by  the  plain- 
tiff; nor  does  it  appear  that  the  time  for  the  payment  of  the  debt 
was  extended.  Plaintiff  relies  upon  Walstrom  v.  Hopkins,  103  Pa. 
118,  and  Eagle  Mfg.   Co.  v.  Jennings,  29   Kan.   657,  44  Am.   Rep. 


Sec.  4)  COMMENCEMENl'   AND    DURATION    OF    LIABILITY.  339 

CG8.  In  the  latter  case  it  was  claimed  that  the  plaintiff  had  due  no- 
tice of  the  dissolution  of  the  firni,  and  the  assumption  of  the  liabilities 
by  Whitney,  and  that  they  accepted  him  for  the  payment  of  the  bill 
of  exchange.  The  court  said:  "The  dissolution  of  the  partner- 
ship, the  taking  of  all  the  partnership  property,  and  the  assump- 
tion of  all  partnership  liabilities  by  Whitney,  in  no  manner  released 
defendant.  The  alleged  promise  of  plaintiff  was  made  after  the  dis- 
solution, and  not  as  an  inducement  to  or  consideration  of  it.  The 
acceptance  has  never  been  paid.  *  *  *  No  additional  security  of 
any  kind  was  furnished.  The  acceptance  was  not  destroyed,  and  new 
'paper  given.  The  plaintiff  received  absolutely  no  consideration,  and, 
even  if  it  did  promise  that  it  would  look  to  Whitney,  such  promise 
was  entirely  without  consideration,  and  in  no  manner  discharged  the 
defendant."'  In  Walstrom  v.  Hopkins  it  was  held  that  a  promise  by 
a  creditor  of  a  firm  to  release  a  partner  who  had  retired  from  the  firm, 
and  to  look  to  the  continuing  partner  only,  for  the  payment  of  his  debt, 
unless  founded  upon  a  legal  consideration,  is  nudum  pactum,  and  can- 
not be  enforced.  The  weight  of  authority  favors  the  contention  that 
the  promise  of  the  continuing  partner  may  be  a  sufficient  considera- 
tion to  support  the  release  of  the  outgoing  partner.  But,  in  the  absence 
of  such  concurring  or  binding  promise,  we  think  no  well-considered 
case  can  be  found,  holding  that  the  mere  agreement  between  the  part- 
ners will  of  itself  support  the  agreement  of  the  creditor  to  release  the 
outgoing  partner.  Such  an  agreement  does  not  establish  a  privity  be- 
tween the  continuing  partner  and  the  creditor,  entitling  him  to  sue 
such  creditor  individually.  It  is  only  a  private  executory  contract,  in- 
tended to  regulate  the  rights,  duties,  and  obligations  of  the  co-partners 
between  themselves,  consequent  upon  a  dissolution  of  the  firm.  Wild 
V.  Dean,  3  Allen  (Mass.)  579.  In  the  present  case  there  was  not  only 
no  extension  of  time,  no  acceptance  of  the  paper  of  the  individual 
partner,  but  the  stipulation  does  not  show  an  express  agreement  made 
to  plaintiff  by  Gill  to  pay  the  debt.  The  finding  is  that  Gill  stated  to 
plaintiff  that  he  had  agreed  with  Wickoff  to  pay  all  partnership  in- 
debtedness, and  that  to  this  the  plaintiff  replied,  "All  right;  pay  as 
fast  as  you  can."  It  will  be  noted  that  this  was  not  simultaneous  with 
the  release  of  Wickoff,  nor  did  it  in  terms  establish  a  privity  between 
Gill  and  plaintiff  as  to  the  obligation  of  Gill  to  pay  the  debt  individu- 
ally.   We  think  the  judgment  should  be  affirmed. 


STONE  J.,  IN  HALL  &  LONG  v.  JONES. 

(Suprerae  Court  of  Alabama,  1S76.     oG  Ala.  493.) 

[In  discussing  whether  there  was  an  agreement  releasing  the  retir- 
ing partner :]  When  goods  were  consigned  by  Hall  &  Long  to  Han- 
non.  Brown  &  Jones,  and  received  by  them  as  commission  merchants 


340  PARTNERSHIP  LIABILITY.  (Cll.  4 

this  constituted  a  contract,  binding-  on  each  of  the  partners  compos- 
ing the  latter  firm,  to  account  for  the  goods  or  their  proceeds.  Such 
liabiUty  could  not  be  canceled  by  any  act  of  the  latter  firm  alone,  or  by 
any  agreement  its  different  members  might  make  among  themselves, 
in  which  Hall  &  Long  did  not  concur.  It  requires  the  same  mutuality 
to  vary  or  modify  a  contract  as  it  does  to  create  it  in  the  first  instance, 
for  modification  is  only  a  species  of  contract.  The  mutual  agreement 
of  the  parties,  a  promise  for  a  promise,  is  sufficient  to  uphold  such 
modified  contract,  without  other  new  consideration.  Thomason  v.  Dill, 
30  Ala.  455,  456,  and  authorities  cited. 

Failure  to  demand  paynient  of  Mr.  Jones,  unless  for  a  sufficient 
length  of  time  to  create  a  bar  by  limitation,  did  not,  per  se,  cancel  his 
liability.  Neither  would  the  demand  of  payment  from  the  succeeding 
firm,  or  even  the  receipt  of  interest  on  part  payment,  or  all  these^  com- 
bined, necessarily  lead  to  such  result.  The  true  inquiry  is,  was  there 
an  agreement  to  discharge  the  older  partnership,  and  to  substitute  the 
new  one  as  the  debtor?  Unless  this  be  shown,  the  liability  of  the  older 
firm  remains. 

Speaking  on  this  question,  Mr.  Parsons,  in  his  work  on  Partnership 
(page  425),  says:  "Frequently  the  new  firm  goes  on  in  its  regular 
business,  the  accounts  of  the  customers  are  transferred  from  the  old 
to  the  new,  and  the  customers,  knowing  the  retirement  and  change  of 
parties  and  transfer  of  accounts,  say  nothing,  but  continue  their  deal- 
ings with  the  new  firm,  perhaps  depositing  and  drawing,  or  buying 
and  selling,  or  receiving  interest  and  settling  accounts,  all  just  as  be- 
fore, taking  no  particular  notice  of  the  change.  The  question  then 
occurs,  what  is  the  legal  significance  and  effect  of  such  conduct?  And 
it  seems  to  be  well  settled  that  the  mere  receiving  of  interest  from  the 
new  firm  will  not  discharge  the  old;  and  although  the  transferring  the 
old  account  to  the  new  firm  is  not  necessarily  an  adoption  by  the  cred- 
itor of  the  new  firm  as  his  sole  debtors,  yet  this  fact,  together  with  the 
other  circumstances  of  the  case,  may  be  evidence  from  which  a  jury 
would  be  authorized  to  find  that  the  creditor  had  impliedly  assented 
to  a  discharge  of  the  old  firm."  He  adds  "that,  when  the  liability  at 
a  given  time  of  all  the  partners  is  proved,  the  burden  is  on  those 
of  them  who  seek  to  escape  continued  liability,  to  show  a  cessa- 
tion."    *     *     * 

It  is  not  necessary,  nor  do  we  feel  inclined,  to  adopt  some  of  the  ex- 
treme views  advanced  above.  Still  we  hold  that,  to  discharge  a  re- 
tiring partner  from  a  liability  once  incurred,  the  facts  and  circumstan- 
ces must  satisfy  this  jury  that  the  plaintiff  agreed  to  release  the  old 
and  look  to  the  new  firm.  '  Proof,  if  made,  that  the  accounts  against 
the  old  firm  were  restated  against  the  new,  would  be  strong  evidence 
from  which  an  agreement  might  be  inferred;  but  it  is  not  for  us  to 
declare  what  will  be  sufficient  evidence  to  satisfy  the  minds  of  the 
jurors.     We  agree  with  Baron  Garrow  that,  whenever  there  is  any 


Sec.  4)  COMMENCEMENT    AND    DURATION    OF    LIAIIILITT.  -"^^l 

evidence  from  which  such  agreement  could  be  inferred,  then  the  ques- 
tion of  agreement  vel  non  should  be  submitted  to  the  jury  in  a  charge 
appropriate  to  the  testimony  in  the  cause.     *     »     ♦ 


'  III.  Dissolution, 

LYON  et  al.  v.  JOHNSON  et  al. 
(Supreme  Court  of  Errors  of  Connecticut,  1859.     28  Conn.  1.) 

Assumpsit  for  coal  sold  to  the  defendants  as  partners.  It  was 
claimed  in  defense  that  the  partnership  between  the  defendants  had 
been  previously  dissolved  and  sufficient  notice  of  the  dissolution  given. 

The  defendants,  Johnson  and  Signor,  previous  to  the  9th  day  of 
March,  1857,  had  been  in  partnership  in  the  town  of  Danbury  under 
the  name  of  R.  Johnson  &  Co.,  and  as  such  partners  had  in  the  fall 
of  1856  purchased  coal  of  the  plaintiffs,  who  also  did  business  in  Dan- 
bury  as  partners  under  the  name  of  Lyon  &  Burr.  On  the  9th  day  of 
March,  1857,  the  firm  was  dissolved,  and  the  business  was  thereafter 
carried  on  by  Signor  alone.  Notice  of  the  dissolution  was  published 
for  three  successive  weeks  in  the  Danbury  Times,  a  weekly  paper  pub- 
lished in  Danbury ;  but  no  other  notice  was  given  to  the  plaintiffs.  In 
the  fall  of  1857  Signor  bought  a  quantity  of  coal  of  the  plaintiffs,  which 
they  sold  and  delivered  upon  the  credit  of  the  firm  of  R.  Johnson  &  Co., 
and  in  the  belief  that  he  bought  it  for  that  firm.  The  advertisen:ient  of 
the  dissolution  of  the  partnership  of  the  defendants  was  inserted  in  the 
newspaper  next  after  an  advertisement  of  the  plaintiffs ;  but  the  plain- 
tiffs did  not  take  the  paper,  and  had  not  seen  the  notice  of  the  dissolu- 
tion, and  had  no  knowledge  that  the  partnership  was  dissolved.  The 
sale  of  coalby  the  plaintiffs  to  the  defendants  in  1856  was  the  only 
previous  dealing  of  the  firm  of  Lyon  &  Burr  with  the  defendants ;  but 
for  some  years  before  the  defendants  had  bought  coal  of  the  firm  of 
Lyon  &  Bates,  a  firm  of  which  the  plaintiff  Lyon  was  a  member,  and 
which  was  dissolved  in  the  summer  of  1856 ;  Bates  retiring  from  the 
business,  and  Lyon  forming  a  new  partnership  with  Burr,  who  had 
been  a  clerk  of  Lyon  &  Bates,  and  the  new  firm  taking  and  continuing 
the  business  of  the  former  firm. 

The  case  was  tried  in  the  superior  court  on  an  issue  closed  to  the 
court.  The  court  specially  found  the  above  facts  and  rendered  judg- 
ment thereon  for  the  plaintiffs.  The  defendants  thereupon  filed  a  mo- 
tion in  error  and  brought  the  record  before  this  court  for  revision. 

BuTLEj?,  J.  There  is  no  error  in  the  judgment  of  the  court  below, 
and  this  will  be  apparent  from  a  brief  statement  of  the  principles  ap- 
plicable to  the  case. 

By  the  constitution  of  a  general  partnership,  and  as  one  of  the  ele- 
ments of  it,  each  partner  is  vested  by  his  copartners  with  power  to 


342  PARTNERSHIP  LIABILITY.  (Ch.  4 

contract  for  and  bind  the  firm  within  the  scope  of  the  partnership  busi- 
ness. Each  is  constituted  the  agent  of  all,  and  each  is  responsible  for 
the  acts  of  all. 

Once  existing,  and  publicly  known  to  exist,  the  continuance  of  the 
connection  will  be  presumed  by  the  public  till  the  contrary  appears. 
If  a  dissolution  takes  place  by  operation  of  law,  as  by  death  or  bank- 
ruptcy, no  notice  is  required.  The  operations  of  law  have  a  notoriety 
which  all  are  bound  to  regard.  But  a  dissolution  by  limitation,  or  the 
voluntary  and  mutual  assent  of  the  partners,  is  a  matter  of  private  ar- 
rangement, which  cannot  be  presumed  to  be  known  to  others  unless 
they  are  informed  of  it.  Until  such  information  is  given,  actually  or 
constructively,  therefore,  the  continuance  of  the  connection,  and  of 
the  powers  and  liabilities  of  each  partner,  may  well  be  presumed  by 
every  one  who  has  occasion  to  deal  with  either  on  account  of  the  firm. 
It  follows  upon  the  principles  of  justice  and  policy,  and  in  conformity 
with  the  perfectly  well  settled  rule  of  law,  that  upon  such  a  dissolu- 
tion of  the  partnership  a  retiring  partner,  who  wishes  to  do  justice  to 
others  and  terminate  his  own  responsibility,  is  under  the  obligation  to 
give  information  of  the  fact  to  all  who  have  dealt  or  are  dealing  with 
the  firm,  and  to  the  public  at  large,  with  whom  new  attempts  to  deal 
may  be  made.  It  is  equally  clear  that  the  notice  so  given  by  a  retiring 
partner  should  be  coextensive  with  the  obligation  assumed  and  as  par- 
ticular and  specific  as  can  be  reasonably  required  of  him  under  the 
circumstances  of  the  case.  He  knows  or  may  know  who  the  persons 
are  who  have  dealt  with  the  firm,  and  he  can,  without  unreasonable 
effort,  give  each  of  them  actual  notice,  and  therefore  the  law  requires 
that  he  should  do  so.  He  cannot,  without  more  effort  or  expense 
than  can  reasonably  be  demanded  of  him,  give  actual  notice  to  every 
other  member  of  the  public,  and  therefore  the  law  does  not  require  it; 
but  it  does  require  him  to  discharge  his  obligation  if  he  would  termi- 
nate his  liability,  and  to  give  some,  and  reasonable,  notice  to  the  public 
at  large.  Ordinarily  a  publication  in  one  of  the  newspapers  published 
in  the  place  or  county  where  the  partnership  business  was  conducted, 
as  it  is  the  customary  mode  of  giving  such  information,  will,  as  to  all 
who  have  not  had  previous  dealings  with  the  firm,  be  deemed  sufficient. 
That  is  the  least  that  can  be  required  of  him  in  an  ordinary  case  in 
respect  to  the  public,  and  even  that  may  not  in  all  cases  be  sufficient, 
and  whether  it  be  or  not  will  depend  on  the  circumstances  of  the  par- 
ticular case.  But  in  relaxing  the  rule  as  applicable  to  those  who  have 
not  dealt  with  the  firm,  and  considering  a  general  notice,  operating  as 
a  constructive  notice,  to  be  sufficient  as  to  them,  because  of  the  diffi- 
culty of  giving  actual  notice  to  everybody,  the  courts  have  not  intended 
to  relax,  and  have  not  relaxed,  the  rule  in  respect  to  those  who  have 
dealt  with  the  firm.  As  to  them  there  is  no  reason  for  such  relaxa- 
tion, and  a  publication  is  never  sufficient,  unless,  indeed,  it  can  be 
shown  that  the  publication  was  seen  by  them,  and  therefore  that  they 
in  fact  had  actual  knowledge. 


Sec.  1)  COMMENCEMENT   AND    DURATION    OB^    LIABILITY.  343 

In  this  case  the  dissokition  of  the  firm  of  R.  Johnson  &  Co.  was 
voluntary,  and  not  by  operation  of  law.  The  plaintiffs  had  previously 
dealt  with  the  firm,  and  upon  the  facts  found  they  may  well  be  consid- 
ered as  regular  dealers.  No  actual  notice  of  the  dissolution  was  given 
them,  and  it  is  found  that  they  had  no  actual  knowledge  of  it. 

The  publication,  unless  it  came  to  their  knowledge,  was  not  as  to 
them  sufficient.  The  character  of  their  previous  dealing  and  the  cir- 
cumstances attending  the  publication  of  the  notice,  including  the  con- 
tiguity of  the  advertisements,  were  proper  matters  of  evidence  to  be 
taken  into  consideration  by  the  court  in  the  question  whether  the  plain- 
tiffs actually  knew  of  the  dissolution  or  not.  Doubtless  the  court  con- 
sidered them.  But  having  found  that  no  actual  notice  was  given  to 
the  plaintiffs,  and  that  they  did  not  see  the.  publication,  and  had  no 
actual  knowledge  of  the  dissolution,  and  that  there  had  been  previous 
dealing  between  the  parties,  the  court  correctly  rendered  judgment  for 
the  plaintiffs. 

The  judgment  of  the  superior  court  is  therefore  affirmed. 

Judgment  affirmed. 


AUSTIN  V.   HOLLAND. 

(Court  of  Appeals  of  New  York.  1877.     69  N.  Y.  571,  25  Am.  Dec.  .24G.) 

This  action  was  on  a  promissory  note  made  in  the  firm  name  of  Dil- 
lon, Beebe  &  Co.,  payable  to  Horace  Loveland.  Defendant  Holland 
alone  appeared  and  answered.  He  admitted  the  making  of  the  note, 
and  that  the  plaintiff  was  the  holder,  but  denied  that  he  was  a  member 
of  the  firm.  Defendants  were  copartners  under  the  above  firm  name 
prior  to  the  giving  of  the  note.  Judgment  for  the  plaintiff  on  the 
verdict  was  affirmed  at  the  General  Term  of  the  Supreme  Court,  and 
defendant  appealed. 

Andrews,  J.  The  plaintiff  was  a  dealer  with  the  firm  of  Dillon. 
Beebe  &  Co.,  so  as  to  entitle  him  to  the  protection  of  the  rule  which 
makes  a  retiring  partner  liable  for  subsequent  engagements  made  by 
his  fornier  copartner  in  the  firm  name  with  those  who  had  previous 
dealings  with  the  firm,  and  who  entered  into  the  new  transaction  with- 
out notice  of  the  change  in  the  partnership.  *    ♦    * 

The  principal  question  in  this  case  is  whether  Loveland  had  notice 
of  the  dissolution  of  the  firm  of  Dillon,  Beebe  &  Co.,  which  occurred 
March  29,  ISGD,  prior  to  August  31,  18G9,  when  the  note  upon  which 
the  action  was  brought  was  made.  The  firm  was  engaged  in  the  busi- 
ness of  the  purchase,  shipment,  and  sale  of  lumber,  and  its  principal 
office  was  at  Toledo,  in  the  state  of  Ohio.  The  plaintiff  was  employed 
to  purchase  lumber  in  the  Western  States  and  in  Canada,  and  resided 
at  Detroit.  Notice  of  dissolution  was  published  in  the  newspapers  at 
Toledo,  and  a  copy  was  mailed  to  the  plaintiff,  addressed  to  him  at 
Detroit. 


344  PARTNERSHIP   LIABILITY.  (Ch.  4 

Loveland,  on  his  direct  examination,  testified  positively  that  he 
never  received  the  notice.  On  his  cross-examination  he  stated  that  he 
had  no  recollection  of  receiving  or  seeing  the  notice,  and  that,  if  he 
had  seen  it,  he  thought  he  should  have  remembered  it.  The  judge 
submitted  it  to  the  jury  to  find  whether  the  plaintiff  received  the  no- 
tice. The  defendants'  counsel  excepted  to  the  submission  of  the  ques- 
tion to  the  jury,  on  the  ground  that  the  jury  vvould  not  be  justified 
in  finding  from  the  evidence  that  the  plaintitT  did  not  receive  the  notice, 
and  upon  the  further  ground  that  it  was  immaterial  whether  he  re- 
ceived it  or  not;  that  the  mailing  of  the  notice  was  all  that  the  defend- 
ant was  required  to  do  to  protect  him  from  liability  for  the  subsequent 
services  of  the  plaintiff. 

The  publication  of  notice  of  the  dissolution  of  a  partnership  in  a 
newspaper  at  the  place  where  the  business  was  carried  on  is  notice  to 
all  persons  who  have  not  had  prior  dealings  with  the  firm ;  and,  if  there- 
after one  of  the  partners  enters  into  a  contract  in  the  firm  name  with 
a  new  customer  or  dealer,  the  other  partners  will  not  be  bound.  The 
rule  is  diff'erent  in  respect  to  persons  who  have  dealt  with  the  firm  be- 
fore the  dissolution.  The  rule  in  such  cases  in  this  state  requires  that, 
to  relieve  a  retiring  partner  from  subsequent  transactions  in  the  part- 
nership name,  notice  of  the  dissolution  must  be  brought  home  to  the 
person  giving  credit  to  the  partnership.  If  in  any  way,  by  actual 
notice  served,  or  by  seeing  the  publication  of  the  dissolution,  or  by 
information  derived  from  third  persons,  the  party,  at  the  time  of  the 
dealing,  is  made  aware  of  the  fact  that  the  partnership  has  been  dis- 
solved, the  .contract  will  not  bind  the  firm.  It  is  sufficient  to  exempt 
the  firm  from  liability  that  the  person  so  contracting  with  a  partner  in 
the  firm  name  knew  or  had  reason  to  believe  that  the  partnership  had 
been  dissolved;  but  this  must  appear  and  be  found  by  the  jury,  or 
else  the  contract  wall  be  treated  as  the  contract  of  the  partnership. 
Ketchum  v.  Clark,  6  Johns.  141,  5  Am.  Dec.  197;  Graves  v.  Merry, 
6  Cow.  701,  16  Am.  Dec.  471 ;  Vernon  v.  Manhattan  Co.,  17  Wend. 
524;  Id.,  22  Wend.  183;  National  Bank  v.  Norton,  1  Hill,  572;  Cod- 
dington  v.  Hunt,  6  Hill,  595 ;  Clapp  v.  Rogers,  12  N.  Y.  287;  City  Bank 
v.  McChesney,  20  N.  Y.  242 ;  Bank  of  Commonwealth  v.  JMudgett,  44 
N.  Y.  514;  Van  Eps  v.  Dillaye,  6  Barb.  214;  Mechanics'  Bank  v.  Liv- 
ingston, 33  Barb.  458.  In  Vernon  v.  Manhattan  Co.,  the  Chancellor 
says:  "But,  to  exempt  the  copartners  from  liability  (on  a  contract  with 
a  previous  dealer  with  the  firm),  the  jury  must  be  satisfied  that  the  per- 
son with  whom  the  new  debt  was  contracted  either  had  actual  notice 
that  the  copartnership  was  dissolved,  or  that  facts  had  actually  come  to 
his  knowledge  sufficient  to  create  a  belief  that  such  was  the  fact."  The 
same  rule  is  recognized  in  the  other  cases  cited,  and  by  elementary 
writers.  3  Kent's  Com.  607 ;  Story  on  Part.  §  161 ;  Col'l.  on  Part.  § 
533;  Lindley  on  Part.  337.  Lindley  says:  "Those  who  have  dealt 
with  the  firm  before  a  change  took  place  are  entitled  to  assume,  until 
they  have  notice  to  the  contrary,  that  no  change  has  occurred.    *    *    * 


SeC.4)  COMMENCEMENT   AND    DURATION    OF    LIABILITY,  345 

If  notice  in  point  of  fact  can  be  established,  it  matters  not  by  what 
means;  for  it  has  never  been  held  that  any  particular  formality  must 
be  observed."  In  this  case  the  jury  have  found  that  the  plaintiff  did 
not  receive  the  notice  sent  by  mail,  and  had  no  in  formation  of  the 
dissolution  of  the  firm  of  Dillon,  Beebe  &  Co.  prior  to  the  transaction 
in  question.  The  mailing  of  notice  properly  directed  to  the  party  to 
be  charged  raises  a  presumption  of  notice  in  fact ;  for  it  is  presumed 
that  letters  sent  by  post  to  a  party  at  his  residence  are  received  by 
him  in  due  course.  Best  on  Presumptions,  §  403.  But  this  is  a  pre- 
sumption of  fact,  and  not  of  law,  and  may  be  repelled  by  proof;  and 
if  the  receipt  of  the  letter  in  this  case  was  disproved,  then  the  defend- 
ant failed  to  show  the  actual  notice  required  in  order  to  exempt  him 
from  responsil:)ility,  and  the  question  whether  the  letter  was  received 
was,  we  think,  upon  the  evidence  for  the  jury.  The  learned  counsel 
for  the  defendant  has  not  referred  us  to  any  case  which  decides  that 
the  mailing  of  a  notice  of  dissolution  is  in  law  equivalent  to  actual 
notice  and  exempts  a  retiring  partner  from  liability  to  prior  dealers 
on  subsequent  engagements  in  the  firm  name.  Notice  by  mail  of  the 
dishonor  of  commercial  paper  is  in  most  cases  sufficient  by  the  law 
merchant  to  charge  an  indorser.  It  is  a  part  of  the  contract  that  no- 
tice may  be  given  in  this  way,  and  it  is  not  material  in  fixing  the  lia- 
bility of  the  indorser  whether  he  receives  it  or  not. 

But  we  think  the  rule  requiring  actual  notice  of  the  dissolution  of 
a  partnership  to  prior  dealers  is  a  part  of  the  law  of  this  state  and 
should  not  be  departed  from.  It  may  subject  parties  in  some  cases 
to  inconvenience,  but  the  principle*  upon  which  the  rule  proceeds  is 
that,  when  one  of  two  parties  is  to  sustain  injury  from  the  giving  of 
credit,  the  one  who  originally  induced  it  should  bear  the  loss,  rather 
than  the  one  who,  without  notice  of  the  change,  relied  upon  the  con- 
tinued existence  of  the  partnership.  Story  on  Part.  §  160;  Wat.  on 
Part.  384. 

The  judgment  of  the  General  Term  should  be  afiirmed. 

Judgment  affirmed.* 

1  "It  Is  often  rtlfTirnlt  to  determine  wliat  amounts  to  <\v.e  and  snfflciont  notice 
of  ttie  retirement  of  a  partner,  but  the  evidence  to  prove  it  should  be  such 
as  would  reasonably  warrant  the  jury  in  finding  the  fact  of  notice,  and  that 
the  party  to  be  charged  with  It  actually  had  it,  or  might  by  reasonable  dili- 
gence have  learned  of  the  dissolution  of  the  partnership  and  the  retirement 
of  the  partner  sought  to  be  charged,  from  tlie  means  ;md  opportunity  sup- 
plied or  alTorded  for  the  purpose  of  giving  notice  of  the  same.  Generally  the 
reasonableness  of  the  notice  will  be  a  mixed  question  of  law  and  fact,  to 
be  submitted  to  the  jury  under  proper  instructions  of  the  court  as  to  wheth- 
er, under  all  the  attending  circumstances  of  the  particular  case,  it  was  suf- 
ficient to  warrant  the  Inference  of  actual  or  constructive  knowledge  of  the 
dissolution.  As  said  above,  ordinarily,  notice  fairly  given  in  a  newspaper 
generally  circulated  abroad,  and  particularly  among  the  business  people  of 
the  town  or  city  where  the  partnership  carried  on  Its  business,  would  be 
sufQcient  as  to  all  persons  who  had  not  had  previous  dealings  with  the  part- 
nership. It  Is  ordinarily  better  and  safer  to  give  notice  in  tliat  way,  although 
it  might  be  given  in  other  ways.  This  would  afford  business  men  reasonable 
opportunity   to  learn  of  the  dissolution,   ;uid  iu   the  course  of  business  the 


346  PARTNEKSHIP  LIABILITY.  (Ch.  4 

ROSE  et  al.  v.  COFFIELD. 
(Court  of  Appeals  of  Maryland,  1879.    53  Md.  13,  36  Am.  Rep.  3S0.) 

Miller,  J.  This  suit  was  brought  by  the  appellee  against  the  ap- 
pellants, Rose  and  Porter,  as  partners  compcsing  the  firm  of  J.  B. 
Rose  &  Co.,  upon  a  check  of  which  the  plaintiff  was  the  indorsee  and 
holder.  This  check  was  upon  the  Citizens'  National  Bank  for  $4:30, 
was  dated  the  29th  of  November,  1871,  and  was  payable  on  the  2d  of 
December  following.  It  was  drawn  by  Eastman  &  Rogers,  to  the  or- 
der of  J.  B.  Rose  &  Co.,  and  bears  the  indorsement  of  the  payees  and 
also  of  two  other  firms.  The  proof  shows  that  this  check  was  given 
in  renewal  of  a  promissory  note  for  the  same  amount,  dated  the  27th 
of  October,  1871,  payable  one  month  after  date,  drawn  and  indorsed 
by  the  same  firms,  and  also  indorsed  by  another  firm.  The  plaintiff 
received  this  note  on  the  day  of  its  date  from  Rose  in  good  faith,  and 
paid  him  therefor  $430  in  cash.  He  also  received  the  check,  in  re- 
newal of  the  note,  on  the  day  of  its  date,  from  Rose,  who  then  in- 
dorsed the  name  of  J.  B.  Rose  &  Co.  thereon.  At  the  date  of  the 
note,  and  for  some  years  prior  thereto.  Rose  and  Porter  had  been 
partners,  conducting  the  printing  business  under  this  firm  name ;  Rose 
being  the  active  business  manager  of  the  firm.  On  the  IGth  of  No- 
vember, 1871,  after  the  date  of  the  note,  but  before  the  check  was 
given,  the  firm  was  dissolved,  and  notice  of  the  dissolution  published 
in  the  newspapers  of  Baltimore  city  for  several  days.  But  there  is  no 
proof  that  the  plaintiff  took  or  read  either  of  the  papers  in  which  this 
publication  was  made,  and  there  is,  therefore,  nothing  in  the  case 
bringing  home  to  him  actual  notice  of  the  dissolution,  or  affecting  him 
with  notice  thereof.  Boyd  v.  McCann,  10  Md.  118.  In  this  state  of 
the  case  the  question  arises  whether  Porter  is  liable  upon  this  check; 
the  firm  having  been  in  fact  dissolved  before  Rose  indorsed  the  firm's 
name  thereon.     *     *     * 

It  has  been  argued  with  much  force  that  the  plaintiff  had  but  a 
single  transaction  with  this  firm  before  its  dissolution,  which  con- 
sisted simply  of  the  purchase  by  him  of  the  note  of  the  27th  of  Octo- 
ber, and  that  this  did  not  amount  to  such  dealing  with  the- firm  as  to 
entitle  him  to  actual  notice.  So  far  as  our  researches  have  extended, 
the  cases  in  which  this  question  has  been  considered  are  not  numer- 
ous, and  those  in  which  the  decisions  have  necessarily  turned  upon 
it  are  very  few.     It  is  certain  that  no  inflexible  rule  or  standard  of 

matter  would  be  generally  kuown,  and  more  or  less  spoken  of,  to  business 
men  from  every  direction.  But  such  publication  must  be  fair  and  reasonable 
as  to  its  terms  and  tlie  number  of  times  It  shall  be  made.  If  the  facts  are 
found  or  ascertained,  the  reasonableness  and  sulliciency  of  the  notice  may  be 
a  question  of  law  for  tlie  court.  The  court  must  determine  that  there  is  or 
is  not  evidence  sufficient  to  go  to  t!ie  jury  to  prove  notice."  Per  Merrimon, 
C.  J.,  in  Ellison  et  al.  v.  Sexton  et  al.,  lOu  N.  C.  350,  11  S.  C.  ISO,  18  Am.  St. 
Hep.  907  (1890). 


Sec.  1)  COMMKNCEMENT    AND    DDRATION    OF    LIABILITY.  347 

dealing,  by  which  all  cases  can  be  governed  or  measured,  has  been 
established. 

[After  reviewing  numerous  authorities:]  The  principle,  as  shown 
by  these  authorities,  upon  which  this  rule  of  actual  notice  is  founded, 
seems  to  embrace  the  present  case.  That  principle  is  that  credit  al- 
ready raised  on  the  faith  of  the  partnership  is  presumed  to  be  con- 
tinued on  the  same  fooling-,  unless  special  notice  of  a  change  be  given ; 
and  as  every  partner  knows,  or  has  the  means  of  knowing,  who  are 
the  persons  with  whom  his  firm  has  transacted  business  and  from 
whom  it  has  received  credit,  public  policy  and  natural  justice  alike 
demand  that  he  should  give  every  such  party  personal  and  special 
notice  of  the  withdrawal  of  his  responsibility.  As  was  said  by  the 
Chancellor,  in  Vernon  v.  Manhattan  Co.,  22  Wend.  (N.  Y.)  183,  the 
word  "dealing,"  when  used  in  reference  to  this  rule,  "is  merely  used 
as  a  general  term  to  convey  the  idea  that  the  person  who  is  entitled  to 
actual  notice  of  the  dissolution  must  be  one  who  has  had  business 
relations  with  the  firm,  by  which  a  credit  is  raised  upon  the  faith  of 
the  copartnership."  It  may  be  true,  as  was  most  forcibly  stated  by 
Senator  Verplanck  in  the  same  case,  that  one  who  merely  takes  the 
negotiable  paper  of  a  firm  from  a  third  hand,  and  received  payment 
through  a  bank,  or  passes  it  away  to  another,  cannot  be  called  a  dealer 
with  the  firm ;  and  it  may  well  be  said  that  it  would  be  to  require  im- 
possibilities to  insist  that  the  partners  of  a  large  commercial  house  in 
extensive  business  should  be  able  to  know  for  years  who  had  been 
the  last  holder  of  their  paper,  or  through  whose  hands  it  may  have 
passed,  and  to  send  to  all  of  them  special  notice  as  dealers.  But  the 
case  now  before  us  is  not  of  that  character,  and  no  such  difficulty 
arises.  The  plaintiff  received  the  note  of  October,  1871,  with  all  the 
subsequent  indorsements-  then  upon  it,  directly  from  Rose,  one  of  the 
partners  of  this  firm,  then  subsisting,  and  paid  him  for  it  its  full  face 
value,  thus  bringing  the  plaintiff  and  the^firm  into  a  mutual  dealing. 
It  cannot  be  doubted  but  that  by  this  transaction  a  credit  was  raised 
upon  the  faith  of  the  partnership,  and  that  the  plaintiff  gave  them 
credit  and  relied  upon  the  united  responsibility  of  the  two  partners. 
Porter,  the  other  ostensible  and  known  partner,  knew,  or  had  the 
means  of  knowing,  through  whom  the  money  upon  this  note  was  rais- 
ed. The  plaintiff  dealt  in  this  transaction  immediately  and  directly 
with  the  firm,  and  did  not  receive  the  note  from  a  third  party  and 
merely  pass  it  away  to  another.  Nor  is  there  any  proof  to  show  that 
this  firm  w-as  a  great  commercial  house,  engaged  in  extensive  trade, 
and  constantly  issuing  their  negotiable  securities,  so  as  to  make  it  diffi- 
cult for  them  T:o  know  through  whose  hands  their  paper  may  have 
passed.  We  are  therefore  of  opinion  this  case  must  be  governed  by 
the  general  rule,  and  that  actual  notice  of  the  dissolution  should  have 
been  given  to  the  plaintiff  in  order  to  relieve  the  defendant,  Porter, 
from  responsibility  on  this  check. 

Judgment  affirmed,   with  costs. 


3i8  PAKTNERSHIP  LIABILITY.  (Ch.  4 

GROSVENOR    v.    LLOYD. 

(Supreme  Judicial  Court  of  Massachusetts,  1840.     1  Mete.  19.) 

Assumpsit  for  the  use  and  occupation  of  a  stable  from  April  1  to 
May  2,  1835.    At  the  trial  in  the  court  of  common  pleas,  before  Ward, 

C.  ].,  the  evidence,  so  far  as  it  bears  upon  the  point  hereinafter  de- 
cided, was  this:  The  plaintiff,  in  November,  1831,  demised  said  stable 
(whether  orally  or  in  writing  did  not  appear)  to  L  Stone,  who,  with 

D,  Stone  and  L.  Doolittle,  his  partners  in  the  business  of  keeping  a 
livery  stable,  took  possession  thereof,  and  there  carried  on  their  said 
business.  The  sign  over  the  door  was  "I,  Stone  &  Co.,"  and  it  re- 
mained unaltered  until  May  2,  1835.  On  the  1st  of  April,  1813,  Doo- 
little withdrew  from  the  partnership,  and  sold  his  right  and  interest 
therein  to  the  defendant,  who  was  then  admitted  as  a  partner  with  L 
and  D.  Stone.  The  defendant  gave  evidence  that  this  last  partner- 
ship was  dissolved  on  the  1st  of  April,  1835,  and  the  plaintiff  gave 
evidence  of  the  defendant's  acknowledgment  that  he  continued  to  be 
a  partner  after  that  day.  L  Stone  occupied  the  stable,  from  that  day 
until  the  2d  of  May  following,  when  he  quitted  it;  and  he  was  the 
only  active  partner  from  November,  1831,  to  said  2d  of  May. 

The  judge  instructed  the  jury  "that  the  rent  of  the  stable,  in  which 
the  partnership  business  was  carried  on,  was  a  fair  charge  against 
all  the  partners,  and,  even  if  the.  defendant  was  a  secret  partner,  he 
was  liable  with  the  other  partners  for  the  rent;  that  the  defendant 
was  a  partner  on  the  1st  of  April,  and  had  so  been  long  before;  and 
that  if  L  Stone,  with  the  same  sign  over  the  door,  and  ostensibly  in  the 
same  manner,  occupied  the  stable  after  April  1,  1835,  as  he  had  done 
before,  the  plaintiff  had  a  right  to  charge  all  the  partners  for  the 
rent  until  he  had  notice  of  the  dissolution  of  the  partnership." 

The  verdict  was  for  the  plaintiff,  and  the  defendant  excepted  to 
these  instructions. 

SiiAW,  C.  J.  The  court  are  of  opinion  that  this  direction  was  not 
correct.  A  dormant  partner  is  liable  for  debts  contracted  whilst  he 
is  a  partner,  not  because  credit  is  given  to  him,  but  because  he  is  in 
fact  a  contracting  party,  taking  part  of  the  profits  of  such  contracts. 
But,  when  he  ceases  to  be  in  fact  a  partner,  the  reason  ceases,  and  he 
is  no  longer  liable.  He  is  not  liable  as  a  contracting  party,  because  the 
partnership  name,  under  which  the  remaining  partners  continue  to 
transact  business,  no  longer  includes  him,  though  that  name  may  re- 
main the  same ;  and  he  is  not  liable  as  holding  out  a  false  credit  for 
the  firm,  because  the  case  supposes  that  he  is  not  known  as  a  partner, 
and  therefore  the  firm  derives  no  credit 'whilst  he  remains  a  secret  or 
dormant  partner.  No  customer,  therefore,  or  other  person  dealing 
with  the  firm,  can  be  disappointed  in  any  just  expectations  if  he  silently 
withdraws  from  the  firm.     A  very  different  rule  would  apply  where 


uo 


Sec.  4)  COMMENCEMENT   AND    DURATION    OF   LIABILITY. 

one  had  been  a  known  or  ostensible  partner  and  held  himself  out  as 
such. 

Exceptions  allowed,  and  the  verdict  to  be  set  aside,  and  a  new  trial 
had  at  the  bar  of  the  court  of  common  pleas. 


.ELMIRA  IRON  &  STEEL  ROLLING  MILL  CO.  v. 

HARRIS   et  al. 
(Court  of  Appeals  of  New  York.  1801.    124  N.  T.  2S0.  2G  X.  E.  f^t.) 

Appeal  from  a  judgment  of  the  General  Term  of  the  Supreme  Court, 
Fourth  Department,  entered  on  an  order  affirming  a  judgment  in  favor 
of  the  defendant  Harris,  entered  upon  the  verdict  of  a  jury  at  circuit. 
The  action  is  brought  to  recover  upon  liabilities  of  the  firm  of  Blood  & 
Co.,  originally  composed  of  the  defendants.  The  defendant  Harris  alone 
defends  and  upon  the  ground  that  several  years  prior  to  the  transac- 
tions upon  which  this  action  is  founded  he  had  withdrawn  from  the  firm. 
It  appears  that  the  plaintiff  had  had  dealings  with  Blood  &  Co.  prior 
to  Harris'  withdrawal  and  that  notice  of  such  withdrawal  was  not 
given  to  the  plaintiff.  But  the  defendant  insists  that  he  was  a  dor- 
mant partner,  and  therefore  not  bound  to  give  notice  of  his  retire- 
ment from  the  firm  to  those  with  whom  the  firm  had  dealt  prior  there- 
to, in  order  to  relieve  himself  from  Hability  for  an  indebtedness  sub- 
sequently incurred  by  those  who  continued  to  carry  on  the  business 
under  the  same  firm  name.    *    *    * 

Parker,  J.  The  question  to  be  determined  is  presented  by  an  ex- 
ception taken  to  the  refusal  of  the  court  to  direct  a  verdict  in  favor  of 
the  plaintiff.  The  plaintiff  insisted  that  it  was  the  duty  of  the  court 
to  determine,  as  a  matter  of  law,  that  the  defendant,  while  a  member 
of  the  firm  of  Blood  &  Co.,  was  an  ostensible  partner.  The  trial  court 
held  otherwise,  and  submitted  to  the  jury  the  question  whether  Har- 
ris was  an  ostensible  or  dormant  partner,  wath  the  further  instruction 
that,  if  they  should  find  that  he  was  a  dormant  partner,  then  the  de- 
fendant was  entitled  to  a  verdict.  Now,  it  is  the  general  rule  that  a 
partner  can  only  relieve  himself  from  liability  for  subsequent  transac- 
tions had  with  his  former  partners  in  the  partnership  name  by  giving 
notice  of  his  withdrawal.  Austin  v.  Holland,  69  N.  Y.  571,  25  Am. 
Rep.  246;  Howell  v.  Adams,  68  N.  Y.  314;  Elkinton  v.  Booth,  143 
Mass.  479,  10  N.  E.  460.  The  rule  is  founded  upon  the  principle 
governing  the  liability  of  a  principal  for  the  acts  of  his  agent.  Where 
an  agent  has  once  represented  his  principal,  if  the  principal  would 
avoid  responsibility  for  his  acts  in  the  direction  of  his  original  au- 
thority after  the  agency  has  ceased,  it  is  incumbent  upon  him  to 
notify  those  with  whom  he  has  dealt  that  such  relation  no  longer  con- 
tinues. And  a  partner,  in  dealing  v.-ith  third  parties  in  behalf  of  the 
partnership,  not  only  acts  for  himself,  but  as  agent  for  each  of  th< 


350  PARTNERSHIP  LIABILITY.  (Cll.  4 

Other  members  of  the  firm.  So  that,  when  a  partner  withdraws  from 
a  firm,  it  is  his  duty  to  give  notice  of  that  fact,  in  order  that  it  may  be 
understood  that  his  former  partners  have  no  longer  any  right  to  repre- 
sent him;  and,  if  he  fail  to  discharge  that  obligation,  he  cannot  there- 
after avoid  liability  for  an  indebtedness  incurred  in  the  partnership 
named  to  a  party  unaware  of  the  changed  situation.  It  appears  that 
a  notice  of  dissolution  was,  at  the  time,  published  in  a  local  paper, 
but  that  could  only  affect  those  who  should  deal  with  the  firm  for 
the  first  time  after  the  withdrawal.  It  did  not  operate  as  a  notice 
to  the  plaintiff,  with  whom  the  firm  had  had  business  relations  prior 
thereto.  As  to  it,  actual  notice  could  alone  suffice.  It  was  not  giv- 
en, and  therefore  defendant  is  chargeable  ^  with  the  indebtedness 
sought  to  be  recovered,  unless  he  is  entitled  to  the  protection  of 
the  one  exception  to  the  rule,  continuing  the  liability  of  partners  after 
dissolution  who  fail  to  give  noice.  A  dormant  partner  need  not 
give  notice,  and  the  jury  have  been  permitted  to  find  that  such  was 
Harris'  relation  to  the  firm  of  Blood  &  Co.  Whether  rightly,  we  must 
now  consider.  The  first  step  in  that  direction  is  to  ascertain  what  is 
meant  by  the  term  "dormant  partner."  Bouvier  defines  "dormant" 
as  "sleeping;  silent;  not  knovv^n;  not  acting."  "A  dormant  partner," 
says  Collyer  in  his  work  on  Partnership  (6th  Ed.,  p.  11),  "is  he  whose 
name  and  transactions  as  a  partner  are  professedly  concealed  from 
the  world;  *  *  *  jg  Qj-,g  ^^.j-^q  shares  in  the  profits  of  a  business, 
but  is  not  known  as  a  member  of  the  firm."  A  dormant  partner  is 
one  "taking  no  part  in  the  management  of  the  partnership."  Lindl. 
Partn.  16.  "We  think,  however,  the  word  implies  both  the  quality  of 
secrecy  and  inactivity."  T.  Pars.  Partn.  33.  In  National  Bank  v. 
Thomas,  47  N.  Y.  15,  19,  the  court  said:  "A  dormant  partner  is  one 
who  takes  no  part  in  the  business,  and  whose  connection  with  the 
business  is  unknown.  Both  secrecy  and  inactivity  are  implied  by  the 
word."  As  the  court  cited  North  v.  Bloss,  30  N.  Y.  374,  as  well  as 
other  authorities,  in  support  of  the  definition  given,  it  is  clear  that  it 
did  not  understand  or  intend  that  the  North  Case  should  have  the  effect 
of  altering  a  rule  which  had  been  long  settled  as  asserted  by  it.  It 
follows  that  one  occupying  such  a  relation  to  a  partnership  need  not 
give  notice,  because,  his  connection  with  the  firm  not  having  been 
known,  it  cannot  have  contributed  in  any  degree  towards  establishing 
the  credit  of  the  firm,  and,  consequently,  his  withdrawal  could  not 
take  away  a  single  element  which  helped  to  build  up  the  business 
reputation  and  credit  of  the  partnership.  Such  we  deem  the  rule,  and 
it  should  not  be  extended.  Credit  is  a  matter  of  such  importance  in 
the  mercantile  world,  and  the  financial  standing  of  any  partner  may, 
through  various  sources,  be  so  readily  commingled  with  that  of  his 
firm,  that  it  is  essential  that  he  should  be  required  to  take  the  precau- 
tion of  giving  notice  of  withdrawal,  unless  it  clearly  appears  that  his 
connection  with  the  firm  did  not  add  to  its  reputation  for  responsibility. 
It  is  not  attempted  here  to  establish  a  partnership  liability  against 


Sec.  4)  COMMENCEMENT   AND    DURATION    OF   LIAIilLITY.  S.")! 

Marris  on  the  ground  of  estoppel,  which  would  have  burdened  the 
plaintiff  with  the  necessity  of  establi^hmg  that  he  held  himself,  or 
knowingly  permitted  another  to  hold  him,  out  as  a  partner;  that  the 
plaintiff  had  knowledge  of  such  holding  out  and  was  induced  thereby 
the  create  the  debt;  and  the  authorities  applicable  to  such  a  situation,  of 
which  Thompson  y.  Bank,  111  U.  S.  520,  4  Sup.  Ct.  GS9,  2S  L.  Ed. 
507,  is  a  type,  need  not  be  considered.  The  written  agreement  entered 
into  between  the  Bloods  and  Harris  made  the  parties  actual  partners. 
It  neither  hmited  the  liabilities  nor  the  agency  of  either.  It  did  not 
suggest  that  Harris'  connection  with  the  firm  should  be  kept  secret. 
It  did  not  provide  that  Harris  should,  as  to  its  business,  be  wholly  in- 
active. It  required  each  of  the  Bloods  to  give  his  entire  time  and  at- 
tention to  the  business,  for  which  each  was  to  be  paid  $600  per  annum ; 
while  as  to  Harris,  who  was  engaged  in  other  business,  it  was  agreed 
that  he  should  "be  consulted  in  the  business,  and  all  plans  and  opera- 
tions of  the  firm  shall  be  made  and  done  with  the  advice  of  the  firm, 
and  the  said  N.  C.  Harris  is  to  have  and  receive  from  the  firm  $100 
per  year  for  his  services,  for  the  care  and  assistance  which  he  may 
render  to  the  firm  without  giving  his  personal  attention  to  the  busi- 
ness." The  agreement,  therefore,  does  not  indicate  that  it  was  the  in- 
tention of  the  parties  that  Harris  should  be  a  secret  partner,  sharing 
in  the  profits  as  a  reward  for  his  contribution  to  the  capital,  without 
contributing  in  any  other  manner  to  the  standing  and  business  of  the 
firm.  Neither  was  he,  in  fact,  inactive  during  the  seven  years  that 
elapsed  before  his  withdrawal.  While  he  did  not  engage  in  the  pur- 
chase of  material  or  the  sale  of  manufactured  articles,  he  did  take  part 
to  some  extent  in  the  financial  management  of  the  partnership,  and  in 
the  settlement  of  controversies,  in  which  he  wrote  letters  over  his  own 
signature  as  well  as  tjiat  of  the  firm.  During  some  portions  of  the 
partnership  period  lie  v.as  frequently  about  the  shops,  at  times  nearly 
every  day,  looking  over  the  work,  and  occasionally  speaking  to  the 
different  foremen  about  it.  Neither  did  his  partners  keep  secret  the 
fact  of  his  connection  with  the  firm.     *     *     * 

Again,  the  adoption  of  the  firm  name  of  Blood  &  Co.  is  in  the  op- 
position to  the  claim  of  dormancy  on  the  part  of  Harris..  A  dormant 
partner  is  one  who  becomes  such  by  a  secret  arrangement,  while  his 
associates  are  held  out  to  the  world  as  sole  proprietors  and  managers 
of  the  business.  Beecher  v.  Bush,  45  I\Iich.  188-203,  7  N.  W.  785, 
40  Am.  Rep.  4G5.  If  the  business  had  been  carried  on  under  the  firm 
name  of  Blood  &  Blood  or  Blood  Bros.,  then  the  Bloods  would  have 
licen  held  out  as  comprising  the  entire  firm.  But  the  words  "&  Co." 
indicate  an- agency,  and  that  a  principal  or  principals  are  undisclosed, 
and,  if  credit  is  given,  the  law  presumes  that  it  was  given  to  all  the 
principals.  In  Shamburg  v.  Ruggles,  83  Pa.  148,  the  court  say:  "If 
A.,  B.,  and  C.  enter  into  articles  of  association,  and  agree  that  the  busi- 
ness shall  be  conducted  by  A.,  and  in  his  name  alone,  B.  and  C.  in  such 
case  are  dormant  partners,  and,  though  liable  for  the  debts  and  obliga- 


o.j2  partnership  liability.  (Ch.  4 

tions  of  the  firm  during  its  continuance,  are  not  so  liable  for  debts 
after  its  dissolution,  although  notice  of  such  dissolution  may  not  have 
been  given  to  the  public  or  those  previously  dealing  with  it,  for  it  is 
to  be  presumed  that  credit  was  given  upon  the  responsibility  of  A. 
alone,  and  not  "upon  that  of  B.  and  C.  If,  however,  the  business  be 
conducted  in  the  name  of  A.  &  Co.,  a  different  presumption  arises,  for 
then  it  is  supposed  that  credit  is  given,  not  to  A.  alone,  but  to  all  those 
composing  the  company;  in  other  words,  to  the  firm,  and  not  to  any 
one  individual  of  it.  In  such  case,  if  B.  and  C.  retire,  notice  must  be 
given  to  those  dealing  with  the  firm,  or  he  will  continue  to  be  liable  for 
the  debts  thereof  subsequently  contracted  with  former  creditors,  who 
may  be  ignorant  of  the  dissolution."  To  the  same  effect  is  the  reason- 
ing of  the  court  in  De  Ford  v.  Reynolds,  36  Pa.  325 ;  Podrasnik  v. 
Martin,  25  111.  App.  300;  Deering  v.  Flanders,  49  N.  H.  225;  Clark 
V.  Fletcher,  96  Pa.  416. 

Notwithstanding  the  terms  of  the  agreement  of  partnership,  the 
adoption  ot  a  firm  name  which  did  not  exclude  the  defendant,  the  an- 
nouncement, by  each  of  the  Bloods  to  those  making  inquiries  and  hav- 
ing dealings  with  the  firm,  that  Harris  was  one  of  the  partners,  and 
the  further  fact  that  he,  to  some  extent,  participated  in  the  settlement 
of  accounts  and  the  financial  management  of  the  business — facts 
which,  standing  alone,  determine  that  Harris'  status  in  the  firm  was 
that  of  an  ostensible  partner — it  is  insisted  that  other  evidence,  pre- 
sented on  the  part  of  the  defendant,  authorized  a  submission  to  the 
jury  of  the  question  whether  he  was  a  dormant  partner.  The  evidence 
relied  on  in  support  of  such  position  was  (1)  that  it  was  said  at  the 
time  of  the  formation  of  the  partnership  that  it  should  not  be  made 
public — "should  not  be  talked  about  at  all";  (2)  the  testimony  of  a 
number  of  witnesses  residing  in  that  locality,  s©nie  of  whom  had  had 
dealings  vath  the  firm  of  Blood  &  Co.,  to  the  effect  that  they  did  not 
know  that  Plarris  was  a  partner.  This  evidence,  it  is  asserted,  tended 
to  show  that  his  relation  to  the  firm  of  Blood  &  Co.  v/as  not  generally 
known.  It  may  be  observed,  in  passing,  that  one  of  the  Bloods  denied 
that  there  Vvas  any  understanding,  at  the  time  of  the  formation  of  the 
partnership,  that  the  fact  of  Harris'  membership  should  not  be  talked 
about,  and  evidence  was  adduced  on  the  part  of  the  plaintiff  for  the 
purpose  of  showing  that  it  was  quite  generally  known  in  the  community 
that  Harris  was  a  member  of  the  firm. 

For  the  purposes  of  this  review,  however,  the  plaintiff's  answering 
evidence  cannot  be  considered,  as  we  are  to  determine  whether  the  de- 
fendant's evidence  was  of  such  a  character  as  to  authorize  a  jury  to 
find  that  he  was  a  dormant  partner,  notwithstanding  the  facts  which, 
if  standing  alone,  we  have  asserted  require  a  holding  that  he  was  in 
law  an  ostensible  partner.  The  agreement  of  partiiership'was  reduced 
to  writing.  It  does  not  in  any  manner  suggest  that  the  membership 
of  Harris  was  to  be  kept  from  the  public  It  purports  to  embrace  the 
entire  agreement,  and  the  defendant  has  not  attempted  to  show  that, 


Sec.  4)  COMMENCEMENT   AND    DURATION    OF   LIABILITY.  35^^ 

in  reducing  the  agreement  of  the  parties  to  writing,  anything  was 
omitted  by  mistake  or  otherwise  which  had  been  agreed  upon.  It  is 
not  asserted  that  this  so-called  understanding  was  made  a  part  of  the 
original  contract.  It  is  not  pretended  that  the  parties  made  a  subse- 
quent agreement  founded  upon  a  new  consideration.  It.  does  not  clear- 
ly appear  that  the  matter  was  spoken  of  in  the  presence  of  all  the 
parties,  much  less  assented  to;  for  Samuel  N.  Blood  says  he  does  not 
remember  any  such  thing,  and  was  not  a  party  to  any  such  agreement, 
and  Harris'  evidence  does  not  necessarily  include  him.  Harris'  tes- 
timony on  that  subject,  and  the  whole  of  it,  is  comprised  in  an  answer 
to  a  single  question :  "Question.  Now  you  may  tell  me,  at  the  time 
you  entered  into  this  partnership,  was  there  anything  said  between 
you  as  to  whether  this  should  be  made  public?  Answer.  There  was, 
sir;  it  was  not  to  be  talked  about  at  all."  It  is,  we  think,  clear  that 
this  evidence  cannot  be  permitted  to  eflfect  a  change  in  the  legal  re- 
lation which  the  parties  assumed  in  writing  and  by  subsequent  conduct. 
Neither  can  a  general  partner,  who,  in  order  to  relieve  himself  from  a 
liability  which  attaches  to  an  ostensible  partner,  assumes  the  burden 
of  proving  that  he  was  a  dormant  partner,  be  deemed  to  have  so  well 
borne  it  as  to  destroy  the  legal  effect  of  acts  of  the  character  disclosed 
by  this  record,  by  the  testimony  of  his  neighbors  and  others,  given 
years  after  the  dissolution,  to  the  effect  that  they  did  not  know  until 
after  the  happening  of  that  event  that  he  was  ever  a  member  of  the 
firm,  supplemented  by  the  expression  of  his  own  opinion  that  not  one 
in  ten  in  his  vicinity  knew  of  it.  The  question  is  not  whether  one 
knew  it,  or  nearly  all,  but  whether  by  agreement,  the  adoption  of  a 
firm  name,  and  subsequent  conduct  he  so  held  out  the  Bloods  as  the 
only  members  of  the  partnership  as  to  prevent  his  name  from  con- 
tributing to  the  standing  and  credit  of  the  firm.  If  he  did  not,  then 
he  must  be  visited  with  the  legal  consequences  of  his  failure  to  give 
notice  to  those  who  had,  prior  to  his  withdrawal,  transacted  business 
with  the  firm,  and  the  lack  of  information  on  the  part  of  some  or  many 
persons  will  not  operate  to  shield  him  from  it.  The  plaintiff,  it  seems, 
di4  not  know  that  Harris  was  a  member  of  the  firm,  but  that  fact  can- 
not avail  the  defendant,  because,  at  the  time  of  the  commencement  of 
the  dealings  with  the  plaintiff,  he  was  "an  ostensible,  and  dot  a  secret, 
partner,  and  was  such  to  all  persons  dealing  with  the  firm,  and  his 
liability  to  the  plaintiff  is  not  changed  by  the  fact  that  the  plaintiff"  did 
not  know  that  he  was  a  partner.  He  trusted  the  copartnership,  who- 
e?Ver  the  partners  might  be  who  composed  it."  Howell  v.  Adams,  68 
N.  Y.  314.  This  position  is  not  only  supported  by  authority,  but  is 
well  founded  in  the  methods  largely  adopted  in  business  circles  for  the 
purpose  of  ascertaining  whether  credit  shall  be  given.  The  competi- 
tion in  business  and  rapidity  with  which  orders  must  be  filled  make  it 
necessary  for  business  houses  to  promptly  ascertain  whether  credit 
shall  be  given.  This  necessity  has  contributed  to  the  establishment  of 
agencies  which  undertake  to  ascertain  the  financial  condition  of  cor- 
Gii,.rAnT.— 23 


354 


PARTNERSHIP  LIABILITY.  (Ch.  4 


porations,  firms,  and  individuals  engaged  in  business.  The  inquiry 
^iddressed,  naturally,  is,  what  is  the  financial  condition  of  Jones  &  Co.? 
For,  having  no  acquaintance  with  the  individuals  comprising  the  firm, 
iiiformation  as  to  membership  does  not  aid  the  inquirer.  So,  in  this 
case,  the  plaintifif's  president  testified  that  no  inquiry  was  made  as  "to 
who  constituted  the  firm  of  Blood  &  Co.  *  *  *  We  thought  the 
Ci-edit  of  Blood  &  Co.,  when  we  first  commenced  dealing  with  them, 
was  good ;  we  inquired,  and  ascertained  that  the  credit  of  the  firm  was 
good."    The  judgment  should  be  reversed. 

Haigiit,  J.    (dissenting).     *     *     *     The  trial   court  held  that,   if 
Harris'  connection  with  the  firm  was  open  and  notorious  as  an  osten- 
sible partner,  he  would  be  liable ;  but  if  his  position  was  not  open  and 
notorious  as  an  ostensible  partner,  but  was  that  of  a  dormant  partner, 
he  would  not  be  liable;    and  this  question  was  submitted  to  the  jury, 
who  found  in  favor  of  Harris,  and  the  judgment  entered  upon  this 
verdict  has  been  affirmed  by  the  general  term.     It  has  been  repeatedly 
held   in   this   court  that  questions   involving  the  weight  of   evidence 
cannot  be  here  reviewed ;   that  they  are  finally  disposed  of  by  the  gen- 
eral term ;   that  this  court  can  only  inquire  as  to  whether  there  is  evi- 
dence upon  which  the  verdict  could  stand.     The  claim  is  made  that 
there  is  no  such  evidence.   .A  "dormant  partner"  has  been  variously 
defined  as  "sleeping,"  "silent,"  "not  known,"  "not  acting" ;  one  whose 
name  and  transactions  as  a  partner  are  professedly  concealed  from  the 
world;   one  who  shares  in  the  profits  of  a  business,  but  is  not  known 
as  a  member  of  the  firm.     In  its  strictest  sense,  it  may  imply  both  the 
quality  of  secrecy  and  inactivity ;  but  it  has  been  held  that  to  be  such 
it  is  not  essential  that  the  dormant  partner  should  w|iolly  abstain  from 
any  actual  participation  in  the  business  of  the  firm,  or  be  universally 
unknown  as  bearing  a  connection  with  it.     He  may  act  in  an  advisory 
manner  in  the  general  business  of  the  firm,  and  it  is  sufficient  if  he 
is  not  generally  known  as  a  partner.     North  v.  Bloss,  30  N.  Y.  374. 
With  this  understanding  as  to  the.  meaning  of  the  term  "dormant," 
we  proceed  to  inquire  as  to  whether  there  is  any  evidence  tending  to 
show  whether  Harris  was  such,  which  required  a  submission  of  that 
question  to, the  jury.     Our  attention  is  first  called  to  the  articles  of 
copartnership.     *     *     * 

It  consequently  appears  to  me  that,  taking  the  evidence  in  connection 
with  the  articles  of  copartnership,  a  question  was  presented  in  which 
the  jury  might  find  that  his  position  in  the  firm  was  that  of  an  inactive 
partner.  It  still  remains  to  be  determined  as  to  whether  his  connection 
wnh  the  firm  was  kept  secret  to  such  an  extent  as  not  to  be  generally 
known.  *  *  *  If  a  dormant  partner,  it  is  conceded  he  would  not 
be  liable  by  reason  of  the  failure  to  give  notice  of  the  dissolution  of 
the  partnership,  and  the  reason  of  the  rule  is  that  the  plaintiff  suffers 
nothing  in  consequence  of  such  failure.  If  the  plaintiff  had  no  notice 
of  Harris'  connection  with  the  firm  at  the  time  it  transacted  its  business 
it  could  have  given  no  credit  on  his  account.     This  rule  is  salutary, 


Sec.  4)  ■         COMMENCEMENT   AND   DURATION    OF    LIABILITY.  355 

and  is  founded  upon  reason.  The  plaintiff  has  no  right  to  exact  a 
penalty  from  Harris  by  reason  of  his  failure  to  give  notice.  The  word 
"dormant,"  when  used  in  this  connection,  should  be  held  to  cover 
cases  that  clearly  come  within  the  reason  of  the  rule.  The  plaintiff, 
in  order  to  recover,  must  show  that  it  has  suffered  in  consequence  of 
his  neglect.  It  is  frankly  admitted  that  the  president  or  officers  of  the 
plaintiff  did  not  know  that  Harris  'was  a  member  of  the  firm  at  any 
time  until  after  the  final  credit  was  given  and  the  general  assign- 
ment of  Blood  &  Co.,  was  made.  It  therefore  gave  no  credit  to  the 
firm  on  account  of  Harris,  and  it  suffered  nothing  by  his  failure  to 
give  a  notice  of  his  retirement,  unless  his  relation  with  the  firm  was 
so  notorious  and  ostensible  as  to  give  it  a  financial  standing  and  rep- 
utation with  the  public.  There  is  no  pretense  that  his  relation  was 
of  this  character,  or  that  any  credit  was  given  by  the  plaintiff  because 
of  any  such  reputation.     *     *     * 

I  am  therefore  of  the  opinion  that  the  judgment  should  be  affirmed, 
with  costs. 


356  THE  POWERS  OF  PASTNERS.  (Ch.  5 

CHAPTER  V. 
THE  POWERS  OF  PARTNERS. 


SECTION  1.— ORIGIN  AND  NATURE  OF  THE  PARTNER'S 

POWERS. 


WINSHIP  et  al.  v.  BANK  OF  THE  UNITED  STATES. 
(Supreme  Court  of  the  United  States,  1831.    5  Pet.  552,  8  L.  Ed.  21G.) 

Action  against  John  Winship,  Amos  Binney,  and  John  Binney,  co- 
partners trading  under  the  name  of  John  Winship,  on  several  promis- 
sory notes,  signed  by  John  Winship  as  indorser.  The  partnership 
articles  and  a  bond  given  by  said  Winship  to  the  Binneys  (construed 
as  a  part  of  the  partnership  agreement)  provided  for  a  partnership  be- 
tween the  Binneys  and  Winship  for  the  manufacture  of  soap  and 
candles,  and,  in  addition  to  prescribing  the  rights  and  duties  of  the  re- 
spective parties,  expressly  provided  that  the  "said  John  Winship  shall 
*  *  *  wholly  abstain  from  becoming  the  surety  or  indorser  of  any 
person."  At  the  trial  numerous  exceptions  were  taken  to  instructions 
given  to  the  jury.  Only  that  part  of  the  opinion  dealing  with  the  ex- 
ception to  the  third  instruction  is  given  here. 

A  verdict  was  found  for  the  plaintiffs,  and  judgment  entered  there- 
on, which  was  brought  up  for  review  by  writ  of  error. 

Marshall,  C.  J.  *  *  *  The  third  instruction  asked  in  the 
Circuit  Court  goes  to  the  construction  of  the  articles  of  copartnership. 
The  plaintiff  in  error  contends  that  those  articles  gave  Winship  no 
authority  to  raise  money  on  the  credit  of  the  firm,  or  to  bind  it  by  his 
signature  for  the  purpose  of  borrowing  money. 

The  instruction  given  was  that,  if  the  particular  terms  of  the  articles 
were  unknown  to  the  public,  they  had  a  right  to  deal  with  the  firm,  in 
respect  to  the  business  thereof,  upon  the  general  principles  and  pre- 
sumptions of  limited  partnerships  of  a  like  nature,  and  that  any  special 
restrictions  did  not  affect  them ;  that  in  such  partnerships  it  was  within 
the  general  authority  of  the  partners  to  make  and  indorse  notes,  and 
to  obtain  advances  and  credits  for  the  business  and  benefit  of  the  firm, 
and,  if  such  was  the  general  usage  of  trade,  the  authority  must  be 
presumed  to  exist,  but  that  it  did  not  extend  to  transactions  beyond 
the  scope  and  object  of  the  copartnership;  that,  in  the  present  arti- 
cles, Winship  was,  in  effect,  constituted  the  active  partner,  and  has 
general  authority  to  transact  its  ordinary  business,  with  persons  ignor- 


Sec.  1)        ORIGIN    AND   NATURE   OF   THE   PARTNBR's    POWERS.  357 

ant  of  any  private  restriction,  to  the  same  extent  that  partners  in 
such  limited  partnerships  usually  possess. 

The  amount  of  the  charge  is  that  if  Winship  and  the  two  Binneys 
composed  a  joint  company  for  carrying  on  the  soap  and  candle  busi- 
ness, of  which  Winship  was  the  acting  partner,  he  might  borrow  money 
for  the  business  on  the  credit  of  the  company,  in  tlie  manner  usually 
practiced  in  such  partnerships,  notwithstanding  any  secret  restriction 
on  his  powers  in  any  agreement  between  the  parties,  provided  such 
restriction  was  unknown  to  the  lender. 

The  counsel  for  the  plaintiff  in  error  has  objected  to  this  instruc- 
tion with  great  force  of  reasoning.  He  contends,  very  truly,  that  in 
fact  scarcely  any  unlimited  partnerships  exist.  They  are  more  or  less 
extensive.  They  may  extend  to  many  or  to  few  objects,  but  all  are 
in  some  degree  limited. 

That  the  liability  of  a  partner  arises  from  pledging  his  name  if  his 
name  is  introduced  into  the  firm,  or  from  receiving  profits  if  he  is  a 
secret  partner. 

No  man  can  be  pledged  but  by  himself.  If  he  is  to  be  bound  by 
another,  that  other  must  derive  authority  from  him.  The  power  of 
an  agent  is  limited  by  the  authority  given  him ;  and,  if  he  transcends 
that  authority,  the  act  cannot  affect  his  principal.  He  acts  no  longer 
as  an  agent.  The  same  principle  applies  to  partners.  One  binds  the 
others  so  far  only  as  he  is  the  agent  of  the  others. 

If  the  truth  of  these  propositions  be  admitted,  yet  their  influence  on 
the  case  may  be  questioned.  Partnerships  for  commercial  purposes, 
for  trading  with  the  world,  for  buying  and  selling  from  and  to  a 
great  number  of  individuals,  are  necessarily  governed  by  many  gen- 
eral prmciples,  which  are  known  to  the  public,  which  subserve  the  pur- 
pose of  justice,  and  which  society  is  concerned  in  sustaining.  One  of 
these  is  that  a  man  who  shares  in  the  profits,  although  his  name  may 
not  be  in  the  firm,  is  responsible  for  all  its  debts.  Another,  more  ap- 
plicable to  the  subject  under  consideration,  is  that  a  partner,  certainly 
the  acting  partner,  has  power  to  transact  the  whole  business  of  the 
firm,  whatever  that  may  be,  and  consequently  to  bind  his  partners  in 
such  transactions  as  entirely  as  himself.  This  is  a  general  power,  es- 
sential to  the  well  conducting  of  business,  which  is  implied  in  the 
existence  of  a  partnership  When,  then,  a  partnership  is  formed  for 
a  particular  purpose,  it  is  understood  to  be  in  itself  a  grant  of  power 
to  the  acting  members  of  the  company  to  transact  its  business  in  the 
usual  way.  If  that  business  be  to  buy  and  sell,  then  the  individual  buys 
and  sells  for  the  company,  and  every  person  with  whom  he  trades  in 
the  way  of  its  business  has  a  right  to  consider  him  as  the  company, 
whoever  may  compose  it.  It  is  usual  to  buy  and  sell  on  credit;  and, 
if  it  be  so,  the  partner  who  purchases  on  credit  in  the  name  of  the  firm 
must  bind  the  firm.  This  is  a  general  authority  held  out  to  the  world, 
to  which  the  world  has  a  right  to  trust.  The  articles  of  copartnership 
are,  perhaps,  never  published.     They  are  rarely,  if  ever,  seen,  except 


358  THE   POWERS   OF  PARTNERS.  (Ch.  5 

by  the  partners  themselves.  The  stipulations  they  may  contain  are  to 
regulate  the  conduct  and  rights  of  the  parties  as  between  themselves. 
Tiie  trading  world,  with  whom  the  company  is  in  perpetual  intercourse, 
cannot  individually  examine  these  articles,  but  must  tru^t  to  the  gen- 
eral powers  contained  in  all  partnerships.  The  acting  partners  are 
identified  with  the  company,  and  have  power  to  conduct  its  usual  busi- 
ness in  the  usual  way.  This  power  is  conferred  by  entering  into  the 
partnership,  and  is  perhaps  never  to  be  found  in  the  articles.  If  it  is 
to  be  restrained,  fair  dealing  requires  that  the  restrictions  should  be 
made  known.  These  stipulations  may  bind  the  partners,  but  ought 
not  to  affect  those  to  whom  they  are  unknown,  and  who  trust  to  the 
general  and  well-established  commercial  law.  2  H.  Bl.  235;  17  Ves. 
412;  Gow  on  Part.  17.  *  *  * 
The  judgment  is  affirmed.^ 


BURGAN  V.  LYELL  et  al. 
(Supreme  Court  of  Michigan,  1S5G.     2  Mich.  102,  .55  Am.  Dec.  53.) 

Pratt,  J.  This  is  an  action  of  assumpsit,  brought  by  the  plain- 
tiff in  Wayne  county  court,  for  work  and  labor  claimed  to  have  been 
performed  for  the  defendants  in  their  mining  business, 
■  The  cause  was  submitted  to  the  court  below  on  a  written  statement, 
in  which  it  is  admitted  that  the  defendants  impleaded  in  this  suit  in- 
cluded all  the  members  of  the  company;  that  they  all  signed  the  or- 
iginal article  of  copartnership,  and  prosecuted  the  business  of  mining 
under  them. 

These  concessions,  thus  made,  constitute  conclusive  evidence,  as 
against  the  defendants,  of  a  partnership  in  fact,  in  which  they  are  all, 
as  partners,  engaged  in  the  business  of  mining.  2  Greenleaf,  Ev.  §  484. 
It  further  appears,  from  the  case  submitted,  that  Andrew  Harvie,  a 
member  and  one  of  the  managers  of  the  company,  employed  the  plain- 
tiff to  perform  the  work  in  question.  But  whether  his  powers,  as  one 
of  the  managers  of  the  company,  were  general,  or  special  and  limited, 
does  not  appear;  nor  is  it  material  to  a  judicial  determination  of  this 
cause,  as  every  member,  in  legal  contemplation,  without  any  special 
powers  being  conferred  upon  him  by  the  articles  of  copartnership,  is 
not  only  a  principal  of  the  firm,  but  a  general  agent,  for  all  the  co- 
partners, in  the  transaction  of  their  legitimate  company  business  (Story 
on  Part.  1;  Har.  Ch.  172),  each  member  being  vested  with  power 
which  enables  him  to  act  at  once  as  principal,  and  all  are  regarded  as 
being  present  and  sanctioning  the  engagements  and  contracts  which 
they  may  singly  enter  into  within  the  scope  of  their  partnership  mat- 
ters (Story  on  Part,  158,  159).     Harvie,  then,  being  one  of  the  part- 

1  The  dissenting  opinion  of  Balfi.vin,  J.,  is  omitted. 


Sec.  1)        ORIGIN    AND    NATURE    OF   THE    PARTNER'S    POWERS.  3o'J 

ners,  was  vested  with  the  right  of  contracting  with  the  plaintifT,  and 
any  work  performed  by  him  for  the  company  under  the  contract  would 
legally  bind  all  of  the  partners  for  the  payment  of  it.  Although  Ilar- 
vie,  as  a  single  member,  was  inhibited  from  making  such  a  contract 
by  some  express  provision  of  the  articles  of  copartnership,  still  the 
rights'of  third  persons,  to  whom  such  provision  was  unknown,  would 
not  be  thereby  affected*  nor  would  it  tend  in  the  least  to  bar  a  third 
person,  who  had  by  the  procurement  of  a  single  member,  without  no- 
tice, rendered  services  for  the  company,  in  recovering  therefor  in  a 
suit  against  all.  2  Greenleaf,  Ev.  §  481;  Story  on  Part.  193.  The 
plaintiff,  by  the  procurement  of  Harvie,  as  appears  by  the  case,  labor- 
ed for  the  company  in  their  mining  operations  nine  months  and  two 
days,  at  $18  per  month.  In  this  labor  of  the  plaintiff  all  the  partners 
are  interested,  and  in  judgment  of  law  all  are  presumed  to  have  been 
cognizant  of  its  performance,  and  to  have  derived  at  least  some  bene- 
fit from  it;  hence  all  are,  as  they  should  be  by  every  principle  of  jus- 
tice, held  equally  responsible  to  the  plaintiff  for  the  payment  of  the 
services  thus  rendered.  And  as  regards  their  joint  liability  it  is  a 
matter  of  no  legal  moment  whether  some  of  the  partners  were  dor- 
mant in  fact,  or  whether  they  subsequently  assented  to",  or  dissented 
from  the  proceedings  of  those  with  whom  they  had  entrusted  the  man- 
agement of  their  company  business.  They  would,  nevertheless,  be 
jointly  liable  to  the  plaintiff  for  his  work. 

After  the  services  were  rendered,  the  plaintiff',  as  appears  by  the 
case,  made  out  an  account  therefor  against  the  company,  the  balance 
of  which,  after  deducting  some  small  sums  which  had  been  paid  and 
cretlited,  amounted  to  $1 1:7.43,  on  which  John  Greenfield,  their  super- 
intending agent  of  the  hands  employed  on  the  mining  location,  certified 
to  John  Winder,  a  member  and  also  one  of  the  managers  of  the  com- 
pany, that  the  account  was  correct,  and  that  the  balance  thereof  was 
due  to  the  plaintiff.  Winder  afterwards,  on  presentation  of  the  ac- 
count and  certificate  to  him,  paid  to  the  plaintiff  $10,  which  was  in- 
dorsed thereon. 

It  is  a  well-settled  principle  of  law  "that  the  acknowledgment  by 
one  partner,  during  the  continuance  of  the  partnership,  of  a  debt  as 
due  by  the  partnership,  will  amount  to  a  promise  binding  the  firm.". 
The  certificate  of  the  superintending  agent,  and  the  recognition  of 
the  account  by  a  member  and  one  of  the  managers  of  the  company,  con- 
stitute sufficient  evidence  of  such  acknowledgment.  "And  so  a  part 
payment  of  a  debt  of  a  firm  by  one  partner,  during  the  continuance  of 
the  partnership,  will  not  only  extinguish  pro  tanto  the  partnership 
debt,  but  will  operate  as  an  admission  of  the  existence  of  the  residue 
of  the  debt,  binding  on  all  the  partners."    Story  on  Partnership,  p.  IGO. 

These  are  rules  of  law  about  which  there  has  never  been  any  dis- 
agreement, either  by  legal  authors  or  courts  of  last  resort ;  and  by  them 
all  the  members  of  this  company  are  equally  liable  to  the  plaintiff  for  the 
payment  of  the  balance  due  him  on  the  account.     *     *     * 


3(50  THE    POWERS   OF   PARTNERS.  (Cll.  5 

The  opinion,  therefore,  of  this  court,  is  that  the  plaintiff  is  entitled 
to  judgment  for  the  balance  of  his  account  and  interest  from  the  time 
of  its  liquidation.^ 


SECTION  2.— TEST  OF  AUTHORITY— NATURE  OF  QUES- 
TION. 


POOLEY  et  al.  v.  WHITMORE. 
(Supreme  Court  of  Tennessee,  1873.    10  Heisk.  G33,  27  Am.  Rop.  733.) 

Burton,  J.  Pooley,  Barnum  &  Co.  sued  Edwin  Whitmore  &  Co. 
on  two  promissory  notes,  of  $185  each,  made  by  W.  A.  Whitmore, 
payable  at  six  and  nine  months,  respectively,  to  the  order  of  "Whit- 
more Bros.,"  and  indorsed  in  that  name.  Whitmore  Bros.,  a  firm  com- 
posed of  Edwin  Whitmore  and  the  said  W.  A.  Whitmore  were  part- 
ners in  publishing  the  Public  Ledger  newspaper  in  the  city  of  Mem- 
phis, and  also  conducted  a  general  job  printing  office  in  that  city.  The 
notes  in  suit,  however,  were  drawn  and  indorsed  by  W.  A.  Whitmore 
in  discharge  of  a  private  debt  that  he  owed  to  one  Cannon.  Edwin 
^^''hitmore  is  the  surviving  partner  of  the  firm,  and  puts  in  a  special 
plea  of  non  est  factum,  and  insists  that  the  firm  is  not  bound  to  pay, 
on  the  ground  that  it  is  not  a  partnership  debt.  Defendants  in  error 
reply  that  they  are  bona  fide  purchasers  for'  value  of  the  note  in  ^ue 
course  of  trade,  and  therefore  are  entitled  to  recover,  notwithstanding 
the  wrong  or  fraud  of  W.  A.  Whitmore  in  using  the  partnership  name 
in  a  personal  transaction. 

The  court  below  instructed  the  jury  that  "as  a  general  rule  one  part- 
ner is  not  liable  for  the  act  of  another  partner  not  within  the  scope  of 
the  partnership  business;    that  if  one  partner  sign  a  promissory  note 

1  "Everybody  knows  that  partnership  Is  a  sort  of  agency,  but  a  very  pe- 
culiar one.  You  cannot  grasp  the  notion  of  agency,  properly  speaking,  un- 
less you  grasp  the  notion  of  the  existence  of  the  firm  as  a  separate  entity 
from  the  existence  of  the  partners — a  notion  which  was  well  grasped  by  the 
old  Roman  lawyers,  and  which  was  partly  understood  in  the  courts  of  equity 
before  it  was  part  of  the  whole  law  of  the  land,  as  it  is  iiow.  But,  when  you 
get  the  Idea  clearly,  you  will  see  at  once  what  sort  of  agency  it  is.  It  is 
one  person  acting  on  behalf  of  the  firm.  He  does  not  act  as  agent,  in  the 
ordinary  sense  of  the  word,  for  the  others,  so  as  to  bind  the  otliers.  He  acts 
on  behalf  of  the  firm  of  which  they  are  members ;  and  as  he  binds  the  firm, 
and  acts  on  the  part  of  the  firm,  he  is  properly  treated  as  the  agent  of  the 
firm.  If  you  cannot  grasp  the  notion  of  a  separate  entity  for  the  firm,  then 
you  are  reduced  to  this:  that  inasmuch  as  he  acts  partly  for  himself  and 
partly  for  the  others,  to  the  extent  that  he  acts  for  the  others  he  must  be 
.an  agent,  and  in  that  way  you  get  him  to  be  an  agent  for  the  other  partnei'S, 
but  only  in  that  way,  because  you  insist  upon  ignoring  the  existence  of  the 
firm  as  a  separate  entity."  Per  Jessel,  M.  R.,  in  Pooley  v.  Driver,  5  Ch.  D. 
4.'>8,  476  (1876). 


Sec.  2)  TEST   OF   AUTHORITY — NATURE   OF   QUESTION.  361 

or  other  negotiable  paper  in  the  firm  name,  without  the  knowledge  or 
consent  of  the  other  partner,  and  for  a  matter  not  within  the  scope  of 
the  partnership  business,  the  other  partner  will  not  be  liable,  unless  he 
ratify  the  act,  or  unless  the  paper  get  into  the  hands  of  some  purchas- 
er before  maturity  who  had  no  knowledge  or  notice  of  the  considera- 
tion between  the  original  parties,  and  who  paid  a  valuable  considera- 
tion for  the  paper;  that  such  a  person  would  be  an  innocent  holder  for 
value  and  without  notice." 

The  above  instructions  are  not  accurate,  without  important  quali- 
fications, and  were  certainly  calculated,  as  we  think,  to  mislead  the 
jury,  in  view  of  the  facts  of  this  case. 

Every  member  of  an  ordinary  partnership  is  its  general  agent  for 
the  transaction  of  its  business  in  the  ordinary  way,  and  the  firm  is 
held  responsible  for  whatever  is  done  by  any  of  its  partners,  when  act- 
ing for  the  firm,  within  the  limits  of  the  authority  conferred  by  the 
nature  of  the  business  it  carries  on.  Every  person  is  entitled  to  as- 
sume that  each  partner  is  empowered  to  do  for  the  firm  whatever  is 
necessary  for  the  transaction  of  its  business,  in  the  way  in  which  that 
business  is  ordinarily  carried  on  by  other  people.  But  no  person  ig  en- 
titled to  assume  that  any  partner  has  more  extensive  authority  than 
that  above  described.  It  will  be  observed  that  what  is  necessary  to 
carry  on  the  partnership  business  in  the  ordinary  way  is  made  the  test 
of  an  authority  when  no  actual  authority  or  ratification  can  be  proved. 
This  is  conforming  to  the  most  recent  and  carefully  considered  deci- 
sions; but,  by  adopting  it,  the  liability  of  a  firm  for  the  acts  of  its  co- 
partners is  not  so  extensive  as  now  lawyers  sometimes  imagine. 

The  question  whether  a  given  act  can  or  cannot  be  necessary  to  the 
transaction  of  the  business  in  the  way  in  which  it  is  usually  carried  on 
must  evidently  be  determined  by  the  nature  of  the  business  and  by  the 
practice  of  persons  engaged  in  it.  Evidence  on  both  of  these  points 
is  necessarily  admissible,  and,  as  readily  may  be  conceived,  an  act 
which  is  necessary  for  the  prosecution  of  one  kind  of  business  may  be 
wholly  unnecessary  for  the  carrying  on  of  another  in  the  ordinary 
way.  Consequently  no  answer  of  any  value  can  be  given  to  the  ab- 
stract question,  can  one  partner  bind  his  firm  by  such  an  act?  unless, 
having  regard  to  what  is  usual  in  business,  it  can  be  predicated  of  the 
act  in  question  either  that  it  is  one  without  which  no  business  can  be 
carried  on  or  that  it  is  one  which  is  not  necessary  for  carrying  on  any 
business  whatever.  There  are  obviously  very  few  acts  of  which  such 
an  affirmation  can  be  truly  made.  The  great  majority  of  acts  which 
give  rise  to  doubt  are  those  which  are  necessary  in  one  business  and 
not  in  another.  Take,  for  example,  negotiable  instruments.  It  may 
be  necessary  for  one  member  of  a  firm  of  bankers  to  draw,  accept,  or 
indorse  a  bill  of  exchange  on  behalf  of  the  firm,  and  to  require  that 
each  member  should  put  his  name  to  it  would  be  ridiculous;  but  it 
by  no  means  follows,  nor  is  it  in  fact  true,  that  there  is  any  necessity 
for  one  of  several  solicitors  to  possess  a  similar  power,  for  it  is  no 


362  THE   POWERS   OF   PARTNERS.  (Ch.  5 

part  of  the  ordinary  business  of  a  solicitor  to  draw,  accept,  or  indorse 
bil'.s  of  exchange.  The  question,  therefore,  can  one  partner  bind  the 
firm  by  accepting  bills  in  its  name?  admits  of  no  general  answer. 
The  nature  of  the  business  and  the  practice  of  thos^  who  carry  it  on 
(usage  or  custom  of  the  trade)  must  be  known  before  any  answer  can 
be  given.  Lindley  on  Partnership,  198-200.  It  is  further  said  by  the 
same  author :  "It  is  clearly  settled  that  any  member  of  an  ordinary 
trading  partnership  can  bind  the  firm  by  drawing  &nd  indorsing  prom- 
issory notes  in  its  name.  But,  in  respect  to  partnerships  which  are  not 
trading  partnerships,  the  question  whether  one  partner  has  any  im- 
plied authority  to  bind  his  copartners  by  putting  the  name  of  the  firm 
to  a  negotiable  instrumiCnt  depends  upon  whether  the  business  of  the 
partnership  is  such  that  dealings  in  negotiable  instruments  are  nec- 
essary for  its  transaction,  or  are  usual  in  partnerships  of  the  same  de- 
scription. In  the  absence  of  evidence  showing  necessity  or  usage,  the 
power  has  been  denied  to  one  of  several  mining  adventurers,  quarry 
workers,  farmers,  and  solicitors."    Id.  213,  214. 

The  foregoing  principles,  as  we  think,  have  been  fully  recognized 
by  this  court  in  Crosthwait  v.  Ross,  1  Humph.  23,  34  Am.  Dec.  613, 
where  the  distinction  between  partners  in  trade  and  partners  in  occu- 
pation or  employment  is  taken,  and  the  power  of  the  former  class  to 
bind  the  firm  by  drawing  or  indorsing  notes  and  bills  is  sustained, 
while  it  is  denied  to  the  latter  class.  It  is  there  held  that  one  partner 
in  the  practice  of  physic  could  not  bind  the  firm  by  drawing  a  bill  or 
making  a  note  on  which  to  raise  money,  because  it  was  not  within  the 
scope  of  their  partnership,  and  it  was  distinctly  holden  that  the  power 
to  raise  money  was  not  one  of  the  implied  powers  resulting  from  such 
an  association.  By  recurring  to  the  instructions  given  by  the  court 
below  in  this  case,  it  will  be  seen  that  this  important  distinction  be- 
tween strictly  commercial  or  trading  partnerships  and  partnerships  in 
occupation  is  entirely  ignored,  and  we  think  it  was  the  duty  of  the 
court  to  point  out  the  distinction,  for  prima  facie  it  cannot  be  said 
that  one  partner  in  a  printing  office  would  have  the  implied  power  to 
bind  the  firm  by  drawing  or  indorsing  a  note.  In  this  case,  to  be  sure, 
there  was  some  evidence  of  the  usage  of  this  firm  to  deal  in  commer- 
cial paper ;  but  there  was  also  evidence  tending  to  the  contrary  conclu- 
sion. The  consequence  of  this  distinction  between  trading  and  non- 
trading  partnerships  is  very  important  in  reference  to  the  main  de- 
fense to  be  relied  uppn  in  this  case.  If  a  partner  in  a  banking  firm, 
for  instance,  should  indorse  a  bill  or  note  for  his  private  debt,  and  it 
should  get  into  the  hands  of  a  bona  fide  holder  without  notice,  his' 
firm  \yould  be  bound  by  it.  The  indorsing  or  making  of  such  paper 
being  the  usual  mode  of  conducting  that  business,  the  public  have  a 
right  to  suppose  that  each  partner  is  empowered  to  accept  or  indorse  for 
the  firm,  and  are  not  bound  to  inquire  whether  in  a  given  instance  the  act 
was  done  with  the  assent  of  his  copartners.  But  not  so  with  a  part- 
nership occupation  merely,  whose  business  does  not  ordinarily  require 


Sec.  2)  TEST    OF   AUXHOIilTY — XATUKE    OF    QUESTION.  3G3 

dealing  in  commercial  paper.  One  who  becomes  a  member  of  such 
a  firm  docs  not  confer  impHed  power  on  his  copartners  to  bind  him  by 
deahng  in  bills  or  notes.  He  is  not  clothed  with  apparent  power  so 
to  bind  his  firm,  and  no  person  dealing  with  the  firm  has  the  right  to 
suppose  that  the  powers  of  one  member  are  more  extensive  than  is' 
implied  by  the  ordinary  mode  of  conducting  such  business.  If  two 
persons  are  associated  in  the  practice  of  law,  and  one  of  them,  without 
or  against  the  consent  of  the  other,  should  indorse  a  note  or  bill  for 
his  private  purpose,  no  one  buying  such  bill  could  succeed  on  the  plea 
that  he  was  a  bona  fide  holder  without  notice,  for  the  reason  that  by 
forming  such  an  association  the  several  partners  do  not  hold  each  oth- 
er out  to  the  world  as  empowered  to  use  their  names  as  makers  or  in- 
dorsers  of  negotiable  paper. 

The  rules  in  regard  to  notice  to  a  purchaser  are  very  accurately 
laid  down  in  our  own  cases,  digested  in  Reiskell,  and  contain  a  much 
more  accurate  statement  of  the  law  upon  the  subject  than  is  contain- 
ed in  this  charge,  and  one  much  more  applicable  to  the  facts  of  the 
case. 

Our  conclusion  is  that  the  charge  of  the  court  in  reference  to  the 
facts  of  this  case,  if  it  does  not  amount  to  a  positive  misstatement  of 
the  law,  was  calculated  to  mislead  the  jury,  and  that  the  appellant  is 
entitled  to  a  new  trial,  although  he  failed  to  ask  further  instructions 
to  the  jury. 

On  hearing  this  cause  at  a  former  term,  the  court  decided  to  grant 
a  new  trial,  and  it  is  now  before  us  on  application  to  reconsider  the 
conclusion  at  which  the  court  then  arrived. 

On  a  reconsideration  of  the  case,  we  adhere  to  our  former  opinion, 
and  reverse  the  judgment  of  the  municipal  court,  and  remand  the  cause 
for  a  new  trial  in  accordance  with  the  principles  herein  announced. 


IRWIN  V.  WILLIAR  et  al. 

(Supreme  Court  of  the  United  States,  18S3.     110  U.  S.  499,  4  Sup.  Ct.  ICO,  28 

L.  Ed.  225.) 

The  defendants  in  error  were  plaintiffs  below,  and  brought  this  ac- 
tion against  the  plaintilt  in  error,  as  surviving  partner  of  the  firm  of 
Irwin  &  Davis,  to  recover  a  balance  alleged  to  be  due,  growing  out  of 
certain  sales  of  wheat  for  future  delivery,  claimed  to  have  been  made 
by  the  defendants  in  error  for  the  firm  of  Irwin  &  Davis  upon  their 
order.  The  liability  of  the  plaintiff  in  error  was  denied  on  two 
grounds:  (1)  That  the  transactions  were  made  by  Davis,  the  deceased 
partner,  without  the  knowledge,  assent,  or  authority  of  the  plaintiff 
in  error,  and  were  not  within  the  scope  of  the  partnership  business; 
and  (2)  that  the  sales  were  wagering  contracts  and  void. 

[The  bill  of  exceptions,  stating  the  evidence,  and  the  charge  given 
to  the  jury,  is  omitted.] 


3tl4  THE  POWERS  OP  PARTNERS.  (Ch>  5 

Matthews,  J.  The  proposition  contained  in  this  charge  is  that 
the  business  of  dealing  in  grain,  no  matter  how  much  it  may  be  re- 
stricted by  agreement  between  the  partners,  and  no  matter  how  it  may 
have  been  quahfied  by  the  actual  practice  of  the  firm,  necessarily  au- 
thorizes each  partner  to  bind  the  others  by  unknown  contracts  in  dis- 
tant markets  for  unlimited  sales  and  purchases  of  grain  for  future  de- 
livery. And  so  the  jury  must  have  understood  it;  for  they  were  told 
that,  "if  Irwin  permitted  Davis  to  hold  himself  and  Irvv^in  out  to  the 
world  as  partners  in  the  business  of  deaUng  in  grain,  he  became  li- 
able with  Davis  on  contracts  for  the  sale  and  purchase  of  grain  for 
future  delivery,  and  in  that  case  it  is  not  material  that  Irwin  should 
have  actual  knowledge  of  particular  sales  or  purchases  in  the  firm 
name,"  and  "if  Davis,  as  partner,  did  in  fact  buy  and  sell  grain,  and 
if,  in  his  correspondence  with  customers  and  others,  including  the 
plaintiffs,  he  employed  printed  letter  heads  or  cards  representing  the 
firm  of  Irwin  &  Davis  as  grain  dealers,  this  was  a  holding  out  of  that 
firm  as  a^  partnership  engaged  in  that  business,"  and  "if,  therefore, 
you  believe  from  the  evidence  that  Irwin  &  Davis  held  themselves  out 
as  dealers  in  grain,  as  well  as  in  flour,  and  that  the  plaintiffs  dealt 
with  Davis,  supposing  they  were  dealing  with  the  firm,"  etc.,  "you 
should  find  for  the  plaintiffs,"  etc.  This  was  equivalent  to  directing 
the  jury  to  find  a  verdict  for  the  plaintiffs  in  the  action,  for  the  only 
facts  to  which  their  attention  was  directed  as  material  were  not  disput- 
ed, viz.,  tliat  the  firm  had  been  in  the  habit  of  buying  and  selling  grain, 
and  had  constantly  used  letter  heads  describing  themselves  as  dealers 
in  grain. 

In  this,  we  think,  there  was  error.  The  liability  of  one  partner  for 
acts  and  contracts  done  and  made  by  his  copartners,  without  his  actual 
knowledge  or  assent,  is  a  question  of  agency.  If  the  authority  is  de- 
nied by  the  actual  agreement  between  the  partners,  with  notice  to  the 
party  who  claims  under  it,  there  is  no  partnership  obligation.  If  the 
contract  of  partnership  is  silent,  or  the  party  with  whom  the  dealing 
has  taken  place  has  no  notice  of  its  limitations,  the  authority  for  each 
transaction  may  be  implied  from  the  nature  of  the  business  according 
to  the  usual  and  ordinary  course  in  which  it  is  carried  on  by  those  en- 
gaged in  it  in  the  locality  which  is  its  seat,  or  as  reasonably  necessary 
or  fit  for  its  successful  prosecution.  If  it  cannot  be  found  in  that,  it 
may  still  be  inferred  from  the  actual,  though  exceptional,  course  and 
conduct  of  the  business  of  the  partnership  itself,  as  personally  carried 
on  with  the  knowledge,  actual  or  presumed,  of  the  partner  sought  to  be 
charged. 

In  the  present  case  the  partnership  agreement  cannot  affect  the 
question,  because  it  is  not  claimed,  on  the  one  hand,  that  it  conferred 
actual  authority  to  make  the  transactions  in  dispute,  nor,  on  the  other 
hand,  that  the  defendants  in  error  had  any  notice  of  its  limitations. 

And  so,  too,  any  implication  that  might  have  arisen  from  a  previous 
course  of  business  of  this  character,  carried  on  by  Davis  with  the 


Sec.  2)  TEST   OF   AUTHORITY — NATURE   OF  QUESTION.  365 

knowledge  of  Irwin,  must  be  rejected;  for  it  is  not  claimed  tiiat  any 
foundation  in  proof  existed  for  it. 

The  only  remaining  ground  for  the  implied  authority  by  which  it 
can  be  claimed  that  Irwin  was  bound  by  the  contracts  of  his  partner 
is  that  arising  from  the  intrinsic  nature  of  the  business  in  which  the 
partnership  was  actually  engaged,  or  from  the  usual  and  ordinary 
course  of  conducting  it  at  the  locality  where  it  was  carried  on. 

What  the  nature  of  that  business  in  each  case  is,  what  is  necessary 
and  proper  to  its  successful  prosecution,  what  is  invglved  in  the  usual 
and  ordinary  course  of  fts  management  by  those  engaged  in  it,  at  the 
place  and  time  where  it  is  carried  on,  are  all  questions  of  fact  to  be 
decided  by  the  jury,  from  a  consideration  of  all  the  circumstances 
;which,  singly  or  in  combination,  affect  its  character  or  determine  its 
peculiarities;  and  from  them  all,  giving  to  each  its  due  weight,  it  is 
its  province  to  ascertain  and  say  whether  the  transaction  in  question 
is  one  which  those  dealing  with  the  firm  had  reason  to  believe  was  au- 
thorized by  all  its  members.  The  difficulty  and  duty  pf  drawing  the 
inference  suitable  to  each  case  from  all  its  circumstances  cannot  be 
avoided  or  supplied  by  affixing  or  ascribing  to  the  business  some  gen- 
eral name,  and  deducing  from  that,  as  a  matter  of  law,  the  rights  of 
the  public  and  the  duties  of  the  partners.  Dealing  in  grain  is  not  a 
technical  phrase  from  which  a  court  can  properly  infer  as  matter  of 
law  authority  to  bind  the  firm  in  every  case,  irrespective  of  its  circum- 
stances; and  if,  by  usage,  it  has  acquired  a  fixed  and  definite  mean- 
ing, as  a  word  of  art  in  trade,  that  is  matter  of  fact  to  be  established 
by  proof  found  by  a  jury.     *     *     ♦ 

As  the  judgment  now  under  review  would  have  to  be  reversed  for 
the  error  just  pointed  out,  it  is  not  necessary,  for  the  purpose  of  dis- 
posing of  the  present  writ  of  error,  to  proceed  further  to  examine 
other  assignments ;  but  as  the  case  must  be  remanded  for  a  new  trial, 
in  which  the  remaining  questions  may  again  arise,  it  seems  appropri- 
ate now  to  dispose  also  of  them.     ♦     ♦     * 

The  judgment  of  the  circuit  court  is  therefore  reversed,  with  direc- 
tions to  grant  a  new  trial;  and  it  is  so  ordered.^ 

1  "In  a  commercial  partnership  the  extent  of  a  partner's  power  to  bind  the 
firm  is  a  question  of  law,  while  in  the  noncommercial  firm  the  power  of  one 
partner  to  bind  his  copartner  is  a  question  of  fact,  and  the  burden  of  proof 
to  establish  the  facts  as  to  the  validity  of  contracts  so  executed  by  one  mem- 
ber of  such  a  partnership  rests  with  the  party  claiming  to  bold  the  firm 
liable."  Per  Bnrnam.  J.,  in  Alsop  v.  Trust  Co..  100  Kv.^  ."^Tn.  ??S  S.  W.  r)lO 
(1807), 


3G6  THE  POWERS  OF  PARTNERS.  (Ch.  5 

SECTION  3.— PARTICULAR  POWERS  CONSIDERED.* 


ROTHWELL  v.  HUMPHREYS  et  al. 

(At  Nisi  Prius,  before  Lord  Kenyou,  C.  J.,  1795.     1  Esp.  40G.) 

Assumpsit  for  money  lent.  Plea  of  the  general  issue.  The  defend- 
ants were  partn-ers,  linen  drapers,  in  London.  The  plaintiff  was  a 
fustian  manufacturer  at  Manchester.  Howell,  one  of  the  defendants, 
had  gone  down  to  Manchester  to  purchase  goods  in  the  way  of  his 
trade,  and  had,  in  fact,  purchased  from  the  plaintiff  to  the  amount  of 
ioOO.  Being  about  to  return,  he  borrowed  £10  from  the  plaintiff  to 
defray  his  expenses  to  London ;  and,  having  drawn  a  bill  on  the  house 
in  London  for  the  amount  of  the  goods,  he  included  in  it  the  ilU  so 
borrowed,  and  the  bill  was  drawn  for  i510.  Before  the  arrival  of  the 
goods  in  London,  Humphreys  and  Howell,  the  defendants,  became  in- 
solvent, and  the  plaintiff  stopped  the  goods  in  transitu,  so  that  the  bill 
was  never  presented;  and  the  action  was  brought  to  recover  the  £10 
lent  only.  These  facts  were  proved  by  a  witness  called  by  the  plain- 
tiff. The  defense  relied  upon  was  that  the  action  was  brought  against 
both  partners  for  a  loan  of  money,  admitted  by  the  evidence  to  have 
been  made  to  one  of  them,  and  which,  therefore,  could  not  be  sup- 
ported. 

Lord  Kenyon  said  that,  though  the  loan  of  money  was  to  one  of 
the  partners,  it  was  lent  to  him  while  employed  on  the  partnership 
business  and  on  its  account;  that  as  such  it  was  competent  to  him  to 
bind  the  partnership  to  the  payment  of  a  debt  so  contracted,  and  which, 
in  fact,  he  had  done,  by  including  the  money  lent  in  the  same  bill  with 
that  for  goods  sold  clearly  on  the  partnership  account. 

Verdict  for  the  plaintiff. 


BOND  V.  GIBSON  et  al. 
(At  Nisi  Prius,  before  Lord  Ellenborough,  O.  J.,  1S08.    1  Camp.  185.) 

Assumpsit  for  goods  sold  and  delivered.  It  appeared  that,  while 
the  defendants  were  carrying  on  the  trade  of  harness  makers  together, 
Jephson  bought  of  the  plaintiff  a  great  number  of  bits  to  be  made  up 
into  bridles,  which  he  carried  away  himself ;  but  that,  instead  of  bring- 
ing them  to  the  shop  of  himself  and  his  copartner,  he  immediately 
pawned  them  to  raise  money  for  his  own  use. 

Gazelee,  for  the  defendant  Gibson,  contended  that  this  could  not  be 
considered  a  partnership  debt,  as  the  goods  had  not  been  bought  on 

1  The  power  of  a  partner  to  sell,  rnortgaae,  or  assign  the  firm-  property  has 
already  been  considered  in  chapter  III,  section  7  (II),  to  which  cases  the  stu- 
dent is  referred. 


Sec.  3)  PARTICULAR   POWERS   CONSIDERED.  307 

the  partnership  account,  and  the  credit  appeared  to  have  been  given  to 
Jephson  only.  He  allowed  the  case  would  have  been  different,  had 
the  goods  once  been  mixed  with  the  partnership  stock,  or  if  proof  had 
been  given  of  former  dealings  upon  credit  between  the  plaintiff  and 
the  defendants. 

Lord  Ellenborough.  Unless  the  seller  is  guilty  of  collusion,  a 
sale  to  one  partner  is  a  sale  to  the  partnership,  with  whatever  view  the 
goods  may  be  bought,  and  to  whatever  purposes  they  may  be  applied. 
I  will  take  it  that  Jephson  here  meant  to  cheat  his  copartner;  still  the 
seller  is  not  on  that  account  to  suffer.  He  is  innocent ;  and  he  had  a 
right  to  suppose  that  this  individual  acted  for  the  partnership. 

Verdict  lor  the  plaintiff. 


STECKER,  Adm'x,  v.  SMITH  et  al. 
(Supreme  Court  of  Michigan,  1881.    46  Mich.  14,  8  N.  W.  583.) 

Graves,  J.  Plaintiff's  intestate  brought  assumpsit  against  the  de- 
fendant as  copartners  before  a  justice  of  the  peace  to  recover  for  cer- 
tain brick  furnished  them.  A  recovery  was  allowed  in  that  court,  and 
defendants  appealed;  but  prior  to  the  trial  in  the  circuit  court  Mr. 
Stecker  died,  and  the  plaintiff  was  duly  authorized  to  assume  the  prose- 
cution of  the  action.  On  the  hearing  of  the  case  the  circuit  judge  di- 
rected a  verdict  for  the  defendants.  The  plaintiff  claimed  that  the  de- 
fendants were  partners  in  putting  up  two  certain  buildings,  and  that 
the  bricks  were  procured  by  the  firm  for  those  buildings  and  actually 
used  as  materials  therein. 

A  witness  for  the  plaintiff  testified  that  one  of  the  defendants  con- 
tracted indiviflually  for  the  brick,  and  another  witness  on  the  same 
side  testified  that  one  of  the  defendants  admitted  that  brick  were  re- 
ceived, but  that  they  were  on  his  own  account,  and  not  for  the  part- 
nership. The  plaintiff  then  offered  to  show  that  the  defendants  were 
in  partnership  in  putting  up  the  buildings  for  which  the  brick  were  ob- 
tained and  in  which  they  were  used,  but  the  court  on  objection  ex- 
cluded the  evidence. 

This  was  error.  The  statement  made  by  the  witness  that  the  brick 
were  purchased  by  one  of  the  defendants  on  his  individual  account  was 
not  necessarily  conclusive.  In  the  first  place,  it  was  more  matter  of 
"opinion  than  of  fact,  as  represented  by  the  record.  But  in  any  court  the 
plaintiff  was  entitled  to  lay  all  the  facts  before  the  jury  and  have 
their  judgment  on  the  question  whether  the  purchase  was  not  a  part- 
nership transaction,  or  at  least  one  which  entitled  the  plaintiff  to 
charge  the  defendants  as  partners.  If  in  point  of  fact  they  were  erect- 
ing the  buildings  as  partners,  and  one  of  them  procured  the  brick  for 
the  purpose  of  the  buildings,  without  any  express  arrangement  with 


368  THE   POWERS  OF  PARTNERS.  (Ch.  5 

tlie  plaintiff's  intestate  that  the  purchase  was  an  individual  purchase, 
and  the  brick  were  used  in  the  buildings,  the  firm  was  liable. 
The  judgment  is  reversed,  with  costs,  and  a  new  trial  granted. 


LEFFLER  et  al.  v.  RICE. 
(Supreme  Court  of  Indiana,  1873.     44  Ind.  103.) 

Downey,  C.  J.  The  appellee  sued  the  appellants  for  work  and  la- 
bor, for  money  loaned,  for  money  had  and  received,  for  board  and 
lodging,  and  for  wood,  provisions,  and  merchandise,  a  bill  of  particu- 
lars of  which  was  filed  with  the  complaint.  The  defendants  answered 
in  three  paragraphs:  (1)  A  general  denial.  (2)  Payment.  (3)  Set- 
olf.  Reply  in  denial  of  the  second  and  third  paragraphs  of  the  an- 
swer. Trial  by  the  court,  finding  for  the  plaintiff,  motion  for  a  new 
trial  overruled,  and  final  judgment  for  the  plaintiff. 

It  is  urged  as  a  question  of  law  that  Rice,  one  of  the  defendants, 
could  not  bind  Leffler,  his  partner,  for  the  items  in  question,  for  the 
reason  that  they  were  foreign  to  the  business  of  the  firm.  Two  of 
the  items  claimed  by  the  appellee  were  for  money  loaned,  one  was  for 
money  paid  for  middlings,  and  one  was  for  services  in  the  purchase 
of  grain,  etc.  The  business  of  the  defendants  was  that  of  milling.  We 
do  not  sec  that  the  items  of  indebtedness  are  such  as  might  not  prop- 
erly and  reasonably  have  accrued  in  connection  with  the  business.  We 
are  aware  of  the  rule  of  law,  stated  by  the  counsel  for  appellants,  that 
where  a  person  takes  a  security  from  one  partner  in  the  name  of  the 
partnership,  in  a  transaction  not  in  the  usual  course  of  dealing,  he 
lakes  the  security  at  his  peril.  Money  may  properly  be  borrowed  by  a 
partner  to  be  used  in  the  business  of  milling  by  the  firm.  The  evi- 
dence of  the  plaintiff  tends  to  show  that  the  middlings  in  question  were 
purchased  to  be  ground  over  at  the  mill  of  the  defendants,  which 
would  seem  to  be  properly  connected  with  the  business  of  milling; 
and  as  to  the  compensation  for  purchasing  grain  for  the  mill  there  can'- 
not  well  be  any  question. 

The  judgment  is  affirmed. 


PORTER  V.    CURRY. 

(Supreme  Court  of  Illinois,  1869.    50  111.  319,  99  Am.  Dec.  520.) 

Lawrence,  J.  Curry  and  Majors  were  partners  in  the  manufacture 
of  wagons,  and  in  August,  18G7,  sold  a  wagon  to  Porter,  the  appel- 
lant, for  $110,  for  which  he  gave  his  note.  Soon  afterwards  Porter, 
by  an  arrangement  with  Majors,  sold  the  latter  a  mare  for  $200,  and 
received  therefor  his  own  note  and  one  executed  by  Majors  for  $90. 
Porter  swears,  however,  that  Majors  claimed  to  be  purchasing  the 


Sec.  3)  PARTICULAR   POWERS   CONSIDERED.  869 

horse  for  the  use  of  the  firm,  and  on  the  credit  of  the  firm,  and  that 
he  himself  supposed  he  was  taking  the  firm  note,  instead  of  the  indi- 
vidual note  of  Majors,  and,  not  being  able  to  read,  did  not  discover 
his  error  until  Majors  absconded  and  he  showed  his  note  to  a  neigh- 
bor. Majors  absconded  to  Missouri  a  few  days  after  the  purchase, 
taking  with  him  the  mare.  Curry  pursued  Majors,  obtained  possession 
of  the  mare,  and  sold  her.  Porter  brought  this  suit  against  the  firm 
to  recover  the  $90,  and  it  is  resisted  on  the  ground  that  ..the  mare  was 
not  required  in  the  business,  and  therefore  Majors  had  no  power  to 
buy  her  on  the  firm  credit. 

It  is  clear,  however,  even  if  the  purchase  of  a  horse  was  not  within 
the  scope  and  usage  of  such  a  partnership  as  existed  between  Curry 
and  Majors,  yet  if  the  mare  was  in  fact  purchased  on  the  firm  credit, 
and  if  Curry  afterwards  claimed  her  from  Majors  as  firm  property, 
and  obtained  possession  of  her  on  that  ground,  he  thereby  ratified  the 
act  of  Majors  in  buying  her  on  the  partnership  credit.  He  cannot  be 
permitted,  at  the  same  moment,  to  claim  the  benefit  of  the  purchase 
and  deny  its  obligations.  This  view  of  the  law  was  embodied  in  the 
sixth  and  seventh  instructions  asked  by  the  plaintiff,  and  they  should 
have  been  given.  For  the  same  reason  the  first  instruction  given  for 
the  defendant  should  have  been  refused.  It  puts  the  case  to  the  jury 
wholly  on  the  question  of  an  original  power  by  Majors  to  buy  on  the 
firm  credit,  and  makes  the  case  turn  entirely  upon  that,  leaving  the 
question  of  ratification  altogether  out  of  viev/. 

The  judgment  is  reversed  and  the  cause  remanded. 

Judgment  reversed. 


DUNCAN  v.  LOWNDES  et  al. 
(At  Nisi  Prius,  before  Ellenborough,  G.  J.,  1813.    3  Camp.  478.) 

This  was  an  action  on  a  guaranty  alleged  to  have  been  given  by  the 
defendants  for  the  due  payment  of  a  bill  of  exchange  to  the  plaintiff 
for  £610  l5s.,  accepted  by  Dickinson  &  Co.,  for  the  price  of  goods 
which  the  plaintiff'  had  sold  them. 

It  appeared  that  the  two  defendants  carried  on  business  together 
as  merchants  at  Liverpool,  and  that  this  guaranty  was  signed  by 
Lowndes  in  the  partnership  firm. 

Lord  Ellenborough.  As  it  is  not  usual  for  merchants,  in  the  com- 
mon course  of  business,  to  give  collateral  engagements  of  this  sort, 
I  think  you  must  prove  that  Lowndes  had  authority  from  Bateson  to 
sign  the  partnership  firm  to  the  guaranty  in  question.  It  is  not  inci- 
dental to  the  general  power  of  a  partner  to  bind  his  copartners  by  such 
an  instrument. 

The  plaintiff,  however,  was  not  prepared  with  any  evidence  to  af- 
fect Bateson,  and  submitted  to  be  nonsuited. 
Gil.Part. — ^24 


370  THE   POWERS  OF   PARTNERS.  (Ch.  5 

ROLLINS  V.  STEVENS  et  al. 
(Supreme  Court  of  Maiue,  1S50.    31  Me.  454.) 

Assumpsit  upon  a  promissory  note.  The  defendants  were  defaulted 
by  consent,  subject  to  the  opinion  of  the  court  as  to  their  liabiUty. 
The  note  was  signed:  "John  O.  P.  Stevens,  Principal.  W.  &  H. 
Stevens,  Sureties." 

Wilham  Stevens  and  Hiram  Stevens  were  copartners  in  navigation 
and  business  of  commerce,  under  the  style  of  W.  &  H.  Stevens.  Their 
company  name  was  affixed  to  the  note,  in  the  form  above  stated,  by 
Hiram  Stevens. 

Wells,  J.  It  appeared  by  the  evidence  that  Hiram  Stevens  signed 
the  name  of  the  firm,  consisting  of  himself  and  William  Stevens,  to 
the  note  in  suit  as  sureties  for  the  other  maker.  One  partner  has  no 
authority  thus  to  use  the  name  of  the  firm,  out  of  the  scope  of  the  co- 
partnership business,  unless  the  consent  or  subsequent  ratification  of 
the  other  is  obtained.  The  note,  on  its  face,  indicates  that  it  was  given 
for  the  debt  of  the  principal,  and  not  for  the  debt  of  the  firm.  And 
the  burden  of  proving  such  consent  or  ratification  rests  on  the  plain- 
tift'.  The  plaintift''s  intestate  could  not  claim  to  be  an  innocent  holder, 
without  the  knowledge  of  such  want  of  authority;  for  the  form  of 
the  contract  was  information  to  him  that  the  firm  had  no  interest  in 
it,  they  being  partners  in  navigation  and  the  business  of  commerce. 
Bayley  on  Bills,  58 ;  Manufacturers'  &  Mechanics'  Bank  v.  Winship, 
5  Pick.  (Mass.)  11,  16  Am.  Dec.  369;  3  Kent's  Com.  47;  Gow  on 
Partnership,  58;  Foot  v.  Sabin,  19  Johns.  (N.  Y.)  154,  10  Am. 
Dec.  208. 

According  to  the  agreement  of  the  parties,  the  default  as  to  William 
Stevens  is  to  be  taken  ofi',  and  the  action  to  stand  for  trial. 


MORGAN  et  al.  v.  RICHARDSON. 

(Supreme  Court  of  .Mis.souri,  1852.     IG  Mo.  409,  57  .\m.  Dec.  235.) 

ScoTT,  J.  This  was  a  proceeding  to  set  aside  a  judgment  and  execu- 
tion thereon,  confessed  in  vacation,  in  the  name  of  A.  &  J.  M.  Rich- 
ardson, to  the  appellants,  under  the  twenty-second  article  of  the  new 
Code  of  Practice.  Achilles  and  J.  M.  Richardson  were  partners  in 
trade,  and  indebted  to  the  appellants  for  merchandise.  The  indebted- 
ness was  evidenced  by  a  promissory  note,  executed  in  the  name  of  the 
firm.  The  confession  was  authorized  by  J.  M.  Richardson  alone,  and 
after  the  dissolution  of  the  partnership  between  him  and  Achilles  Rich- 
ardson. The  execution  was  levied  on  goods  belonging  fO  A.  Richard- 
son. The  court  below  set  aside  the  judgment  against  A.  Richardson,- 
and  quashed  the  execution. 


Sec.  3)  PAKTICULAR    POWERS   CONSIDERED,  371 

1,  The  facts  in  this  case  stand  admitted  by  the  demurrer  to  the  peti- 
tion, and  we  are  at  a  loss  to  conceive  the  ground  upon  which  the  pro- 
ceeding can  be  sustained  against  A.  Richardson.  The  case  of  Green 
V.  Deals,  2  Caines  (N.  Y.)  254,  is  an  authority  to  show  that  the  judg- 
ment confessed  by  J.  I\I.  Richardson  was  void  as  to  A.  Richardson. 
The  cases  of  Motteux  v.  St.  Aubin,  2  W.  Bl.  1133,  and  Denton  v. 
Noyes,  G  Johns.  (N.  Y'.)  296,  5  Am.  Dec.  237,  are  not  applicable  to 
the  circumstances  of  this  case.  It  cannot  be  maintained  that  a  part- 
ner, either  before  or  after  the  dissolution  of  the  copartnership,  has 
authority  to  confess  a  judgment  for  his  copartner.  The  authorities 
are  abundant  to  show  that  one  partner  cannot  confess  a  judgment 
which  will  bind  his  copartner.  Crane  v.  French,  1  Wend.  (N.  Y.) 
311;  McBride  v.  Hagan,  1  Wend.  (N.  Y.)  337.  We  can  see  no  dif- 
ference in  principle  between  setting  aside  the  judgment  and  restrain- 
ing an  execution  upon  it,  as  either  mode  of  action  is  based  upon  the 
nullity  of  the  proceeding,  which  is  not  permitted  to  be  used  as  a 
foundation  for  any  future  action  aganist  the  par.ty  for  whom  it  has 
been  unwarrantedly  entered. 

It  does  not  appear  that  the  judgment  against  J.  M.  Richardson  has 
been  vacated,  nor  will  we  interfere  with  it.  The  other  judges  con- 
curring, the  judgment  below  will  be  affirmed. 


PINKNEY  V.  HALL. 

(Court  of  Kings  Bench,  1696.     1  Salk.  12G.) 

By  the  custom  of  England,  where  there  are  two  joint  traders,  and 
one  accepts  a  bill  drawn  on  both  for  him  and  partner,  it  binds  both, 
if  it  concerns  the  trade;  otherwise,  if  it  concerns  the  acceptor  only 
in  a  distinct  interest  and  respect. 


HEDLEY   V.   BAIN  BRIDGE   et   al. 
(Court  of  Queen^s  Bench,  1842.    3  Adol.  &  E.    316.) 

Assumpsit  on  a  promissory  note  made  by  defendant,  payable  to 
plaintiff  on  demand.  Defendant  denied  making  the  note.  PlaintitT 
nonsuited.  A  rule  nisi  granted  to  show  cause  why  verdict  should  not 
be  entered  for  plaintiff. 

Lord  Denman,  C.  J.  The  defendant  and  a  Mr,  Spurrier  were  in 
partnership  as  attorneys.  A  sum  of  money  was  deposited  with  Mr. 
Spurrier  by  the  plaintiff,  a  client  of  the  firm,  to  be  laid  out  on  a  mort- 
gage; and  he  gave  the  plaintiff  the  promissory  note  of  the  firm  for 
the  amount.  The  question  is  whether,  under  those  circumstances, 
Spurrier  had  power  to  bind  the  firm  by  such  note.  No  doubt  a  debt 
was  due  from  the  firm;    but  it  does  not  follow  that  one  partner  had 


372  THE  POWERS   OF   PARTNERS.  (Ch.  5 

authority  to  give  a  promissory  note  for  that  debt.  Partners  in  trade 
have  authority,  as  regards  third  persons,  to  bind  the  firm  by  bills  of 
exchange,  for  it  is  in  the  usual  course  of  mercantile  transactions  so 
to  do;  and  this  authority  is  by  the  custom  and  law  of  merchants, 
which  is  part  of  the  general  law  of  the  land.  But  the  same  reason 
does  not  apply  to  other  partnerships.  There  is  no  custom  or  usage 
that  attorneys  should  be  parties  to  negotiable  instruments;  nor  is  it 
necessary  for  the  purposes  of  their  business.  *  *  *  Upon  the  whole 
we  think  that  the  implied  authority  is  confined  to  partners  in  trade,  and 
that  the  nonsuit  in  this  case  was  right. 
Rule  discharged. 


PEASE  V.   COLE. 

(Supreme  Court  of  Errors  of  Connecticut,  1885;    53  Conn.  53,  22  Atl.  681,  55 

Am.  Rep.  53.) 

Loom  IS,  J.  The  question  involved  in  this  case  is  whether  one  mem- 
ber of  a  copartnership  formed  for  the  purpose  of  conducting  a  theater 
in  Hartford  could,  under  the  circumstances  mentioned  in  the  finding, 
bind  the  other  member  by  executing  a  negotiable  promissory  note  in 
the  name  of  the  firm  for  money  borrowed.  The  finding,  in  terms,  ex- 
cludes all  express  authority  of  the  other  partner,  and  even  all  knowl- 
edge of  the  matter  on  his  part.  So  that  any  conclusion  that  the  note 
is  the  note  of  the  firm,  rather  than  of  the  member  executing  it,  must 
necessarily  rest  on  an  authority  to  be  implied.  But  here,  again,  the 
facts  found  so  circumscribe  the  range  of  inquiry  as  to  exclude  all  the 
ordinary  sources  of  such  authority.  The  circumstances  from  which 
an  authority  may  be  implied  are  identical  with  those  involved  in  a 
question  of  ordinary  agency,  for  each  partner  is  regarded  as  the  ac- 
credited agent  of  the  rest.  In  many  cases  the  decisive  fact  is  found 
in  the  customary  course  of  dealing;  but  not  so  here,  for  it  is  found 
that  the  note  in  question  was  the  only  note  ever  given  in  the  name  of 
the  firm.  The  copartnership  first  commenced  business  in  August,  1883, 
and  on  the  24:th  of  the  same  month  the  note  in  suit  was  given.  There 
was  therefore  very  little  time  for  a  course  of  conduct  or  usage  of  any 
sort  to  grow  up,  giving  any  apparent  authority.  The  finding  traces 
the  money  borrowed  only  into  the  hands  of  McCarthy  the  partner 
who  signed  the  firm  name,  and  no  fact  appears  showing,  directly  or 
presumptively,  that  the  act  was  necessary  for  any  of  the  purposes  of 
the  partnership.  The  only  remaining  source  from  which  an  authority 
may  be  derived  by  implication  must  be  sought  in  the  nature  and  scope 
of  the  partnership  and  in  the  nature  of  the  act ;  and  here,  if  we  examine 
the  legal  principles  that  are  applicable,  it  will  be  found,  not  only  that 
all  such  implication  is  wanting,  but  that  the  presumption  is  directly 
against  the  authority  assumed.  The  weight  of  authority  in  the  United 
States,  and  the  uniform  tenor  of  the  authorities  in  England,  will  be 


Sec.  3)  PAETICULAU    FOWEES   CONSIDERED.  373 

found  to  establish  a  controlling  distinction  in  respect  to  implied  au- 
thority between  commercial  or  trading  and  nontrading  partnerships. 
Story,  Partn.  (Gth  Ed.)  §  102a;  1  Lindl.  Partn.  (ith  Ed.,  by  Ewell), 
top  p.  266,  and  note  1,  and  cases  there  cited;  1  Colly.  Partn.  648,  Go8; 
Mctc.  Cont.  121,  and  cases  cited  in  the  notes. 

In  a  commercial  partnership  each  acting  partner  is  its  general  agent, 
with  implied  authority  to  act  for  the  firm  in  all  matters  within  the 
scope  of  its  business ;  and  the  presumption  of  law  is  that  all  commer- 
cial paper  which  bears  the  signature  of  the  firm,  executed  by  one  of 
the  partners,  is  the  paper  of  the  partnership,  for  the  reason  that  the 
giving  of  such  notes  would  be  within  the  usual  course  of  mercantile 
transactions.  But  when  we  pass  to  nontrading  partnerships  the  doc- 
trine of  general  agency  docs  not  apply,  and  there  is  no  presumption 
of  authority  to  support  the  act  of  one  partner.  Hence,  in  order  to 
subject  the  firm  upon  a  bill  or  note  executed  by  one  partner  in  its 
name,  a  course  of  conduct,  or  usage,  or  other  facts  sufficient  to  war- 
rant the  conclusion  that  the  acting  partner  had  been  invested  by  his 
copartners  with  the  requisite  authority,  must  appear,  or  that  the  firm 
has  ratified  the  act  by  receiving  the  benefit  of  it.  That  the  partnership 
in  question  belongs  to  the  nontrading  class  seems  so  obvious  as  to  need 
no  discussion.  The  brief  in  behalf  of  the  defendant  Cole  cites  many 
cases,  and  gives  a  long  list  of  pursuits  and  professions  which  those 
cases  establish  as  of  the  nontrading  class,  and,  although  the  conduct  of 
a  theater  is  not  there  mentioned,  yet  the  analogies  manifestly  include 
it.  To  show  the  existence  of  the  distinction  contended  for,  and  its 
application,  we  select  from  a  multitude  of  authorities  the  following, 
in  addition  to  those  previously  referred  to:    *    *    * 

Many  more  authorities  equally  pertinent  might  be  cited,  but  these 
will  suffice  to  show  that  the  distinction  relied  upon  is  strongly  sup- 
ported both  in  England  and  in  the  United  States.  While  we  feel  con- 
strained to  adopt  the  distinction  between  the  two  classes  of  partner- 
ship so  far  as  the  presumption  of  authority  or  the  want  of  it  is  con- 
cerned, we  do  not  deem  it  necessary  for  the  purposes  of  this  case, 
or  even  quite  reasonable,  to^  carry  its  application  so  far  as  to  deny 
absolutely,  as  some  of  the  cases  do,  the  right  to  recover  on  a  note  given 
by  a  nontrading  firm  for  money  borrowed  for  the  firm  and  appro- 
priated to  its  use,  or  on  a  note  given  in  payment  of  its  debts.  Some 
authorities  ignore  the  test  of  liability  referred  to,  but  adopt  another, 
which  is  equivalent  in  result.  Chancellor  Kent,  in  his  chapter  on  Part- 
nerships in  the  third  volume  of  his  Commentaries  (7th  Ed.  p.  44), 
omits  the  use  of  the  terms  "trading"  and  "nontrading,"  and  makes 
the  distinction  between  partnerships,  in  respect  to  the  power  of  one 
partner  to  bind  the  firm,  depend  on  the  single  test  of  the  usual  scope 
of  the  business,  in  connection  with  the  subject-matter  .of  the  contract. 
This  rule  was  adopted  in  Crosthwait  v.  Ross,  1  Humph.  (Tenn.)  23. 
34  Am.  Dec.  613.  where  it  was  held  that  one  partner  in  the  practice 
of  medicine  could  not  bind  the  firm  by  drawing  a  bill  or  note  on  which 


374  THE   POWERS   OF   PARTNERS.  (Ch.  5 

to  raise  money,  because  it  was  not  within  the  scope  of  the  partnership 
business.  Though  under  a  different  name,  the  real  distinction  here 
taken  is  between  partners  in  trade  and  partners  in  an  occupation. 
Afterwards  the  same  court,  in  the  case  of  Pooley  v.  Whitmore,  10 
Heisk.  (Tenn.)  629,  27  Am.  Rep.  733,  in  a  most  able  and  elaborate 
opinion,  held  that  the  liability  of  a  partnership  firm  of  the  nontrading 
class  to  a  bona  fide  holder  of  negotiable  paper  without  notice,  upon 
a  note  indorsed  in  its  name  by  a  member  for  his  own  benefit,  would 
depend  upon  the  nature  of  the  business, «the  usage  of  trade,  and  the 
course  of  dealing  of  the  particular  firm.  It  was  also  held  that,  where 
the  nature  of  the  partnership  is  such  that  it  may  or  may  not  be  proper 
to  deal  in  negotiable  instruments  (as  in  that  case,  which  was  a  pub- 
lishing company),  it  was  error  in  the  circuit  judge  to  charge,  without, 
qualification,  that  the  firm  was  liable  if  the  holder  received  the  note 
before  maturity,  in  the  due  course  of  trade,  and  without  notice.  We 
think  the  same  principle,  under  the  circumstances  of  the  case  at  bar, 
made  it  error  in  the  court  below  to  hold  the  firm  liable.  This  court 
hitherto  has  had  no  occasion  to  give  prominence  to  the  distinction 
under  discussion.  The  nature  of  the  partnership  business  has,  how- 
ever, been  made  a  ground  for  a  presumption  and  a  test  of  liability. 
In  Walcott  V.  Canfield,  3  Conn.  194,  the  defendants  were  partners  in 
running  a  line  of  stages  from  Hartford  to  Albany  and  back.  One 
of  the  partners  by  an  advertisement  promised  to  transport  passengers 
and  leave  them  at  Albany  in  a  specified  time,  upon  which  agreement 
the  suit  was  based.  The  advertisement,  being  the  act  of  one  partner, 
was  held  not  even  admissible  in  evidence  against  the  firm,  without 
previously  establishing  the  authority  of  that  one  to  bind  the  others. 
Hosmer,  C.  J.,  in  delivering  the  opinion,  on  page  198,  said:  "A  co- 
partnership formed  to  transport  passengers  and  their  baggage  in  a 
stage  does  not  authorize  one  of  the  partners  to  bind  the  firm  by  an 
agreement  that  he  will  convey  a  person  a  certain  distance  within  a 
specified  time.  Unless  he  had  special  authority,  he  could  only  obUgate 
himself  by  a  contract  not  within  the  scope  of  the  connection,  and  not 
his  partners,  who  had  never  expressly  or  impUedly  assented."  The 
subject-matter  of  the  contract  was  different  from  the  case  at  bar,  but 
it  seems  even  more  closely  connected  with  the  scope  of  the  business 
than  the  giving  of  the  note  in  suit. 

Many  authorities  lay  down  the  unquaHfied  proposition,  as  if  it  was 
applicable  to  all  partnerships,  that  if  one  partner  raises  money  on  a 
negotiable  bill  or  note  signed  or  indorsed  in  the  name  of  the  firm,  and 
which  comes  into  the  hands  of  a  bona  fide  purchaser,  the  partnership 
is  bound,  although  it  was  in  fact  for  the  individual  use  of  the  acting 
partner.  The  doctrine  is  so  stated  in  substance  by  this  court  in  New 
York  Firemen's  Ins.  Co.  v.  Bennett,  5  Conn.  574,  13  Am.  Dec.  109. 
The  case  shows  that  the  partnership  was  a  commercial  one.  We  do  not 
say,  however,  that  public  convenience  does  not  demand  the  same  rule 
in  the  case  of  noncommercial  partnerships  where  the  holder  was  not 


Sec.  3)  "        rAKTICDLAR    POWERS   CONSIDERED.  375 

atlvised  of  the  nature  of  the  partnership  and  its  course  of  deaHng,  or 
of  other  circumstances  to  put  him  on  inquiry,  and  where  the  circum- 
stances would  justify  the  beHef  that  he  was  deaUng' with  the  partner- 
ship. We  may  well  leave  this  for  future  consideration,  for,  upon  the 
facts  found,  we  think  the  plaintiff's  right  was  impaired  by  reason  of 
what  he  knew  in  connection  with  the  circumstances.  We  do  not  for- 
get that  the  court  below,  in  terms,  found  that  the  plaintiff  purchased 
the  note  in  good  faith  without  notice  of  any  defect.  This,  of  course, 
means  simply  that  there  was  no  actual  bad  faith  and  no  actual  notice, 
and,  as  matter  of  fact,  it  is  final;  but  at  the  same  time  the  court  found 
special  facts  as  to  the  plaintiff's  knowledge  and  action  which  we  must 
also  consider,  and,  if  we  find  constructive  notice  or  constructive  fraud, 
the  law  must  prevail. 

The  plaintiff,  as  holder,  must  stand  affepted  by  the  nature  of  the 
partnership,  of  which  he  was  fully  advised.     He  purchased  the  note 
in  the  face  of  the  presumption  that  it  was  unauthorized.    To  show  the 
general  nature  of  the  facts  which  courts  have  held  to  be  constructive 
notice,  we  cite  a  few  cases.    In  Livingston  v.  Roosevelt,  4  Johns.  (N. 
Y.)   278,  4  Am.  Dec.  273,  A.  apd  B.  formed  a  copartnership  under 
the  style  of  A.  &  Co.,  in  the  business  of  sugar  refining,  and  so  ad- 
vertised in  the  newspapers.     B.  afterwards,  without  the  knowledge 
of  A.,  bought  a  quantity  of  brandy,  for  which  he  gave  a  note  indorsed 
by  him  with  the  name  of  the  firm.    The  plaintiff,  who  was  an  indorsee 
of  the  note,  took  the  newspapers  in  which  the  firm's  business  was  ad- 
vertised,    kent,  C.  J.,  after  commenting  on  certain  facts  tending  to 
show  that  the  plaintiff*  knew  that  the  purchase  of  the  brandy  was  not 
a  partnership  concern,  proceeded  to  lay  down  these  principles:     "But 
if  the  plaintiff  did  not  in  fact  know  that  the  purchase  was  made  by 
C.  J.  Roosevelt  on  his  own  account,  and  acted  under  the  mistaken  im- 
pression that  it  was  a  partnership  purchase,  still  the  firm  were  not 
bound  by  the  indorsement,  because  the   facts  disclosed  amounted  to 
constructive  notice  or  notice  in  law.     *     *     *     When  a  person  deals 
with  one  of  the  partners  in  a  matter  not  within  the  scope  of  the  part- 
nership, the  intendment  of  the  law  will  be  that  he  deals  w^ith  him  on 
his  private  account,  notwithstanding  the  partner  may  give  the  partner- 
ship name,  unless  there  be  circumstances  to  destroy  that  presumption. 
*If,'  says  Lord  Eldon   (Ex  parte  Bonbonus,  8  Ves.  544),  'under  the 
circumstances  the  person  taking  the  paper  can  be  considered  as  being 
advertised  that  it  was  not  intended  to  be  a  partnership  proceeding,  the 
partnership  is  not  bound.'     Public  notice  of  the  object  of  a  copartner- 
ship, the  declared  and  habitual  business  carried  on.  the  store,  the  count- 
ing house,  the  sign,  etc.,  are  the  usual  and  regular  indicia  by  which 
the  nature  and  extent"  of  a  partnership  are  to  be  ascertained.     When 
the  business  of  a  partnership  is  thus  defined  and  publicly  declared, 
and  the  company  do  not  depart  from  that  particular  business.^  nor  ap- 
pear to  the  world  in  any  other  light  than  the  one  thus  exhibited,  one 
of  the  partners  cannot  make  a  valid  partnership  engagement  on  any 


376  THE  POWERS   OF  PARTNERS.  (Ch.  5 

Other  than  a  partnership  account.  *  *  ♦  When  the  public  have  the 
usual  means  of  knowledge  given  them,  and  no  means  have  been  suffer- 
ed by  the  partnership  to  mislead  them,  every  man  is  presumed  to  know 
the  extent  of  the  partnership  with  whose  members  he  deals."  In  1 
Collyer  on  Partnership,  p.  650,  it  is  said  that  "a.  note  given  by  one 
partner  in  the  partnership  name,  within  the  scope  of  the  partnership, 
is  binding  upon  the  firm,  but  the  payee  is  bound  to  know  whether  it 
is  within  the  scope  of  his  apparent  authority,  and,  if  it  is  in  excess 
thereof,  the  firm  is  not  responsible,"  In  Cocke  v.  Bank,  3  Ala.  175, 
the  note  in  suit  was  signed  in  the  partnership  name  of  J.  F.  &  W. 
Cocke,  who  were  partners  in  keeping  a  tavern.  '  It  was  executed  by 
J.  F.  Cocke,  and  payable  to  Lea  &  Langdon  for  their  accommodation, 
without  the  knowledge  of  the  other  partner,  Woodson  Cocke.  No. 
actual  knowledge  of  the  circumstances  was  shown  on  the  part  of  the 
bank,  which  sued  an  indorsee;  but  it  was  assumed  to  have  been  the 
duty  of  the  bank  to  make  inquiry.  Goldthwaite,  J.,  in  delivering  the 
opinion,  said  (page  180)  :  "The  law  presumes  that  the  bank,  if  it 
inquired  at  all  into  the  partnership  of  the  defendants,  must  have  re- 
ceived information  that  they  were  not  partners  in  a  mercantile  trade, 
but  only  in  the  business  of  tavern  keeping.  This  .ascertained,  it  took 
the  note  at  its  peril,  and  must  have  relied  on  the  faith  of  the  in- 
dorsers."  It  was  held  that  Woodson  Cocke,  the  partner  who  had  no 
knowledge  of  the  transaction,  was  not  liable. 

In  the  case  at  bar  the  plaintiff  had  full  and  actual  knowledge  of 
the  nature  of  the  partnership,  and  the  law  attributed  to  him  knowl- 
edge, also,  that  one  partner  could  not  bind  the  other  by  bill  c;  note 
without  authority,  and  knowing,  as  he  did,  that  the  note  had  been 
written  and  signed  by  McCarthy,  who  was  irresponsible,  and  that,  if 
he  put^chased  it,  it  would  be  upon  the  credit  of  Cole  alone,  and  having 
also  actual  knowledge  of  a  course  of  dealing  which  avoided  I\Ic- 
Cartliy  and  pointed  to  Cole  alone  as  the  financial  representative  of  the 
firm,  it  seems  to  us  the  plaintiff  took  the  note  at  his  peril.  It  was 
very  strange  for  the  plaintiff  to  inquire  of  the  one  who  had  used  the 
firm  name  if  it  was  the  note  of  the  firm,  and  omit  entirely,  when  he 
had  ample  and  easy  opportunity,  to  inquire  of  ihc  other  partner,  on 
Whose  sole  credit  he  depended ;  but  the  court  has  found  that  the  fail- 
ure to  inquire  of  Cole  was  not  owing  to  a  belief  that  the  inquiry 
would  result  in  finding  the  note  invalid,  and  this  we  must  accept  as 
true.  Ordinarily  such  a  finding  would  save  the  rights  of  a  holder 
in  good  faith  of  negotiable  paper,  but  the  great  difficulty^  in  the 
present  case  is  that  the  note  was  purchased  with  constructive  notice 
that  it  was  not  within  the  apparent  scope  of  the  partnership  business, 
and  prima  facie  was  not  the  note  of  the  firm;  and  the  actual  course 
of  business,,  so  far  as  it  was  known  to  the  plaintiff,  tended  to  increase 
rather  than  allay  the  suspicion  of  a  want  of  authority. 

But  the  plaintiff  contends  that  the  judgment  in  his  favor  cannot  be 
disturbed  because  the  burden  of  proof  was  on  the  defendant.     On 


Sec.  3)  PARTICULAR   POWERS   CONSIDERED.  377 

this  general  subject  of  the  burden  of  proof,  most  of  the  authorities 
cited  in  another  connection  to  show  the  distinction  between  the  two 
classes  of  partnerships,  and  many  others  that  we  might  cite,  assert 
most  positively  that  in  the  case  of  noncommercial  partnerships  the 
burden  is  on  the  holder  of  the  note.  But  we  concede  that  many  cases 
can  be  found  which  in  terms  would  seem  to  place  the  burden  on  the 
defendant.  In  some  of  these  cases  the  partnerships  were  in  fact 
commercial,  as  in  the  case  of  Faler  v.  Jordan,  44  Miss.  283.  In  Doty 
V,  Bates,  11  Johns.  (N.  Y.)  544,  Piatt,  J.,  giving  the  opinion,  said: 
"The  partnership  being  admitted,  the  presumption  of  law  is  that  a  note 
made  by  one  partner  in  the  name  of  the  firm  was  given  in  the  regular 
course  of  partnership  dealings,  until  the  contrary  is  shown  on  the  part 
of  the  defendants."  The  case  is  so  brief  in  the  report  that  we  cannot 
see  clearly  what  was  involved  in  the  admission  of  the  partnership 
which  furnished  the  basis  for  the  presumption.  It  incidentally  ap- 
pears in  the  description  of  the  firm  that  its  business  was  tanning, 
currying,  and  shoemaking.  This,  doubtless,  involved  the  buying  of 
hides,  bark,  and  materials  for  tanning,  and  the  sale  of  leather  and 
shoes.  The  basis  of  the  presumption  was  doubtless  the  apparent  scope 
of  the  business.  In  Holmes  v.  Porter,  39  Me.  157,  the  headnote  omits 
an  important  qualification.  The  proposition  laid  down  by  the  court 
is  that,  "when  the  contract  is  made  in  the  name  of  the  firm,  it  will 
prima  facie  bind  the  firm,  unless  it  is  ultra  the  business  of  the  firm." 
The  headnote  omits  the  last  clause.  The  case  of  Carrier  v.  Cameron, 
31  Mich.  373,  18  Am.  Rep.  192,  was  relied  upon  by  the  plaintifif  to 
show  that  the  burden  was  on  the  defendant.  In  terms  it  so  holds,  but 
a  brief  analysis  will  show  that  it  is  not  inconsistent  with  our  position 
in  this  case,  and  will  suggest  a  mode  of  reconciling  many  apparently 
conflicting  cases.  There  was  nothing  at  all  in  the  case  to  show  the 
nature  of  the  partnership,  and  the  plaintiff's  knowledge  of  it.  Graves, 
C.  J.,  in  giving  the  opinion,  stated  the  question  as  follows:  "Was  the 
plaintiff  below  required',  in  order  to  make  out  a  prima  facie  case,  to 
show  in  the  outset  that  Carrier  had  express  authority  to  make  notes 
generally,  or  else  to  show  either  that  the  copartnership  was  one  of  the 
class  in  respect  to  which  such  authority  is  presumed,  or  that  its  course 
of  business  had  been  such  as  to  imply  authority,  or  that  the  signing 
by  Carrier  had  been  approved  or  ratified?"  The  question  was  answer- 
ed in  the  negative,  upon  the  authority  of  Littell  v.  Kitch,  11  Mich.  525. 
It  is  to  be  noticed  that  the  question  was  simply  as  to  the  burden  of 
proof  after  the  fact  of  partnership  was  admitted,  and  before  the  nature 
or  class  of  the  partnership  appeared.  Tliat  being  the  position  of  the 
case,  the  court  well  remarked  that  "it  was  not  needful  for  the  plaintiff, 
by  any  positive  averment  or  positive  proof,  to  negative  a  defense  which, 
in  virtue  of  a  general  presumption,  would  be  intended  not  to  exist. 
He  could  not  be  required  to  go  into  particular  proof  on  such  a  point 
imtil  some  proof  should  appear  in  contravention  of  the  presumption." 
In  this  statement  of  the  law  we  fully  concur,  but  it  is  not  applicable 


378  THE   POWERS   OF   PARTNERS.  (Ch.  6 

to  the  facts  in  the  case  at  bar,  because  the  controlling  fact  in  the  propo- 
sition is  wanting.  Proof  in  contravention  of  the  presumption,  which 
at  the  outset  was  in  favor  of  the  plaintiff,  had  appeared,  and  had  re- 
sulted in  the  finding  of  the  opposing  facts;  and  it  is  significant  that 
all  the  facts  which  the  above  question  impliedly  concedes  to  be  suffi- 
cient to  overcome  the  presumption  referred  to  ar^  distinctly  found, 
namely,  that  there  was  no  express  authority  to  make  notes  generally 
or  to  give  this  note;  that  the  partnership  was  of  the  nontrading  class, 
in  respect  to  which  no  authority  can  be  implied;  that  there  was  no 
course  of  business  that  could  imply  authority;  and  that  the  giving  of 
this  note  had  never  been  ratified  or  approved  by  Cole.  Whatever  pre- 
sumption, therefore,  there  might  have  been  in  favor  of  the  plaintiff 
at  the  outset  had  been  fully  overcome,  and,  if  there  exists  any  further 
fact  from  which  an  authority  might  be  implied,  the  plaintiff  must 
•show  it,  or  lose  his  case. 

It  is  manifest  that  in  the  Michigan  case,  as,  indeed,  in  all  the  cases 
treating  of  the  burden  of  proof  in  suits  on  notes  alleged  to  have  been 
executed  by  partnerships,  an  illegitimate  use  has  been  made  of  the 
term  "burden  of  proof."  Properly,  it  is  applied  only  to  a  party  af- 
firming some  fact  essential  to  the  support  of  his  case.  Thus  used,  it 
never  shifts  from  side  to  side  during  the  trial.  Loosely  used,  as  in 
the  cases  referred  to,  it  is  confounded  with  the  weight  of  evidence, 
a  very  different  thing,  which  often  shifts  from  one  side  to  the  other 
as  facts  and  presumptions  appear  and  are  overcome;  and,  in  this  in- 
discriminate use  of  the  term  "burden  of  proof,"  much  of  the  apparent 
conflict  in  the  cases  has  its  origin.  For,  after  all,  the  test  of  the  burden 
of  proof  is  very  simple,  and  so  is  the  question  of  the  weight  of  evi- 
dence, and  there  is  no  contrariety  in  the  principle  adopted  by  the  au- 
thorities. In  the  light  of  principle,  we  think  it  may  be  demonstrated 
that  the  position  of  the  plaintiff  is  untenable.  A  partnership  has  been 
sued  on  a  note  executed  in  its  name.  Upon  the  trial  the  note  is  pro- 
duced by  the  plaintiff,  and  the  first  question  is,  was  it  the  note  of  the 
firm?  The  plaintiff  takes  the  affirmative  of  this  issue,  because,  if  no 
evidence  is  offered  on  cither  side,  he  must  fail.  He  has  then  the  burden 
of  proof,  and  it  remains  on  him,  and  does  not  pass  at  all  to  the  de- 
fendant. But  suppose  now  it  is  shown  or  admitted  that  the  partnership 
alleged  exists,  and  that  one  of  the  firm  executed  and  delivered  the 
note  in  its  name.  By  virtue  of  the  general  presumption  that  authority 
was  given  by  the  partnership,  the  plaintiff  is  entitled  to  recover,  if 
nothing  further  appears,  because  the  weight  of  evidence  is  on  his  side. 
But  suppose  the  defendants  take  their  turn,  and  prove  the  identical 
facts  here  found — that  there  was  no  authority,  general  or  special,  giv- 
en; no  ratification  of  the  act;  no  course  of  dealing  to  imply  authority; 
and,  furthermore,  that  the  partnership  was  of  a  class  from  which  no 
authority  can  be  implied.  Is  the  plaintiff  now  entitled  to  a  verdict? 
Has  he  proved  that  the  note  was  the  note  of  the  firm?  Surely  not. 
What,  then,  is  left  on  which  to  rest  his  case?     The  preponderance 


i 


Sec.  T))  PARTICULAR    POWERS    CONSIDERED.  379 

of  evidence  is  not  with  him.  The  burden  upon  him  to  show  that  it  was 
a  partnership  note  has  not  now  been  met.  But  it  is  said  that  there 
is  a  rcahn  of  inquiry  not  touched  by  either  party;  that  is,  that  it  was 
not  shown  whether  or  not  the  partnership  had  the  benefit  of  the  con- 
sideration of  the  note.  If  such  a  fact  appeared,  we  concede,  for  the 
purposes  of  this  case,  that  it  would  tend  to  show  that  the  note  was 
the  note  of  the  firm.  But  if  any  authority  could  not  be  implied  as  the 
case  stood  before,  can  it  now  be  implied?  The  case  stands  precisely 
as  before.  There  can  be  no  change  in  the  weight  of  the  evidence,  be- 
cause nothing  has  been  added ;  and  tne  claim  of  the  plaintiff  would 
seem-to  be  reduced  to  the  absurdity  that  he  is  to  have  the  same  benefit 
from  an  unproved  fact  as  from  one  proved.  There  was  error  in  the 
judgment  complained  of,  and,  as  against  the  defendant  Cole,  it  is  re- 
versed, and  a  new  trial  ordered. 

The  other  Judges  concurred,  except  Granxer,  J.,  who  dissented. 


VETSCH  V.  NEISS  et  al. 
(Supreme  Court  of  Minnesota,  189G.    6G  Minn.    459,  09  N.  W.  .^15.) 

Collins,  J.  Action  upon  a  promissory  note  alleged  to  have  been 
made  by  defendants,  as  copartners.  The  plaintiff  was  an  indorsee 
after  maturity.  The  answering  defendant  admitted  the  existence  of 
a  partnership  for  a  specified  purpose  between  the  defendants,  and 
then  alleged  that  the  note  was  executed  and  delivered  by  his  copartner, 
without  his  knowledge  or  consent,  and  that  the  sole  and  only  con- 
sideration therefor  was  a  private  debt  due  from  such  partner  to  the 
payee  named  in  the  note.  These  were  the  issues  upon  which  the  par- 
ties went  to  trial ;  and,  at  the  conclusion  of  the  evidence,  the  court, 
upon  plaintiff's  motion,  instructed  the  jury  to  return  a  verdict  in  his 
favor.  Such  a  verdict  was  returned,  and  the  appeal  is  from  an  order 
denying  a  motion  for  a  new  trial. 

Several  assignments  of  error  are  urged  by  counsel,  mostly  relating 
to  the  rulings  of  the  court  when  receiving  testimony;  but  we  pass 
all  of  them,  and  come  directly  to  that  which  challenges  the  action  of 
the  court  when  directing  a  verdict  in  plaintiff's  favor.  The  evidence 
showed  conclusively  that  the  copartnership  carried  on  the  business  of 
boring  wells,  buying  materials  for  pumps  and  windmills,  putting  these 
materials  together,  and  placing  these  articles  into  wells  bored  by  the 
firm,  or  already  bored  or  dug  by  other  persons.  Strictly  speaking, 
it  was  not  a  trading  partnership,  although  it  will  be  seen  upon  an  ex- 
amination of  the  decisions  that  the  line  of  demarkation  between  what 
are  trading  and  what  are  nontrading  partnerships  is  very  indefinite 
and  indistinct.  In  1  Bates,  Partn.  §  327,  the  author  states  that  trad- 
ing partnerships  are  frequently  called  commercial  or  mercantile  part- 
nerships, but  that  these  terms  seem  to  be  somewhat  too  narrow,  for 


380  THE  POWERS   OF  PARTNERS.  (Ch.  5 

oftentimes  mechanical  and  manufacturing  partnerships  are  included 
among  trading  partnerships,  the  test  being  founded,  not  on  the  nature 
of  the  articles  they  deal  in,  but  the  character  of  their  dealings.  Mr. 
Bates  points  out  the  difficulty  in  the  application  of  any  test  for  the 
purpose  of  determining  with  absolute  certainty,  as  a  question  of  law, 
what  are  and  what  are  not  trading  partnerships,  and  finally  coricludes 
that  if  the  partnership  contemplates  the  periodical  or  continuous  or 
frequent  purchasing,  not  as  incidental  to  an  occupation,  but  for  the 
purpose  of  selling  again  the  thing  purchased,  either  in  its  original  or 
manufactured  state,  it  is  a  trading  partnership;  otherwise,  it  is  not. 
This,  as  a  general  statement,  is  undoubtedly  correct,  but  the  difficulty 
lies  in  its  application,  as  will  be  seen  by  an  examination  of  the  cases 
cited  in  the  volume  referred  to  (sections  328  and  329,  the  last  treating 
particularly  of  nontrading  firms),  all  of  the  cases  cited  being  partner- 
ships in  occupation ;  and  in  some  of  these  cases  the  difference  between 
trading  and  nontrading  partnerships  seems  to  be  ignored,  the  single 
test  of  scope  of  business  being  adopted.  While,  on  the  authorities, 
it  may  not  be  very  difficult,  in  many  cases,  to  hold,  as  a  matter  of  law, 
that  the  scope  of  the  business  carried  on  by  a  certain  firm  renders  it 
a  trading  partnership,  with  a  power  or  authority  resting  in  each  part- 
ner to  borrow  money  for  the  use  of  the  firm,  and  to  execute  and  de- 
liver negotiable  paper  therefor,  or  to  hold,  as  a  matter  of  law,  that 
the  firm  business  constitutes  it  nothing  but  a  nontrading  partnership, 
in  which  the  partners  have,  prima  facie,  no  authority  to  borrow  money, 
or  to  bind  the  concern  by  a  proinissory  note,  there  are  many  partner- 
ships concerning  which  no  rule  of  law  as  to  the  implied  powers  of  the 
partners  wath  respect  to  firm  notes  can  be  applied  with  safety.  In 
these  cases  the  authority  of  either  partner  in  this  respect  must  be  de- 
termined as  a  question  of  fact,  depending  upon  circumstances  peculiar 
to  each.'  Certain  it  is,  from  the  nature  of  the  business  conducted  by 
defendant  firm,  that  the  court  below  could  not  hold,  as  a  matter  of 
law,  that  it  was  a  trading  partnership,  and  hence  that  each  partner 
had  implied  authority  to  borrow  money  for  its  use,  and  to  execute  and 
deliver  a  firm  note  for  the  same. 

The  evidence  conclusively  showed  that  the  note  in  suit  was  given 
for  money  borrowed  to  pay  a  firm  debt,  incurred  for  labor  performed 
for  the  firm,  and  in  its  legitimate  business,  and  that  the  money  so  ob- 
tained was  used  by  the  partner  who  made  the  note  in  payment  of  this 
indebtedness.  But,  when  the  partnership  is  strictly  nontrading,  it  can 
make  no  difference  that  the  money  was  actually  used  for  its  .benefit. 
1  Bates,  Partn.  §  343,  and  citations.  The  question  is  one  of  authority 
to  execute  the  note,  not  as  to  what  became  of  the  proceeds,  or  for 
whose  benefit  they  were  used.  But  in  cases  where  the  court  cannot 
say,  as  a  matter  of  law,  that  the  firm  is  either  a  trading  or  a  non- 
trading  partnership,  and  that  each  member  has  or  has  not  the  power 
to  bind  the  firm  by  the  issuance  of  negotiable  paper,  the  test  seems  to 
be  whether  the  issuing  of  such  paper  is  essential  to  carry  into  effect 


Sec.  3)  PARTICULAR   POWERS   CONSIDERED.  381 

the  ordinary  purpose  for  which  the  partnership  was  formed.  Id.  And, 
of  course,  the  fact  that  the  firm  derived  the  benefit  of  the  act  may  be 
taken  into  consideration  when  applying  this  test.  The  liability  of  one 
partner  upon  promissory  notes  and  other  contracts  made  by  a  copart- 
ner, without  his  actual  knowledge  or  assent,  is  a  question  of  agency ; 
and  the  law  applicable  to  the  case  now  before  us  is  concisely  stated  in 
Irwin  V.  vVilliar,  110  U.  S.  499,  4  Sup.  Ct.  ICO,  28  L.  Ed.  225,  thus: 
[See  this  case,  ante,  p.  363.]  See,  also,  Dowling  v.  Bank,  145  U.  S. 
512,  12  Sup.  Ct.  928,  36  L.  Ed.  795 

The  court  erred  in  holding,  as  a  matter  of  law,  that,  upon  any  view 
of  the  facts,  the  jury  could  not  find  for  the  defendant  who  answered. 
We  have  not  alluded  to  the  testimony  introduced  by  plaintiff  which 
tended  to  show  that  the  defendant  just  referred  to  knew  that  his  part- 
ner was  to  borrow  the  money  from  the  payee  of  the  note,  and  to  make 
the  note  in  suit,  for  such  knowledge  was  denied.  It  is  hardly  neces- 
sary to  say  that  if  the  jury  found  that  he  was  advised  that  the  money 
was  to  be  borrowed,  and  the  note  given,  and  assented  to  it,  either 
actually  or  by  implication,  i  verdict  in  plaintiff's  favor  could  be  sus- 
tained on  this  fact  alone.    Order  reversed,  and  new  trial  granted. 


KIRK  V.  BLURTON  et  al. 

(Court  of  Exchequer,  1841.     9  Mees.  &  W.    284.) 

Alderson,  B.  The  court  do  not  entertain  any  doubt  as  to  the  prin- 
ciple of  law  applicable  to  this  case.  One  partner  can  bind  his  co- 
partners only  to  the  extent  'of  the  authority  which  is  given  to  the 
partners  generally  to  enable  them  to  carry  on  the  partnership  business 
together.  The  true  principle  is  that  which  has  been  stated  by  Mr. 
Cresswell:  That  in  the  case  of  a  partnership  the  authority  which 
each  partner  has  is  an  authority  given  by  law  to  do  such  things  as 
are  necessary  for  carrying  on  the  partnership.  If  bills  are  necessary, 
then  they  have  a  power  to  accept  bills,  and  so  to  bind  each  other.  If 
there  is  an  express  contract  amongst  themselves,  different  from  that 
which  the  law  implies,  that  express  contract  must  prevail.  What  au- 
thority is  there  in  a  case  like  the  present?  An  authority  to  bind  the 
firm  in  the  name  of  the  partnership,  and  in  that  only.  In  those  cases 
where  the  question  has  been  left  to  the  jury,  it  has  been  whetlier  sub- 
stantially there  was  any  dift'erence  between  the  signature  and  the  name 
of  the  partnership.  For  instance,  if  the  signature  were  Coal  &  Co.. 
and  the  true  designation  of  the  partnership  were  Cole  &  Co.,  it  would 
no  doubt  be  for  the  jury  to  say  whether  it  was  in  substance  the  same. 
Upon  the  whole,  I  "am  of  opinion  that  Habershon  had  no  authority  to 
bind  Blurton,  except  in  the  partnership  name,  which,  upon  the  evi- 
dence, appears  to  have  been  "John  Blurton,"  only;  and  therefore  the 
verdict  on  the  first  and  second  issues  must  be  entered  for  the  defendant. 


382  THE   POWERS   OF   PARTNERS.  (Ch.  5 

YORKSHIRE  BANKING  COMPANY  v.  BEATSON. 
See  ante,  p.  157,  for  a  report  of  the  case. 


HARRISON  V.  JACKSON  et  al. 
(Court  of  King's  Bench,  1797.     7  Term  R.    207.) 

This  was  an  action  of  covenant  upon  an  agreement  of  three  parts, 
stated  in  the  declaration  to  have  been  made  on  the  10th  of  July,  1794, 
between  the  defendants,  describing  them  as  merchants  and  partners, 
of  the  first  part,  W.  and  J.  Harrison,  of  the  second  part,  and  the  plain- 
tiff, of  the  third  part,  of  one  part  of  which  said  agreement,  as  being 
sealed  with  the  seal  of  the  said  W.  Sykes  for  himself  and  the  other 
two  defendants,  the  plaintiff  made  a  profert  in  the  court.  The  declara- 
tion then  stated  the  agreement  and  covenant  of  the  defendants,  the 
subject-matter  of  which  agreement  and  covenant  appeared  on  the 
agreement  to  be  a  partnership  transaction  on  the  part  of  the  defend- 
ants, and  to  have  been  entered  into  on  a  full  and  valuable  consideration 
received  by  them  as  partners.  The  declaration  then  stated  the  breach 
of  covenant,  whereby  the  plaintiff  had  sustained  damage  to  the  amount 
found  by  the  jury. 

To  this  declaration  the  defendants  pleaded  that  the  agreement  was 
not  the  deed  of  the  defendants.  Issue  being  joined,  the  cause  was  tried 
at  the  sittings  after  Hilary  Term,  1797,  before  Lord  Kenyon,  at  Guild- 
hall, when  the  jury  found  a  verdict  for  the  plaintiff  damages  £477 
13s.  9d.  and  costs,  40s.  subject  to  the  opinion  of  this  court  on  the 
following  case: 

The  defendants  were  partners.  The  agreement  stated  in  the  declara- 
tion was  produced,  and  the  subscribing  witness  proved  that  it  was  Exe- 
cuted in  his  presence  by  the  defendant  Sykes  in  the  following  form : 
"For  Jackson,  Self,  and  Rushforth,  W.  Sykes."  But  neither  Jack- 
son nor  Rushforth  was  present  at  the  execution.  The  question  for  the 
opinion  of  the  court  was  whether  such  execution  of  the  agreement  by 
the  defendant  Sykes  was  binding  on  the  other  defendants,  Jackson 
and  Rushforth. 

Lord  Kenyon,  C.  J.  *  *  *  The  law  of  merchants  Is  part  of  the 
law  of  the  land ;  and  in  mercantile  transactions,  in  drawing  and  accept- 
ing bills  of  exchange,  it  never  was  doubted  but  that  one  partner  might 
bind  the  rest.  But  the  power  of  binding  each  other  by  deed  is  now  for 
the  first  time  insisted  on,  except  in  the  nisi  prius  case  cited,  the  facts  of 
which  are  not  sufficiently  disclosed  to  enable  me  to  judge  of  its  pro- 
priety. Then  it  was  said  that,  if  this  partnership  were  constituted  by 
writing  under  seal,  that  gaVe  authority  to  each  to  bind  the  others  by 
deed;  but  I  deny  that  consequence  just  as  positively  as  the  former,  for 
a  general  partnership  agreement,  though  under  seal,  does  not  authorize 


vSeC.  3)  PARTICULAR    POWERS   CONSIDERED.  3S3 

the  partners  to  execute  deeds  for  each  other,  iinkss  a  particular  power 
be  given  for  that  purpose.  This  would  be  a  mo.<^t  alarming  doctrine  to 
hold  out  to  the  mercantile  world.  If  one  partner  could  bind  the  others 
by  such  a  deed  as  the  present,  it  would  extend  to  the  case  of  mortgages, 
and  would  enable  a  partner  to  give  to  a  favorite  creditor  a  real  lien  on 
the  estates  of  the  other  partners. 

Per  Curi.am.     Postea  to  the  defendants. 


McDonald  et  al.  v.  EGGLESTON  et  al. 

(Supreme  Court  of  Vermont,  1853.     26  Vt.  154.  CO  Am.  Dec.  303.) 

ISHAM,  J,  This  action  is  in  covenant.  The  questions  in  the  case 
arise  under  the  plea  of  non  est  factum,  which  puts  in  issue  the  execu- 
tion of  the  instrument  on  which  the  action  is  brought.  The  agreement 
was  signed  and  sealed,  in  the  name  of  Eggleston,  Barker  &  Co.,  by 
B.  Barker,  one  of  the  firm.  It  is  insisted  that  he  had  no  authority  as 
a  partner  to  execute  the  instrument  in  that  manner;  that  it  is  not  bind- 
ing on  those  partners,  who  were  absent  at  the  time,  and  who  had  not 
previously  assented  to  its  execution ;  and  that  no  testimony  was  in- 
troduced, tending  to  show  a  subsequent  ratification  of  its  execution, 
by  the  absent  members  of  the  firm,  sufficient  to  render  it  their  deed. 

We  learn  froni  the  case  that  the  defendants  were  the  persons  com- 
posing the  firm  of  Eggleston,  Barker  &  Co.,  and  that  in  the  fall  of 
1845  they  contracted  with  Mr.  Belknap  to  construct  the  Vermont 
Central  Railroad  from  the  mouth  of  Dog  river  to  Lake  Champlain. 
The  first  and  second  sections  of  the  road  were  afterwards  sublet  by 
the  defendants  to  the  plaintiffs  for  construction.  It  is  obvious,  there- 
fore, that  the  subject-matter  of  this  agreement,  on  the  part  of  the  de- 
fendants, was  within  the  scope  of  their  partnership  business,  and  that 
this  agreement  was  made  to  carry  into  effect  the  object  for  which 
their  relation  as  partners  was  formed,  and  to  insure,  to  that  extent,  the 
performance  of  that  contract,  which  they  were  under  obligations  with 
Mr.  Belknap  to  execute.  It  is  unquestionably  necessary  for  the  plain- 
tiff's to  show  those  facts,  which  will  render  this  instrument  the  deed 
of  all  the  defendants ;  otherwise,  this  joint  action  of  covenant  cannot 
be  sustained. 

At  common  law  one  partner  could  not  charge  the  firm,  by  deed,  with 
a  debt  or  other  obligation,  even  in  commercial  dealings,  without  a  prior 
authority,  under  seal,  for  that  purpose.  Neither  could  such  an  instru- 
ment be  subsequently  ratified,  so  as  to  make  it  the  deed  of  the  com- 
pany, except  by  an  instrument,  under  seal.  Harrison  v.  Jackson,  7 
Term  R.  207;  'liolt,  N.  P.  C.  141;  Smith's  Mer.  Law  dS;  1  Amer. 
Lead.  Cas.  446,  note.  The  reason  for  this  rule  is  founded  on  prin- 
ciples of  English  law,  which  do  not  exist  in  this  state;  that  such  a 
power  would  enable  one  partner  to  give  a  favorite  creditor  a  lien  on 


384  THE   POWERS   OF   PARTNERS.  (Ch.  5 

the  real  estate  of  the  partners,  and,  consequently,  a  preference  over 
the  simple  contract  creditors  of  the  firm.  ^  Though  this  reason  for 
that  rule  does  not  exist  in  this  state,  the  general  principle  has  been 
and  is  recognized  and  sustained.  The  strictness  of  this  rule,  however, 
has  been  greatly  relaxed,  to  suit  the  exigencies  of  partnerships  and 
commercial  associations,  and  by  later  authorities  in  England  and  in 
this  country  instruments  under  seal  may  be  executed  for  many  pur- 
poses by  one  partner  which  will  be  binding  on  the  firm.  Thus  one 
partner  may  release,  under  seal,  an  obligation  or  debt  due  the  firm 
(McBride  v.  Hagan,  1  Wend.  [N.  Y.]  326;  Morse  v.  Bellows,  7 
N.  H.  550,  28  Am.  Dec.  372),  or  execute  a  power  of  attorney,  under 
seal,  to  another,  for  that  purpose  (Wells  v.  Evans,  20  Wend.  [N.  Y.] 
251;  s.  c,  22  Wend.  [N.  Y.]  325).  It  has  been  held  "that  when'a 
seal  is  not  essential  to  the  nature  of  the  contract,  and  will  not  change 
or  vary  the  liability,  the  addition  of  a  seal  will  not  vitiate  it ;  and  when 
an  act  is  done,  which  one  partner  may  do  without  deed,  it  is  not  less 
effectual  that  it  is  done  by  deed."  On  this  subject  Justice.  Story  has 
remarked  (Story  on  Part.  §  122),  "that  in  cases  where  the  contract 
would  have  been  binding,  if  made  without  a  deed,  there  does  not  seem 
to  be  any  solid  reason  why  the  act,  when  done,  should  be  vitiated  by 
being  under  the  signature  and  seal  of  the  firm."  That  this  agreement 
would  have  been  obligatory  if  it  had  been  executed  as  a  simple  con- 
tract, and  not  under  seal,  there  can  be  no  doubt,  for  it  was  made  to 
advance  their  partnership  interests,  and  in  the  benefits  derived  from  it 
they  have  participated. 

We  think,  however,  that  principle  does  not  apply  to  a  case  of  this 
character.  The  doctrine  seems  to  be  established  that  an  instrument 
executed  in  that  manner,  in  the  absence  of  other  partners,  will  be  bind- 
ing on  the  firm  only  in  transactions  that  transfer  an  interest.  Thus 
in  Milton  v.  Mosher,  7  Mete.  (Mass.)  2M,  it  was  held  that  a  mort- 
gage of  personal  property  need  not  be  under  seal,  and  that  a  mortgage 
of  that  character  is  not  vitiated  by  one  partner  affixing  a  seal  to  the 
instrument.  The  same  principle  is  sustained  in  Tapley  v.  Butterfield, 
1  Mete.  (Mass.)  515,  35  Am.  Dec.  374;  Lucas  v.  Bank,  2  Stew.  (Ala.) 
280;  1  Amer.  Lead.  Cas.  447,  and  cases  cited.  The  rule,  however,  is 
of  long  standing,  and  fully  sustained  by  the  authorities,  that  a  mere 
partnership  relation  will  not  authorize  one  partner  to  execute  an  in- 
strument under  seal,  whereby  a  new  and  original  obligation  is  created 
which  will  be  binding  on  the  company  as  a  specialty  debt,  or  which 
can  be  enforced  by  the  action  of  covenant.  If  the  case,  therefore,  is 
made  to  rest  on  the  circumstances  which  took  place  at  the  time  the 
instrument  was  signed  by  B.  Barker,  we  do  not  see  how  it  can  be  sus- 
tained as  the  deed  of  all  the  defendants.  We  have  no  doubt,  however, 
that  an  instrument  of  this  character,  executed  in  this  manner,  may, 
be  rendered  obligatory  by  a  previous  parol  authority,  or  by  a  subse- 
quent parol  ratification,  and  in  either  event  the  instrument  will  become 
the  deed  of  the  company,  and  that  much  slighter  acts  will  produce  that 


I 


Sec.  3)  PARTICCLAli    POWERS   CONSIDERED.  385 

effect,  where  tlie  subject-matter  of  the  agreement  is  within  their  part- 
nership dealings,  than  it  will  where  it  has  no  connection  with  the  busi- 
ness of  the  firm,  and  from  which  they  are  to  derive  no  benefit.  In 
the  case  of  Ball  v.  Dunslcrville,  4  Term  R.  313,  it  was  held  that  if 
the  partners  were  all  present,  when  one  of  their  number  signed  the 
instrument  in  the  partnership  name  and  affixed  thereto  a  seal,  it  be- 
came the  deed  of  all.  The  authority  for  the  execution  of  that  deed 
was  not  under  seal,  but  rested  in  parol ;  that  is,  parol  testimony  was 
admitted  to  prove  the  presence  of  the  partners  at  the  time  of  its  ex- 
ecution, and  that  circumstance  was  treated,  not  only  as  an  adoption 
of  the  signature,  but  of  the  seal,  so  as  to  render  it  the  deed  of  the 
firm,  upon  which  covenant  was  sustained.  If  parol  testimony  is  ad- 
missible to  prove  an  authority  from  that  source,  it  is  equally  so  to 
prove  other  circumstances  showing  their  assent  to  such  an  execution 
of  the  instrument.  The  actual  presence  of  all  the  partners  may,  per- 
haps, afford  more  satisfactory  evidence  of  their  assent  than  other 
circumstances  which  may  exist ;  but  that  a.ffects  simply  the  credibility 
of  the  testimony,  not  its  competency.  If  parol  testimony  is  admissible 
in  one  case,  it  is  in  the  other.  If  a  power  of  attorney  under  seal  can 
be  dispensed  with  in  one  instance,  it  may  in  the  other,  also.  This 
view  of  the  subject  is  taken  by  Wilde,  J.,  in  Cady  v.  Shepherd,  11 
Pick.  (Mass.)  405,  22  Am.  Dec.  379,  in  which  he  remarks  "that  in 
the  case  of  Ball  v.  Dunsterville  importance  was  attached  to  the  cir- 
cumstance that  both  partners  were  present  when  the  deed  was  ex- 
ecuted ;  and  it  may  be  important,  as  being  the  most  satisfactory  proof 
of  the  assent  of  the  nonsubscribing  partner,  but  in  no  other  respect 
does  it  appear  to  be  material." 

If  a  previous  authority,  resting  in  parol,  will  render  the  instrument 
binding  on  the  firm,  as  a  deed,  it  follows  that  a  subsequent  ratification 
of  the  instrument  may  be  proved  by  circumstances  resting  in  parol ; 
for  no  greater  authority  is  requisite  to  ratify  an  instrument  than  is 
required  to  execute  it.  The  power  that  can  create  can  legally  ratify. 
This  conclusion  has  been  drawn  and  sustained  wherever  the  case  of 
Ball  V.  Dunsterville  has  been  recognized  and  adopted,  particularly  by 
the  courts  in  this  country.  Chancellor  Kent  (3  Kent's  Com.  51)  has 
reviewed  the  cases  on  this  subject  both  in  England  and  this  country, 
and  he  observes  "that  an  absent  partner  may  be  bound  by  a  deed  exe- 
cuted on  behalf  of  the  firm  by  his  copartner,  provided  there  be  either 
a  previous  parol  authority  or  a  subsequent  parol  adoption  of  the  act, 
and  that  such  ratification  amounts  in  judgment  of  law  to  an  execution 
of  the  deed  by  all  the  partners,  though  executed  by  one  only."  The 
ratification  does  not  make  a  verbal  or  simple  contract  merely,  for  it 
is  an  adoption  by  the  party  of  the  signature  and  seal  aftixed  to  the 
name  of  the  firm.  In  Collyer's  Treatise  on  Partnerships,  §  -167,  it  is 
said  "that  the  American  cases  have  gone  farther  than  those  in  England 
in  relaxing  the  former  strictness  of  the  law,  and  that  it  is  well  set- 
tled in  the  United  States  that  an  absent  partner  may  be  bound  by  a 
Gil.Pakt.— 2.") 


3S6  THE   POWERS  OF  PARTNERS.  (Ch.  5 

deed  executed  on  behalf  of  a  firm  by  his  copartner,  provided  there 
be  either  a  parol  authority,  or  a  subsequent  parol  adoption  of  the  act." 
The  rule  is  also  sustained  in  1  Amer.  Lead.  Cas.  446,  in  which  it  is 
remarked  "that  it  is  settled,  after  thorough  investigation  of  the  cases, 
that  a  partner  may  bind  his  copartner  by  an  agreement  under  seal 
in  the  name  of  the  firm,  provided  the  copartner  assents  to  the  con- 
tract previously  to  its  execution,  or  afterwards  ratifies  and  adopts 
it;  and  this  assent  or  adoption  may  be  by  parol,  and  need  not  be 
express  and  special,  but  may  be  implied  from  the  conduct  of  the  other 
partner  or  the  course  of  dealing  by  the  firm."  Swan  v.  Stedman,  4 
?^Ietc.  (:Mass.)  548;  Bond  v.  Aitkin,  6  Watts  &  S.  (Pa.)  165,  40 
Am.  Dec.  550 ;  Pike  v.  Bacon,  21  Me.  280,  38  Am.  Dec.  259 ;  Darst 
V.  Roth,  4  Wash.  C.  C.  (U.  S.)  471,  Fed.  Cas.  No.  3,582;  Anderson 
V.  Tompkins,  1  Brock.  (U.  S.)  462,  Fed  Cas.  No.  365,  by  Marshall, 
C.  J.  We  are  satisfied  that  parol  evidence  is  admissible  to  prove  that 
this  instrument  is  the  deed  of  the  defendants,  and  became  such  by 
the  signature  of  the  partner  in  the  name  of  the  firm,  by  showing  a 
previous  authority  for  that  purpose  resting  in  parol,  or  that  they  were 
present  at  the  time,  qr  subsequently  ratified  the  same,  either  expressly 
or  impliedly,  and  that  this  implication  may  be  drawn  from  the  conduct 
of  the  partners  or  the  course  of  dealing  by  the  firm. 

The  court  directed  a  verdict  for  the  defendants,  thereby  treating  the 
evidence  introduced  as  having  no  tendency  to  show  a  subsequent  rati- 
fication of  the  instrument,  and  as  being  incompetent  to  be  taken  into 
consideration  by  the  jury.  In  relation  to  H.  V.  B.  Barker  and  Mr. 
Haight,  both  of  whom,  it  appears  from  the  case,  were  about  the  house, 
at  the  time  the  instrument  was  executed,  and  who  came  there  for  that 
purpose,  there  can  be  no  doubt  that  those  circumstances  should  go  to 
the  jury  as  evidence  of  their  assent  to  its  execution.  As  to  them,  the 
case  in' its  facts  seems  to  fall  within  that  of  Ball  v.  Dunsterville.  In 
relation  to  Mr.  Eggleston,  the  remaining  partner,  more  difficulty  ex- 
ists. It  does  not  appear  that  he  had  ever  been  in  that  vicinity  previous 
to  July,  1846,  about  two  months  after  this  instrument  was  executed. 
In  consequence  of  some  difficulties  in  the  affairs  of  the  company,  he 
was  sent  for,  and  came  to  the  office  of  the  company  at  Montp,elier  on 
that  account.  On  that  occasion  he  was  led  to  the  examination  of  the 
affairs  of  the  company  and  its  liabilities  and  resources,  to  the  examina- 
tion of  the  money  which  was  received  from  Mr.  Belknap  under  their 
contract,  and  to  its  expenditure  by  them  in  the  construction  of  the  road. 
As  these  plaintiffs  were  then  employed  in  constructing  their  part  of 
the  road,  and  naturally  would  be  entitled  to  the  amount  due  them  on 
the  monthly  estimates,  it  is  not  unreasonable  to  conclude  that  Mr. 
Eggleston,  in  seeing  to  the  expenditures  of  the  corhpany,  .became  in- 
formed of  the  contract  made  with  the  plaintiffs  for  the  construction 
of  those  sections  of  the  road.  The  duplicate  of  this  instrument  was 
among  the  papers  in  the  office.  After  that  examination  they  went  to 
Burlington,  on  the  line  of  the   road,  and  on  the  sections  where  the 


Sec.  3)  PARTICULAR   POWERS    CONSIDEKED.  387 

plaintiffs  were  at  work.  A  statement  of  the  affairs  of  the  company 
was  sent  to  liim  by  mail,  soon  after  his  return  to  Albany,  and  the 
legal  presumption  is  that  it  was  received.  It  is  true  that  all  this  may 
exist,  and  he  .lot  know  that  this  contract  was  executed  by  deed ;  yet 
they  are  consistent  with  his  examination  of  that  agreement  and  his 
knowledge  of  its  provisions.  The  question  now  is,  not  whether  the 
testimony  is  sufficient,  but  whether  those  circumstances  have  a  ten- 
dency to  show  such  knowledge,  and  that  no  objections  were  made  to 
its  execution  in  that  form.  Of  this  the  jury  are  to  judge,  and  draw 
their  conclusions.  If  those  circumstances  have  such  a  tendency,  they 
should  not  have  been  taken  from  the  consideration  of  the  jury.  We 
think  plaintiffs  were  entitled  to  have  that  testimony  submitted  to 
the  jury,  as  having  a  legal  tendency  in  proof  of  the  issue  formed  in 
the  case. 

The  judgment  of  the  county  court  must  be  reversed,  and  the  case 
remanded. 


EDWARDS  V.  DILLON. 

(Supreme  Court  of  Illluois,  1893.     147  111.  14,  35  N.  E.  135,  37  Am.  St  Rep. 

190.) 

Magrudcr,  J.  This  is  an  action  of  assumpsit  brought  by  the  ap- 
pellant against  the  appellee  upon  the  following  sealed  instrument : 
"This  is  to  certify  that  Levi  Dillon  &  Sons  have  this  day  sold  to  B. 
Edwards,  of  Chicago,  111.,  the  imported  Norman  stallion  Camhrone, 
for  the  sum  of  eighteen  hundred  dollars..  We  warrant  the  said  stal- 
lion sound  and  healthy,  but  assume  no  responsibility  on  account  of 
disease  or  accident  after  this  date.  We  guaranty  that  the  said  stallion, 
with  proper  handling,  shall  prove  to  be  an  average  foal  getter.  In  case 
the  said  stallion  shall  fail  to  get  colts,  we  agree  to  exchange  him  for 
a  stallion  of  equal  merits,  and  to  pay  half  of  the  expense  incurred  in 
making  said  exchange.  Said  stallion  shall  have  a  fair  trial  of  two 
years  before  being  condemned  as  a  breeder.  Camhrone  was  foaled  in 
France  in  18S0,  and  imported  to  the  United  States  by  Dillon  Bros,  in 
1S83.  Camhrone  is  recorded  in  the  National  Register  of  Norman 
Horses,  No.  2,081.  In  witness  whereof,  we  have  hereunto  set  our 
hands  and  seal  this  thirtieth  day  of  January,  1884.  Levi  Dillon  & 
Sons.  [Seal.]"  All  of  the  foregoing  instrument  was  a  part  of  the 
printed  form  hereinafter  referred  to,  except  the  signature  to  said  in- 
strument, and  those  words  thereof  which  are  italicized.  The  declara- 
tion avers  breaches  of  warranty  and  guaranty  set  forth  in  the  certifi- 
cate. The  defendant,  Levi  Dillon,  pleaded  in  abatement  the  non- 
joinder of  his  four  partners,  setting  up  that  the  alleged  promises,  if 
any,  were  made  by  the  firm  of  "Levi  Dillon  &  Sons,"  composed  of 
Levi  Dillon,  John  Harding,  James  Railsback,  Ellis  Dillon,  and  James 
C.  Duncan,  and  that  the  horse  in  question,  at  the  time  of  the  sale,  was 


388  THE  POWERS   OF  PARTNERS.  (Ch.  5 

the  property  of  the  firm,  and  not  of  Levi  Dillon  alone.  The  plauititf 
did  not  amend  his  declaration  by  making  new  parties,  but  tiled  his 
replication  joining  an  issue  of  fact  on  the  plea.  In  the  circuit  court 
there  was  a  trial  by  jury,  and  verdict  and  judgment  were  in  favor  of 
the  defendant,  which  judgment  has  been  aftirmed  by  the  appellate 
court. 

It  is  admitted  that  the  signature  to  the  contract,  "Levi  Dillon  & 
Sons,"  was  made  by  Levi  Dillon  alone.  The  issue  tried  below  was 
whether  or  not  the  contract  was  the  contract  of  Levi  Dillon  &  Sons,  or 
of  Levi  Dillon  alone.  The  jury  found  it  to  be  the  contract  of  the  firm, 
and  the  judgment  of  the  appellate  court  is  conclusive  of  the  question  of 
fact.  But  it  is  urged  by  appellant  that  the  court  erred  in  allowing  the 
defendant  to  introduce,  over  plaintiff's  objection,  oral  proof  of  the  part- 
nership, upon  the  alleged  ground  that  the  contract  sued  on  was  under 
seal,  and  that  Levi  Dillon  had  no  power  to  sign  a  sealed  instrument  for 
the  firm,  and  that,  therefore,  under  the  law,  the  signature  was  that  of 
Levi  Dillon  alone,  and  that  he  alone  was  liable.  The  same  question 
presented  by  the  objections  to  evidence  arises  upon  the  instructions.  It 
is  assigned  as  error  that  the  court  refused  to  instruct  the  jury,  at  plain- 
tiff's request,  that,  "in  order  to  bind  the  partners  by  signing  and  sealing 
the  contract  in  question  in  the  firm  name  of  Levi  Dillon  &  Sons,  the  de- 
fendant must  have  had  express  authority  from  each  one  of  his  part- 
ners to  execute  the  contract  under  seal." 

At  common  law,  one  partner  could  not  bind  the  others  by  an  in- 
strument under  seal,  unless  they  gave  him  express  authority  under 
tlieir  seals.  In  harmony  with  this  rule,  it  has  been  held  that  where  one 
partner  executes  an  instrument  under  seal,  in  the  firm  name,  without 
authority  under  seal,  he  alone  is  bound  by  it.  Story,  Partn.  (7th  Ed.) 
§§  117,  119 ;  1  Bates,  Partn.  §  421.  The  general  weight  of  authority 
is  undoubtedly  in*  favor  of  the  position  that  one  partner  has  no  implied 
power  to  bind  the  firm  by  instrument  under  seal.  17  Amer.  &  Eng. 
Enc.  Law,  p.  1001,  and  cases  in  notes.  But  the  American  courts  have 
been  inclined  to  depart  from  the  harshness  of  the  common-law  rule. 
They  hold  to  the  doctrine  that,  where  one  partner  executes  an  instru- 
ment under  seal  in  the  name  of  the  firm,  it  will  be  regarded  as  binding 
upon  the  firm,  "where  an  express  or  an  implied  authority  or  confirma- 
tion could  be  justly  established,  not  under  seal,  whether  it  be  verbal 
or  in  writing  or  circumstantial."  Story,  Partn.  (7th  Ed.)  §§  121,  122. 
The  prior  assent  or  subsequent  ratification  may  not  only  be  by  parol, 
but  may  be  implied  from  declarations,  or  from  acts  and  circumstances. 
1  Bates,  Partn.  §  416;  Pars.  Partn.  marg.  p.  181,  and  notes;  Gram 
V.  Seton,  1  Hall  (N.  Y.)  293;  Cady  v.  Shepherd,  11  Pick.  (Mass.) 
400,  22  Am.  Dec.  379,  17  Amer.  &  Eng.  Enc.  Law,  p.  1002,  and  cases 
in  note  4.  In  Eames  v.  Preston,  20  111.  389,  the  question  was  whether 
the  action  of  assumpsit  could  be  maintained  upon  a  certain  note  therein 
set  forth,  which  was  executed  by  a  firm.  Inasmuch  as  the  note  was 
held  to  be  under  the  seal  either  of  the  firm  or  of  the  partner  signing 


Sec.  3)  PARTICULAR    POWERS   CONSIDERED.  3Sf) 

it,  it  followed  that  suit  in  assumpsit  would  not  lie  upon  it,  under  the 
statute  as  it  then  existed.  The  material  inquiry  in  that  case  was,  not 
so  much  whether  one  partner  had  authority  to  execute  an  instrument 
under  seal  in  the  name  of  the  firm,  as  whether  the  instrument  there 
under  consideration  was  or  was  not  a  sealed  instrument.  Under  sec- 
tion 19  of  the  present  practice  act,  assumpsit  may  be  maintained  upon 
sealed  instruments.  That  section  has  abolished  the  distinction  between 
sealed  and  unsealed  instruments,  as  to  the  form  of  action.  Harms  v. 
McCorniick,  132  111.  10-i,  22  N.  E.  r,ll.  In  Peine  v.  Weber,  47  111. 
41,  we  said:  "We  think  it  may  be  safely  said  the  modern  rule  is  that 
one  partner  may,  in  furtherance  of  the  partnership  business,  and  for 
its  benefit,  execute  a  deed  under  seal,  which  will  be  binding  on  the 
other,  if  he  has  foreknowledge,  or  subsequently  ratifies  it,  and  this  may 
be  proved  by  acts  and  circumstances,  or  by  his  verbal  declarations  and 
admissions."  Under  the  American  doctrine  the  liability  of  the  part- 
ners will  not  be  confined  to  the  one  who  signs  the  sealed  instrument 
in  the  name  of  the  firm,  if  it  appears  that  the  prior  assent  or  subse- 
quent ratification  of  the  other  partners  can  be  implied  from  their  acts 
and  declarations,  or  from  other  proper  evidence  tending  to  show  such 
assent  or  ratification.  Wilcox  v.  Dodge,  12  111.  App.  517;  Walsh  v. 
Lennon,  98  111.  27,  38  Am.  Rep.  75.  There  is  evidence  in  the  present 
record  tending  to  show  that  the  act  of  Levi  Dillon  in  signing  the  firm 
name  of  "Levi  Dillon  &  Sons"  to  the  instrument  sued  upon  in  this  case 
was  done  with  the  previous  assent  of  the  other  partners.  The  firm 
was  engaged  in  the  business  of  importing  and  selling  Norman  horses. 
They  prepared  a  bound  book,  containing  blank  forms  of  certificates 
of  sale,  with  warranties,  of  which  the  foregoing  certificate,  except  the 
signature  and  the  italicized  words,  is  a  sample.  These  certificates, 
with  their  warranties,  were  intended  to  be  those  of  the  firm,  because 
the  name  of  the  firm  is  printed  in  the  body  of  them,  -and  were  intended 
to  be  under  seal,  because  each  has,  to  the  right  of  the  signature  line, 
a  scroll  with  the  word  "Seal"  printed  in  it.  The  firm  adopted  and 
used  this  blank  form,  giving  therein  written  guaranties.  All  the  mem- 
bers knew  of  the  form.  The  firm  gave  50  or  75  certificates  drawn 
according  to  this  form,  with  the  seal  attached.  When  a  sale  was  made, 
one  copy  would  be  kept,  and  a  duplicate  would  be  given  to  the  pur- 
chaser. All  the  members  of  the  firm  had  access  to  the  bound  book  of 
forms.  The  other  members,  as  well  as  appellee,  would  fill  up  the  cer- 
tificates, and  write  the  guaranties  in  them  when  horses  were  sold,  and 
sign  the  firm  name  thereto,  opposite  the  seal,  though  the  business  was 
generally  transacted  by  appellee. 

But,  even  if  it  were  true  that  the  evidence  does  not  show  acts  and 
circumstances  from  which  the  assent  of  the  other  partners  may  be  im- 
plied, we  do  not  think  that  the  instrument  here  sued  upon  was  neces- 
sarily one  which  was  required  to  be  under  seal.  While  one  partner 
cannot  bind  his  copartners  by  deed,  yet,  if  the  instrument  executed  by 
him.  though   under  seal,  would  have  been  valid   without  a  seal,  and 


390  THE   POWERS   OF   PARTNERS.  (Cll.  5 

within  the  scope  of  the  partnership  business,  and  within  the  powers 
belonging  to  each  partner,  then  the  seal  may  be  disregarded,  and  the 
instrument  may  be  ratified  as  a  simple  contract.  Walsh  v.  Lennon, 
supra;  Alechem,  Ag.  §  141;  Story,  Partn.  (7th  Ed.)  §  122';  Sterling 
V.  Bock,  40  Minn.  11,  41  N.  W.  23G ;  Human  v.  Cunifie,  32  Mo.  316; 
Robinson  v.  Crowder,  4  McCord  (S.  C.)  519,  17  Am.  Dec.  7G2 ;  Deck-, 
ard  V.  Case,  5  Watts  (Pa.)  22,  30  Am.  Dec.  287.  In  other  words,  "the 
mere  addition  of  a  seal  to  a  contract  within  the  ordinary  scope  of  the 
business,  which  requires  none,  does  not  vitiate  the  contract."  17 
Amer.  &  Eng.  Enc.  Law,  p.  1004,  and  cases  in'^note  1.  This  doctrine 
is  conceded  to  be  applicable  to  the  instrument  upon  which  the  present 
suit  is  brought,  so  far  as  that  instrument  is  a  mere  bill  of  sale.  Where 
there  is  a  simple  transfer  of  property,  the  addition  of  a  seal  neither 
adds  to  nor  detracts  from' the  effect  of  the  transfer;  and  consequently, 
if  it  is  signed  and  sealed  in  the  firm  name  by  one  partner,  it  is  not 
thereby  rendered  inadmissible  in  CTidence  against  the  other  partners. 
But  it  is  said  that  the  addition  of  the  seal  to  the  firm  name  by  the  sign- 
ing partner  makes  the  instrument  inadmissible  against  the  other  part- 
ners, so  far  as  the  warranties  or  guaranties  contained  in  it  are  con- 
cerned. There  are  sorne  authorities  which  hold  that  an  unnecessary 
seal  may  be  disregarded  in  instruments  of  transfer,  but  not  in  those 
creating  a  new  and  original  obligation,  in  the  nature  of  a  specialty- 
debt.  1  Bates,  Partn.  §  418,  note  2.  But  where  the  obligations  con- 
tained in  a  bill  of  sale  of  personal  property,  as  well  as  the  transfer  of 
the  interest  in  the  property  itself,  are  within  the  ordinary  scope  of  the 
partnership  business,  and  within  the  powers  of  each  individual  part- 
ner, the  non-executing  partners  are  not  relieved  from  liability  upon 
such  obligations  by  the  mere  fact  that  the  partner  signing  the  firm 
name  affixes  a  seal.  The  firm  of  Levi  Dillon  &  Sons  were  dealing  in 
Norman  stallions.  Each  partner  had  the  power  to  sell  these  stallions, 
and  there  was  involved  in  such  power  of  sale  the  further  power  to 
warrant  the  quality  of  the  horse,  as  to  its  fitness  for  the  purpose  for 
which  it  was  sold.  Partners  are  considered  as  sanctioning  the  con- 
tracts which  they  singly  enter  into  in  the  course  of  trade.  By  the  act 
of  entering  into  the  partnership,  each  partner  is  made  the  general  agent 
of  his  copartners  as  to  the  firm  business.  Deckard  v.  Case,  5  Watts 
(Pa.)  22,  30  Am.  Dec.  287.  Where  a  general  agent  is  employed  to 
carry  on  business,  the  authority  to  sell,  which  is  conferred  upon  him, 
may  carry  along  with  it  the  power  to  warrant,  if  it  is  usual,  as  it  was 
here,  to  give  a  warranty  when  making  a  sale  in  such  business.  Brady 
V.  Todd,  9  C.  B.  (N.  S'.)  592;  Bid.  War.  §§  14,  15.  A  general  agent 
employed  to  carry  on  the  business  of  horse  dealing  for  his  employer 
has  an  implied  authority  to  warrant  soundness,  when  making  sale  of  a 
horse.  2'  Benj.  Sales,  marg.  pp.  G18-620,  §§  830,  831.  Where  a 
dealer  contracts  to  supply  an  article  in  which  he  deals,  to  be  applied 
to  a  particular  purpose,  so  that  the  buyer  necessarily  trusts  to  the 
judgment  of  the  dealer,  there  is  an  implied  warranty  that  it  is  fit  for 


Sec.  4)  POWEUS   OF   MAJORITT.  "01 

the  purpose  to  which  it  is  to  be  appHcJ.    Jones  v.  Just,  L.  R.  3  Q.  E. 
1-07;   Lid.  War.  §  167. 

For  the  reasons  here  stated,  we  are  of  the  opinion  that  the  circuit 
court  committed  no  error  in  refusing  the  instructions  refused,  or  in 
admitting  the  evidence  objected  to.  The  judgment  of  the  appellate 
court  is  accordingly  affirmed.* 


SECTION  4.— POWERS  OF  MAJORITY. 


JOHNSTON  et  al.  v.  BUTTON. 
(Supreiue  Court  of  Alabama,  ISoG.     27  Ala.  2-15.) 

GoLDTHWAiTE,  J.  The  evidence  in  this  case  tended  to  show  that 
the  appellants  and  one  Vanderslice  carried  on  in  copartnership  a  steam 
sawmill,  which  by  the  articles  of  copartnership  was  to  continue  at 
least  five  years ;  that  the  note  sued  on  was  given  with  the  concurrence 
of  two  of  the  partners,  Fogg  and  Vanderslice,  for  supplies  necessary  for 
the  hands  engaged  in  carrying  on  the  mill,  which  had  been  ordered  by 
one  of  them.  Upon  these  facts  alone  there  can  be  no  doubt  that  the  firm 
would  be  bound.  The  furnishing  of  supplies  to  those  engaged  in  the 
immediate  direction  of  the  business  was  essential  to  the  conducting 
of  it,  and  within  the  scope  of  the  purpose  for  which  the  individuals  had 
associated ;  and  the  authority  of  either  of  the  partners  to  purchase 
such  supplies,  and  give  the  note  of  the  firm,  cannot  be  questioned. 

The  principal  ground  of  objection,  however,  is  that  the  evidence 
proved  that,  before  the  goods  were  furnished  and  the  note  given,  the 
appellant  Johnston  gave  notice  to  the  public  that  he  would  not  be  re- 
sponsible for  any  future  debt  contracted  on  account  of  the  copartner- 
ship, and  that  this  notice  was  brought  home  to  the  party  with  \yhom 
the  debt  was  contracted  ;  and  it  is  insisted  that  its  effect  was  to  revoke 
the  authority  of  the  other  partners,  so  far  as  he  was  concerned,  to  bind 
the  firm  from  that  time. 

It  is  to  be  observed  that  in  the  present  case  the  contract  was  con- 
curred in  by  two  members  of  the  firm ;  and  the  question,  therefore,  is 
as  to  the  right  of  the  majority  to  bind  the  other  partners,  against  their 
dissent,  as  to  matters  appertaining  to  the  common  business,  and  in  the 
absence  of  any  stipulation  conferring  that  power  in  the  articles  of  co- 
partnership.   This  question  is  a  new  one  in  this  court,  and,  indeed,  we 

1  As  to  the  liability  of  the  fiiiu  by  reason  of  iiecrotiable  paper  or  sealed  in- 
struments executed  in  the  name  of  one  partner,  but  for  the  use  and  beuetit 
of  tlie  firm,  see  the  cases  in  chapter  IV.  section  3,  ante. 


392  THE   POWERS   OF  PARTNERS.  (CIl,  5 

have  found  no  case  in  which  it  has  been  expressly  decided.  Both  in 
England  and  the  United  States  there  are  cases  which  aSsert  the  gerT- 
eral  proposition  that  a  partner  may  protect  himself  against  the  con- 
sequences of  a  future  contract,  by  giving  notice  of  his  dissent  to  the 
party  with  whom  it  is  about  to  be  made.  Gallway  v.  Matthew,  10 
East,  264;  Willis  v.  Dyson,  1  Stark.  164;  Vice  v.  Fleming,  1  Y.  & 
Jerv.  227,  230 ;  Leavitt  v.  Peck,  3  Conn.  125,  8  Am,  Dec.  157 ;  Feigley 
V.  Sponeberger,  5  Watts  &  S.  (Pa.)  564;  Monroe  v.  Connor,  15  Ale. 
178,  32  Am.  Dec.  148.  And  where  the  firm  consists  of  but  two  persons, 
and  there  is  nothing  in  the  articles  to  prevent  each  from  having  an 
equal  voice  in  the  direction  and  control  of  the  common  business,  the 
correctness  of  the  proposition  cannot  be  questioned.  In  such  case  the 
duty  of  each  partner  would  require  him  not  to  enter  into  any  contract 
from  which  the  other  in  good  faith  dissented ;  and,  if  he  did,  it  would 
be  a  violation  of  the  obligations  which  were  imposed  by  the  nature  of 
the  partnership.  It  would  not,  in  fact,  be  the  contract  of  the  firm; 
and  the  party  with  whom  if  was  made,  having  notice,  could  not  en- 
force it  as  such.  So,  if  the  firm  was  composed  of  more  than  two  per- 
sons, and  one  of  them  dissented,  the  party  with  whom  the  contract  is 
made  acts  at  his  peril,  and  cannot  hold  the  dissenting  partner  liable, 
unless  his  liability  results  from  the  articles  or  from  the  nature  of  the 
partnership  contract.  All  the  cases  can  be  sustained  on  this  principle ; 
and  it  is  in  strict  analogy  with  the  civil  law,  which  holds,  where  the 
stipulations  of  the  partnership  expressly  intrust  the  direction  and  con- 
trol of  the  business  to  one  of  the  partners,  that  the  dissent  of  the  other 
would  not  avail,  if  the  contract  was  made  in  good  faith.  Pothicr, 
Traite  du  Com.  de  Soc.  Nos.  71,  90.  And  such,  also,  we  think,  is  the 
rule  of  the  common  law.  Const  v.  Harris,  Turn  &  Russ.  496;  Story 
on  Part.  §  121.  Were  it  otherwise  it  would  be  denying  to  parties  the 
right  to  make  their  own  contracts.  If  our  views  as  to  the  governing 
force  of  express  stipulations  are  correct,  the  effect  of  such  terms  or 
conditions  as  result  by  clear  implication  from  the  articles,  or  arise  out 
of  the  nature  of  the  partnership,  must  be  the  same.  It  is  as  if  they 
had  been  expressly  provided. 

Now,  whenever  a  partnership  is  formed  by  more  than  two  persons, 
we  think  that  in  the  absence  of  any  express  provision  to  the  contrary 
there  is  always  an  implied  understanding  that  the  acts  of  the  ma- 
jority are  to  prevail  over  those  of  the  minority  as  to  all  matters  within 
the  scope  of  the  common  business ;  and  such  we  understand  to  be  the 
doctrine  asserted  by  Lord  Eldon  in  Const  v.  Harris,  supra,  and  such 
was  the  opinion  of  Judge  Story.  Story  on  Part.  §  123 ;  3  Kent's  Com. 
(5th  Ed.)  45.  The  rule  as  thus  laid  down  is  certainly  more  reasonable 
and  just  than  to  allow  the  minority  to  stop  the  operations  of  the  con- 
cern against  the  views  of  the  majority.  We  do  not  say  that  it  would 
be  a  bona  fide  transaction,  so  as  to  bind  the  firm,  if  the  majority  choose 
wantonly  to  act  without  information  to  or  consultation  with  the  mi- 
nority.    Story  on  Part.  §  123.     But  when,  as  in  the  present  case,  the 


Sec.  4)  POWEK8   OF   MAJORITY.  393 

one  partner  has  given  notice,  and  expressed  his  dissent  in  advance, 
there  could  be  no  reason  or  propriety  in  requiring  him  to  be  consulted 
by  the  other  two. 

We  do  not  consider  the  cases  to  which  we  have  been  referred,  hold- 
ing that  one  partner  has  the  right  at  pleasure  to  dissolve  a  partnership, 
although  the  articles  provide  that  it  is  to  continue  for  a  specified  term 
(Marquand  v.  Mfg.  Co.,  17  Johns.  [N.  Y.]  525;  Skinner  v.  Dayton, 
19  Johns.  [N.  Y.]  513,  10  Am.  Dec.  2SG),  as  having  any  bearing  on  the 
case  under  consideration.  Conceding  they  are  law — which  is  doubtful 
(Story  on  Partn.  §  275,  note  3,  and  cases  there  cited) — the  decision 
rests  solely  upon  the  ground  that  the  limitation  on  the  right  of  dissolu- 
tion is  incompatible  with  the  nature  of  the  copartnership  contract ;  and 
this  principle  does  not  militate  against  the  position  we  have  asserted. 
The  dissent,  in  the  present  case,  cannot  be  regarded  as  a  dissolution ; 
for,  if  effectual,  it  would  not  necessarily  produce  that  result,  although 
it  might  operate  to  change  the  mode  of  conducting  the  business.  In 
other  words,  it  might  be  carried  on  without  contracting  debts. 

Our  conclusion  is  that  the  act,  being  concurred  in  by  two  of  the 
partners,  was,  under  the  circumstances,  the  act  of  the  firm,  and  that 
the  charge,  asserting  the  proposition  that  the  dissent  of  one  partner 
against  the  other  two  would  necessarily  exonerate  him,  was  properly 
refused. 

Judgment  affirmed. 


MONROE  v.  CONNER  et  al. 

(Snpreme  Judicial  Court  of  JIalne,  1&3S.  -15  Me.  178.  32  An..  Dec.  148.) 

Assumpsit  against  James  Conner  and  William  Coleman.  Conner 
lived  at  Gardiner,  and  owned  a  carding  and  fulling  mill  at  Unity. 
The  business  of  carding  wool  and  dressing  cloth  w^as  carried  on  at 
that  mill  by  Coleman,  and  the  articles  charged  were  furnished  by  the 
plaintifT  and  delivered  at  the  mill.  The  plaintiff  claimed  to  recover 
against  both,  on  the  ground  that  Conner  and  Coleman  were  partners 
in  the  business  carried  on  at  that  mill.  No  articles  of  copartnership 
were  produced  or  proved  to  have  been  made,  and  the  plaintiff  relied 
on  other  evidence  tending  to  prove  the  partnership.  Conner  denied 
the  partnership,  and  offered  evidence  tending  to  prove  that  he  had 
given  notice  to  the  plaintiff  that  he  would  not  be  holden  on  any  con- 
tracts made  by  Coleman.  The  counsel  for  Conner  requested  the 
judge  to  instruct  the  jury  that  if  Conner  notified  the  plaintiff's  agent, 
who  delivered  all  the  articles,  before  the  delivery,  that  he,  Conner, 
Vould  not  be  holden  for  anything  unless  delivered  by  his  order,  then 
Conner  is  not  holden  for  anything  delivered  to  Coleman  after  such  no- 
tice. The  judge  did  not  give  this  instruction,  but  did  instruct  them 
that  if,  from  the  evidence  in  the  case,  they  were  satisfied  Jhat  the 
defendants  were  copartners,  such  notice  would  not  discharge  Conner 


39i  THE   POWERS  OF   t>ARTNERS.  (Ch.  5 

from  further  liabilities,  unless  he  should  show  them  that  by  the  con- 
ditions of  the  copartnership  such  power  was  reserved  to  Conner.  At 
the  request  of  Conner's  counsel  the  jury  were  directed  to  find  whether 
such  notice  was  or  was  not  given.  The  jury  found  a  verdict  for  the 
plaintiff,  and  also  found  that  such  notice  had  been  given.  Conner 
filed  exceptions. 

Shepley,  J.  The  question  presented  in  this  bill  of  exceptions  is 
one  of  no  inconsiderable  importance  in  a  mercantile  community,  and 
there  is  found  to  be  some  difference  of  opinion  respecting  it.  The 
general  rule  is  that  the  contract  of  one  partner  binds  all  in  transac- 
tions relating  to  the  partnership,  and  this  rule  prevails  when  the  part- 
ner making  the  contract  applies  the  fruits  of  it  to  his  own  private  use, 
if  the  contract  is  made  in  the  usual  course  of  business,  and  the  ap- 
propriation be  unknown  to  the  other  party  to  the  contract.  So  one 
partner  can  make  purchases,  and  can  sell,  pledge,  and  assign  the  part- 
nership goods,  and  in  these  acts  bind  all  the  partners. 

When  a  partnership  becomes  known,  and  its  course  of  dealing  has 
been  established,  all  are  at  liberty  to  regard  one  as  acting  for  the 
benefit  of  all  the  partners  in  this  accustomed  course  of  dealing.  If  it 
were  not  so,  there  could  be  no  safety  in  commercial  contracts  of  this 
character.  But  the  right  of  one  partner  to  bind  all  rests  upon  the 
principle  that  all  have  agreed  that  he  should  do  so. 

This  agreement  is  either  expressed,  or  implied  by  law  from  the 
nature  of  the  association  or  from  the  customary  course  of  dealing. 
There  is  nothing  inconsistent  with  this  rule  in  allowing  one  of  the 
partners  to  dissolve  the  contract  of  partnership,  giving  due  notice  that 
such  power  to  bind  him  has  ceased  to  exist.  This  he  may,  without  doubt, 
do  where  there  is  no  special  agreement  that  the  partnership  shaU  con- 
tinue for  a  definite  period,  which  is  yet  unexpired.  Whether  one  part- 
ner may  dissolve  the  partnership  before  the  agreed  time  expires  may 
admit  of  doubt.  Upon  principle,  however,  it  would  seem  that  it  was 
only  for  the  other  party  to  that  contract  to  complain;  it  being  of  no 
importance  to  others  whether  they  violate  contracts  between  them- 
selves, if  full  notice  is  given,  so  that  others  may  understand  to  whom' 
they  are  to  give  credit.  Kent  evidently  inclines  to  the  opinion  that  the 
dissolution  may  take  place.  3  Com.  54.  And  such  is  the  law-  in  New 
York  (Marquand  v.  Mfg.  Co.,  17  Johns.  525;  Skinner  v.  Dayton, 
19  Johns.  538,  10  Am.  Dec.  28G)  ;  while  the  law  would  appear  to  be 
different  in  England  (16  Ves.  56;  1  Swanst.  495).  It  does  not,  how- 
ever, become  necessary  to  express  any  opinion  upon  this  point,  as  there 
is  no  proof  in  the  present  case  that  the  partnership  was  formed  for 
any  definite  period.  In  such  cases  it  is  admitted  that  one  partner  may 
by_  notice  dissolve,  and  thus  prevent  those  having  such  notice  from 
making  further  contracts  to  bind  the  partnership.  If  such  a  power 
exist  as  to  all  persons,  it  would  be  difficult  to  deny  that  one  partner 
could, protect  himself  against  a  particular  contract  by  actual  notice 
that  he  dissented  from  it  before  it  was  concluded.     Such  a  notice  re- 


Sec.  4)  poWeus  of  majokitt.  395 

moves  the  foundation  upon  which  the  right  rests  to  charge  all  the 
partners  upon  the  contract  of  one.  It  leaves  no  longer  the  presumption 
that  one  acts  for  all,  by  the  consent  of,  all.  And  if,  after  such  actual 
notice,  a  person  will  give  credit,  he  cannot  reasonably  complain  that 
he  cannot  obtain  payment  from  him  who  has  notified  him  not  to  give 
the  credit.  The  only  difficulty  arises  in  relieving  the  partner  giving 
such  notice  from  the  payment  when  the  fruits  of  the  contract  have 
been  enjoyed  by  the  partnership,  of  which  he  still  continues  to  be  a 
member.  In  Willis  v.  Dyson,  1  Stark.  164,  Lord  Ellenborough  held 
that  "it  would  be  necessary  for  the  party  sending  goods  after  such 
notice  to  prove  some  act  of  adoption  by  the  partner  who  gave  the 
notice,  or  that  he  had  derived  some  benefit  from  the  goods."  Gow, 
Part.  69,  states  that,  "to  recover  in  an  action  for  goods  sold  after  such 
countermand,  he  must  show  that  the  sale  was  adopted  by  the  dis- 
sentient partner,  or  that  he  had  derived  a  benefit  from  the  delivery." 
Kent  (volume  3,  p.  45)  remarks  "that  the  seller  must  show  a  subse- 
quent assent  of  the  other  partners,  or  that  the  goods  came  to- the  use  of 
the  firm."  Both  these  jurists  refer  to  the  case  of  Willis  v.  Dyson  as 
authority.  It  is  quite  obvious  that  here  may  be  a  difference  between 
the  goods  coming  to  the  use  of  the  firm  and  a  benefit  derived  to  the  dis- 
senting partner  from  their  delivery  to  the  firm.  The  bargain  may 
have  proved  to  be  a  very  losing  one,  and  this  may  have  been  fore- 
seen by  the  dissenting  partner,  and  have  been  the  very  cause  of  the 
notice;  and  why  should  he  be  held  to  pay,  perhaps  from  his  private 
property,  for  goods  the  purchase  and  sale  of  which  may  have  absorbed 
the  whole  partnership  stock,  when  he  had  provided  against  such  cal- 
amity by  expressing  his  dissent  from  the  contract  before  it  was  con- 
summated ? 

In  the  case  of  Galway  v.  Matthew  et  al.,  10  East,  264,  one  partner, 
after  the  other  partner  had  given  notice  of  his  dissent,  signed  a  note 
with  the  name  of  the  partnership,  and  received  the  money  and  applied 
most  of  it  to  the  payment  of  the  partnership  debts;  and  the  decision 
was  against  the  right  to  charge  the  dissenting  partner. 

In  the  case  of  Leavctt  v.  Peck,  3  Conn.  124,  8  Am.  Dec.  157,  the 
fruits  of  the  contract  went  to  the  partnership,  and  yet  the  dissenting 
partner  was  hold  not  to  be  liable. 

Gow  states  that  in  negotiable  instruments  one  partner  cannot  bind 
another  who  dissents  and  gives  notice  of  it,  and  alludes  to  no  qualifi- 
cation, where  the  fruits  of  the  contract  are  applied  to  the  use  of  the 
partnership.  Gow,  65.  Collyer,  214,  says:  "It  seems,  also,  that  the 
mere  disclaimer  by  one  partner  of  the  future  contracts  of  his  copartner 
will  be  binding  on  third  persons,  whatever  be  "the  effect  of  such  an 
act  between  themselves,  or  whether  it  be  or  be  not  in  conformity  to 
the  partnership  agreement."  He  afterwards  also  states  the  case  of 
Willis  v.  Dyson  in  the  language  of  the  court.  Kent,  after  making  the 
remark  before  stated,  examines  the  cases,  and  as  the  result  of  it  says: 
"It  seems,  also,  to  be  the  better  opinion  that  it  is  in  the  power  of  any 


396  THE  POWERS   OF   PARTNERS.  (Ch.  5 

one  partner  to  interfere  and  arrest  the  firm  from  the  obligation  of  an 
inchoate  purchase,  which  is  deemed  injurious."  This  he  could  not  do 
if  he  were  bound  by  the  goods  coming  to  the  use  of  the  firm.  It  ap- 
pears to  be  more  in  accordance  with  the  general  principles  of  law, 
and  with  good  faith  and  fair  dealing,  to  hold  that  a  partner  is  not 
bound  by  a  contract  after  he  has  given  notice  to  the  party  proposing 
to  make  it  that  he  would  not  be  bound  by  it.^ 
Exceptions  sustained,  and  new  trial  granted. 


SECTION  5.— POWER  TO  SUBJECT  PARTNERSHIP  TO 
TORT  LIABILITY. 


HANEY  MANUFACTURING  COMPANY  v.  PERKINS. 

(Supreme  Court  of  Michigan,  1SS9.    78  Mich.  1,  43  N.  W.  1073.) 

Long,  J.  This  action  was  brought  by  the  plaintiff,  a  manufacturing 
corporation,  to  recover  damages  alleged  to  have  been  caused  by 
reason  of  the  pubHcation,  oral,  written,  and  printed,  of  the  statement 
that  the  defendants  had  brought  suit  in  the  United  States  court  against 
the  plaintiff  for  an  infringement  of  a  patent,  and  had  secured  an  in- 
junction against  it,  and  closed  it  up,  which  statements  were  claimed 
to  be  false  and  malicious.    *    ♦    * 

At  the  close  of  the  trial  in  the  circuit  court  the  court  directed  the 
jury  to  return  a  verdict  in  favor  of  the  defendants,  on  the  ground 
that  the  testimony  offered  by  the  plaintiff  did  not  entitle  it  to  re- 


cover. 


*     *    * 


Some  contention  is  made  that  the  defendants  could  not  be  made 
jointly  liable  for  these  slanders  upon  the  business  of  the  plaintiffs,  even 
if  one  or  two  of  the  partners  may  have  been  found  guilty.  The  de- 
fendants were  partners  in  business,  and  each  of  the  partners  is  an  agent 
of  the  partnership  as  an  entirety,  and,  if  in  the  course  of  that  business 
he  injures  the  business  of  another  by  slander,  the  partnership  is  liable 
therefor,  just  as  it  might  be  for  any  other  tort  by  any  other  agent. 
Patten  v.  Gurney,  17  Mass.  182,  9  Am.  Dec.  141 ;  Lothrop  v.  Adams, 
133  Mass.  471,  43  Am.  Rep.  528;  Atlantic  Glass  Co.  v.  Paulk,  83 
Ala.  404,  3  South.  800.  In  the  present  case  it  is  claimed  that  the  very 
purpose  of  these  statements  was  to  aid  the  business  of  the  defendants 
as  a  partnershipj  by  preventing  plaintiff  from  making  sales  of  an  ar- 
ticle which  the  defendants  were  themselii^es  as  a  partnership  selling. 

1  In  Wipperman  v.  Stacy,  80  Wis.  315,  50  N.  W.  a36  (1891),  the  dissenting 
partijur  was  held  liable  on  the  ground  of  ratification. 


Sec.  5)       POWER  TO  SUBJECT  PARTNERSHIP  TO  TORT  LIABILITT.  897 

If  this  fact  is  proven,  then,  in  the  course  of  the  partnership  business, 
if  any  one  of  the  partners  made  false  representations  as  to  the  business 
of  another,  and  for  the  purpose  of  aiding  the  business  of  his  own 
firm,  the  partnership  must  be  held  responsible  for  it. 

For  the  errors  pointed  out,  the  judgment  of  the  court  below  must 
be  reversed,  with  costs,  and  a  new  trial  ordered. 


WOLF  et  al.  v.  MILLS. 
(Supreme  Court  of  Illinois,  1870.    56  111.  3G0.) 

Thornton,  J.  The  appellee  brought  an  action  on  the  case,  alleg- 
ing that  appellants  sold  him  a  lot  of  sheep  pelts,  having  on  them  a 
large  quantity  of  wool,  and,  with  intent  to  defraud  him,  delivered 
other  and  inferior  pelts  in  quality,  and  deficient  in  the  quantity  of 
wool.     Appellee  recovered  a  verdict. 

Wolf  &  Haber  jointly  owned  the  pelts  at  the  time  of  the  sale.  The 
proof  is  satisfactory  that  the  pelts  sold  averaged  about  five  pounds  of 
wool  per  pelt,  and  the  pelts  delivered  only  three  pounds.  As  to  the 
alleged  fraud,  the  evidence  is  conflicting.  One  witness  testified  posi- 
tively that  he  saw  young  Haber,  a  son  of  appellant,  change  the  pelts, 
and  that  he  placed  light  in  place  of  the  heavy  pelts,  soon  after  the  sale. 
This  was  contradicted  by  the  son ;  but  the  weight  of  evidence  has 
been  determined  by  a  jury,  and  we  shall  not  disturb  the  finding,  un- 
less some  principle  of  law  has  been  violated. 

Appellants  urge  that,  as  there  is  no  evidence  to  prove  the  change, 
if  made,  was  by  the  direction  of  Wolf,  or  by  any  person  in  his  em- 
ployment or  under  his  control,  therefore  he  is  not  liable.  The  evi- 
dence does  show  that  Wolf  and  Haber  were  partners  in  the  buying 
and  selling  of  the  sheep  pelts,  an^d  that  young  Haber  was  handling 
them,  and  throwing  them  from  one  pile  to  the  other.  The  jury  was 
justified  in  the  inference  that  this  was  in  the  scope  of  the  partnership 
business,  as  it  was  connected  with  the  joint  property.  It  is  improbable 
that  the  son  would  be  thus  engaged,  unless  directed.  The  father  must 
have  given  him  some  instructions  in  regard  to  the  exchange. 

There  was,  then,  no  error  in  the  following  instruction  given  for 
appellee:  ^  "If  the  jury  believe  from  the  evidence  that  the  defendants 
sold  the  plaintilt  a  certain  lot  of  sheep  pelts  at  an  agreed  price,  and 
that  plaintiff  has  paid  such  price,  and  that  the  defendants  afterward, 
either  in  person,  by  their  agents,  servants,  or  employes,  delivered  to 
plaintiff  a  lot  of  sheep  pelts  in  any  respect  different  from  and  inferior 
to  those  actually  sold,  intending  thereby  to  have  the  plaintiff  believe 
they  were  the  same  he  had  purchased,  and  intending  to  deceive  and 
defraud  the  plaintiff,  then  the  jury  are  instructed  to  find  defendants 
guilty,  and  to  assess  as  damages  whatever  loss  the  evidence  may  show 
th^  plaintiff  sustained  through  such  fraud  and  deceit." 


398  THE   POWERS   OF  PARTNERS.  (Ch.  5 

A  tortious  act  of  one  partner  will  often  create  a  liability  against 
the  firm.  So  a  fraud  committed  by  one  partner  in  the  course  of  the 
partnership  business  binds  the  firm,  even  though  the  other  partners 
have  no  knowledge  of,  or  participation  in,  the  fraud.  The  jury  might 
reasonably  infer  all  that  was  necessary  to  fix  the  liability  of  the  firm. 

Judgment  afiirmed. 


DAVTES  V.  HARVEY. 

(Court  of  Queen's  Bench,  1874.     Law  Rep.  9  Q.  B.  433.) 

The  information  charged  that  the  appellant,  being  one  of  the  guard- 
ians of  the  poor  for  the  parish  of  Neath,  in  the  Neath  Union,  and  a 
person  concerned  in  the  administration  of  the  laws  for  the  relief  of 
the  poor,  did  furnish  or  cause  to  be  furnished  for  his  ov^-n  profit  or 
on  his  own  account  goods  and  materials,  to  wit,  an  iron  bedstead,  or- 
dered to  be  given  in  parochial  relief  to  a  certain  poor  person  in  the 
said  union  of  Neath,  contrary  to  St.  4  &  5  Wm.  IV,  c.  76,  §  77. 

[The  appellant  was  a  guardian  of  the  poor,  and  was  also  a  cabinet 
maker,  and  carried  on  business  with  his  son  under  the  firm  name  of 
Davies  &  Son.  The  bedstead  was  purchased  from  the  son,  J.  F. 
Davies,  and  delivered  by  him.  On  a  case  stated,  one  of  the  questions 
for  the  opinion  of  the  court  was  whether  the  furnishing  of  the  goods 
in  question  by  J.  F.  Davies  was  a  furnishing  by  the  appellant  (Davies) 
within  the  meaning  of  the  statute.] 

Lush,  J.  With  regard  -to  the  latter  part  of  the  case  I  think  the 
facts  bring  it  precisely  within  the  words  of  the  section.  The  relieving 
officer  ordered  at  the  shop  of  the  appellant  and  his  partner  an  iron 
bedstead  to  be  sent  to  the  pauper,  and  it  was  supplied  by  the  partner 
and  sent  to  the  pauper's  house;  he  knowing  at  the  time  that  it  was 
sent  in  pursuance  of  an  order  for  parochial  relief.  The  word  "given" 
cannot  be  construed,  in  section  77,  in  its  strict  literal  sense.  It  must 
be  construed  as  being  supplied  gratuitously,  whether  as  an  absolute 
gift,  or  not  in  the  way  of  parochial  relief.  I  think  the  case  comes  with- 
in the  very  words  of  the  enactment.  The  material  question,  no  doubt, 
is  whether  the  appellant  is  liable;  he  not- personally  knowing,  at  the 
time  of  the  supplying  of  this  bedstead,  that  it  was  to  be  given  in 
parochial  relief.  From  the  words  of  the  enactment  I  am  of  opinion 
that  he  is  a  person  within  the  very  scope  and  object  of  section  77. 
The  section  does  not  make  the  supplying  of  goods  a  crime,  but  pro- 
hibits it  by  a  penalty.  The  intention  is  to  prevent  persons  who  bold 
offices  concerned  in  the  administration  of  the  laws  for  the  relief  of 
the  poor  dealing  for  profit  with  the  parish.  The  bedstead  was  sup- 
plied with  the  knowledge  of  the  appellant's  partner,  under  a  general 
authority  given  by  the  appellant,  for  the  benefit  of  the  appellant  and 
the  partner,  and  it  was  supplied  by  way  of  parochial  relief.  The  goods 
are  supplied  in  that  sense  by  the  appellant,  though  actually  supplied 


Sec.  5)       POWER  TO  SUBJECT  PARTNERSHIP  TO  TORT  LIABILITY.  399 

by  his  partner.    He  shares  the  profit,  and  it  is  supplied  on  his  account. 
I  think  it  is  strictly  within  the  words,  as  well  as  the  obvious  intention, 
of  the  enactment.    Were  it  otherwise,  it  would  make  a  very  wide  way 
for  evasions  of  this  very  salutary  enactment. 
Judgment  for  the  respondent. 


HARMAN  V.  JOHNSON. 

(Court  of  Queen's  Bench,  1853.     '2  El.  &   Bl.  Rl.) 

The  first  count  of  the  declaration  stated  that  defendant,  on,  etc.,  by 
his  promissory  note  now  overdue,  promised  to  pay  to  plaintiff  £1,G70, 
and  interest,  at  5  per  cent,  per  annum,  two  years  after  date,  but  did 
not  pay  the  same.  The  second  count  stated  that  "plaintiff  retained 
and  employed  defendant,  and  his  partner  William  Henry  Smith,  then 
carrying  on  their  business  of  attorneys  and  solicitors  in  copartnership, 
to  invest  certain  money  on  mortgage  in  a  proper  manner,  and  they 
accepted  such  retainer  and  employment,  and  accordingly  took  that 
money  from  the  plaintiff  to  invest  a  mortgage  in  a  proper  manner; 
but,  though  a  reasonable  time  for  so  investing  it -had  elapsed  before 
this  suit,  it  has  never  been  invested,  whereby  the  plaintiflF  has  lost  the 
whole  of  it."  There  were  also  counts  for  money  lent,  money  received, 
and  on  an  account  stated. 

Pleas:  (1)  To  the  first  count:  That  defendant  did  not  make  the 
said  note,  etc.  Issue  thereon.  (2)  To  the  second  count:  "That  the 
plaintiff  did  not  retain  or  employ  the  defendant  and  the  said  W.  H. 
Smith,  nor  did  the  defendant  and  the  said  W,  H.  Smith  accept  such 
retainer  or  employment,  in  manner,  etc.  Issue  thereon.  (3)  To  tlie 
second  count:  "That  the  defendant  and  the  said  W.  H.  Smith  did  not 
take  said  money  in  the  said  second  count  mentioned  from  the  plain- 
tiff as  in  that  count  alleged."  Issue  thereon.  (4)  To  the  residue  of 
the  declaration  :    "Nunquam  indebitatus."     Issue  thereon. 

On  the  trial  it  appeared  that  defendant  and  William  Henry  Smith 
agreed  that  they  would  "become,  continue,  and  be  copartners  in  the 
*  *  *  profession  of  an  attorney  and  solicitor,  and  all  matters  and 
things  usually  connected  with,  or  forming  part  of,  the  carrying  on 
of  the  same,  or  in  any  way  or  manner  incidental  thereto,"  for  twelve 
years.  *  *  *  Subsequently  to  the  execution  of  this  agreement 
Smith  had,  without  the  knowledge  of  defendant,  received  from  plain- 
tiff, professedly  on  behalf  of  the  firm,  a  sum  of  il,G70..  According  to 
some  of  the  evidence,  plaintiff  had  given  a  general  direction  that  this 
sum  should  be  invested  by  the  firm  for  her  by  way  of  mortgage ;  but 
according  to,  other  evidence  she  deposited  it  in  order  that  it  should  be 
advanced  on  a  particular  mortgage,  if  that  security  turned  out  to  be 
good.  Smith,  however,  retained  the  money  so  deposited  for  his  own 
private  purposes,  and  prevailed  on  plaintiff  to  take,  as  security  for  it, 


400  THE   POWEnS   OF   PARTNERS.  (Ch.  5 

the  promissory  note  mentioned  in  the  declaration,  which,  without  the 
knowledge  of  defendant,  he  signed  in  the  name  of  the  firm,  "Smith  & 
Johnson."  Smith  afterwards  absconded,  and  plaintiff  brought  the 
present  action  against  defendant  alone. 

The  Chief  Justice,  after  intimating  his  opinion  that  there  was  not 
evidence  to  fix  the  defendant  with  any  liability  on  the  promissory  note, 
told  the  jury,  with  respect  to  the  rest  of  the  declaration,  that,  if  the 
plaintiff  employed  Smith  as  the  partner  of  Johnson,  meaning  to  em- 
ploy the  firm  of  Smith  &  Johnson  to  invest  the  money  for  her^n  mort- 
gage, or  gave  Smith  the  money  for  that  purpose,  and  Smith  repre- 
sented to  her  that  the  firm  of  Smith  &  Johnson  could  invest  the  money 
for  her  on  mortgage,  the  defendant  was  liable,  inasmuch  as  the  receipt 
of  the  money  by  Smith  for  the  purpos^  of  its  being  laid  out  on  mort- 
gage would  be  an  act  within  the  scope  of  authority  which  Smith  had 
as  partner  with  the  defendant;  for  that  attorneys  now,  as  part  of 
their  business,  acted  as  scriveners — that  is,  in  laying  out  money  on 
security — the  separate  profession  of  scrivener  having  fallen  into  dis- 
use.   Verdict  for  plaintiff  for  il,670. 

AlcCauley,  in  last  Easter  Term,  obtained  a  rule  nisi  for  a  new  trial 
on  the  ground  of  misdirection. 

Lord  Campbell,  C.  J.  I  think  there  should  be  a  new  trial.  The 
action  is  against  Johnson,  who  is  charged  in  the  character  of  a  part- 
ner with  Smith  in  the  calling  of  an  attorney.  There  is  no  evidence 
going  be3^ond  the  bare  fact  of  their  having  jointly  carried  on  the  busi- 
ness of  attorneys.  I  think  that  an  attorney,  qua  attorney,  is  not  a 
scrivener;  that  his  business  is  to  act  in  a  court  of  law,  to  prepare  con- 
veyances, to  examine  titles,  and  so  on,  but  not  to  act  as  a  scrivener. 
A  scrivener  has  to  hold  the  money  put  into  his  hands  until  he  has  an 
opportunity  of  laying  it  out;  but  this  employment  of  scrivener  is  not 
a  consequence  of  his  character, of  attorney.  The  question,  then,  here 
is  whether  Smith  was  acting  within  the  scope  of  his  partnership  au- 
thority. If  he  received  the  money  generally  for  the  purpose  of  laying 
it  out,  he  was  not  acting  within  his  calling  of  attorney.  Attorneys 
frequently  do  act  as  scriveners  in  the  full  sense  of  the  term;  but  there 
is  no  evidence  that  Smith  and  Johnson  did  so,  or  that  the  money  re- 
ceived was  received  for  purposes  within  the  object  of  the  partnership. 
There  was  strong  evidence  that  Smith  received  the  money  to  be  laid  out 
upon  mortgage,  and  that  he  induced  Mrs.  Harman  to  intrust  him  with 
the  money  by  representing  that  he  had  a  security  ready;  but  I  cannot 
say  that  this  was  conclusive.  And,  when  I  advert  to  the  terms  in  which 
I  directed  the. jury,  I  think  that  they  were  too  general;  for,  if  the 
meaning  of  Mrs.  Harman  was  that  a  security  should  be  found,  and 
that  the  money  should  be  left  in  order  to  be  invested  in  some  mort- 
gage that  might  be  found  to  be  an  eligible  security,  then  the  business 
was  not  to  be  performed  in  the  character  of  an  attorney.  I  think, 
therefore,  that  the  question  was  left  too  widely  to  the  jury.  It  should 
have  been  Left  more  pointedly  to  them  whether  the  money  was  placed 


Sec.  5)       POWER  TO  SUBJECT  PARTNERSHIP  TO  TOKT  LIABILITT.  401 

in  Smith's  hands  for  the  purpose  of  being  advanced  on  a  particular 
mortgage,  or  whether  it  was  deposited  with  him  until  he  could  find  a 
proper  mortgage.  Had  it  been  so  left,  the  jury  should  have  been  told 
to  find  for  the  plaintiff  on  the  first  supposition  and  for  the  defendant 
on  the  second. 
Rule  absolute. 


GILRUTH  V.  DECELL. 

(Supreme  Court  of  Mississippi.  1894.    72  Miss.  232,  16  South.  2.50.) 

Bill  in  chancery,  reciting  that  complainant  was  in  1892  the  wife 
of  T.  F.  Decell,  deceased,  who  was  then  a  member  of  the  firm  of  Gil- 
ruth  &  Decell;  that  at  that  time  she  was  the  owner  of  a  house  and  lot 
in  Jackson,  Miss.;  that  she  sold  same,  and  that  $1,G00  of  the  purchase 
money  was  placed  to  her  credit  in  the  Capital  State  Bank  of  Jackson ; 
that  the  amount  was  withdrawn  from  said  bank  on  a  check  drawn 
January  11,  1892,  in  favor  of  the  Bank  of  Yazoo  City;  that  to  said 
check  complainant's  name  and  that  of  T.  F.  Decell  were  signed ;  that 
complainant's  signature  was  forged  by  T.  F.  Decell ;  that  she  was 
ignorant  of  the  forgery  for  some  months  thereafter,  and  that  she  left 
her  husband  in  March,  1893.  and  that  he  was  killed  soon  afterwards, 
and  that  T.  J.  Moore  was  the  administrator  of  his  estate ;  that  J.  N. 
Gilruth,  as  surviving  partner,  after  qualifying  as  required  by  law,  took 
charge  of  the  partnership  property,  and  is  now^  administering  the  same ; 
that  the  $1,600  obtained  by  the  forgery  w^as  placed  to  the  credit  of 
T.  F.  Decell  in  the  Bank  of  Yazoo  City,, and  was  checked  out  by  him 
for  his  individual  use;  that  on  the  16th  of  February,  1892,  he  checked 
on  said  deposit  in  favor  of  Gilruth  &  Decell  for  $500.  which  sum  was 
placed  to  the  credit  of  T.  F.  Decell  on  the  books  of  Gilruth  &  Decell 
as  capital  paid  in  by  him  to  complete  the  amount  to  be  contributed  by 
him  in  the  firm  of  Gilruth  &  Decell;  that  said  sum  of  $500  is  still  in 
the  firm  of  Gilruth  &  Decell,  and  has  gone  into  the  hands  of  the  sur- 
viving partner ;  that  the  removal  and  conversion  of  said  sum  of  money 
by  said  T.  F.  Decell  was  a  fraud  upon  complainant,  and  that  said  De- 
cell  held  same  as  trustee  ex  maleficio ;  that  complainant  is  entitled  to 
have  said  sum  of  $500,  tningled  with  the  firm  assets  of  Gilruth  &  De- 
cell,  repaid  to  her  out  of  the  firm  assets  in  preference  to  all  other 
claims  against  said  assets,  with  interest  from  the  date  it  was  with- 
drawn. The  l.iill  makes  Gilruth.  as  surviving  partner,  the  only  de- 
fendant, and  prays  that  the  court  will  decree  that  the  said  sum  of 
$500  was  her  money,  and  was  held  in  trust  for  her,  and  went  into 
the  firm  of  Gilruth  &  Decell  impressed  with  said  trust,  and  that  it 
be  refunded  her  out  of  the  firm  assets. 

Whitfield,  J  It  is  not  alleged  in  the  bill  that  Gilruth  actually  par- 
ticipated in  the  fraud  by  which  Decell  converted  the  trust  fund  to  his 
own  use,  and  afterwards  paid  it  into  the  firm  in  payment  of  the  bal- 
Gtl.Part.— 20 


402  THE   POWERS   OF   PARTNERS.  (Ch.  5 

ance  of  his  subscription  to  its  capital  stock;  nor  that  he  had  any  ac- 
tual knowledge  of  anything  done  by  Decell  in  connection  therewith. 
The  acts  and  doings  of  Decell  throughout  were  wholly  outside  the 
scope  of  the  partnership  business.  Undpr  the  circumstances,  while 
there  may  be  some  cases  to  the  contrary  as  Palmer  v.  Scott,  G8  Ala. 
382,  and  Wclker  v.  Wallace,  31  Ga.  362,  it  is  well  settled  in  Mississip- 
pi (Pickels  V.  McPherson,  59  Miss.  216),  and  generally,  that  a  bill 
cannot  be  maintained  against  the  firm  to  recover  from  it  the  trust 
fund  thus  put  by  the  guilty  partner,  without  participation  or  knowl- 
edge on  the  part  of  the  others,  into  the  assets  of  the  firm.  Knowledge 
of  the  guilty  partner  in  such  case  is  not  the  knowledge  of  the  firm. 
Liability  of  the  other  partners  in  such  case,  if  it  exist,  must  grow  out 
of  participation,  as  joint  wrongdoers,  in  the, fraud,  and  not  out  of  the 
fact  that  they  are  partners,  or  their  liability  as  partners.  Bates,  Partn. 
§  481 ;  Evans  v.  Bidleman,  3  Cal.  435 ;  1  Lindl.  Partn.  pp.  *142,  *143. 
Jessel,  M.  R.,  thus  emphatically  puts  it  in  Williamson  v.  Barbour,  9 
Ch.  Div.  535,  536 :  "When  we  come  to  a  question  of  fraud,  different 
considerations  arise.  It  is  not  true  that  the  knowledge  of  a  fraud  by  a 
partner  is  necessarily  the  knowledge  of  the  firm.  A  very  obvious  in- 
stance *  *  *  niay  be  shown,  and  is  best  shown,  by  an  example. 
Suppose  there  is  a  firm  with  half  a  dozen  partners  who  have  a  clerk, 
and  the  clerk  has  been  in  the  habit  of  receiving  presents  from  one  of 
the  sellers  to  the  firm  in  order  to  pass  goods  of  short  weight,  and  fur- 
ther suppose  that  the  clerk,  not  having  been  found  out,  is  taken  into 
partnership  as  a  junior  partner  and  continues  the  practice.  Is  it  to 
be  imagined,  under  these  circumstances,  that  in  a  court  of  equity  the 
other  partners  could  not  sue  the  vendor  of  the  goods  for  the  fraud, 
arid  not  only  sue  him  but  their  partners  also?  *  *  *  j  emphatic-* 
ally  deny  that  any  such  doctrine  could  by  any  possibility  be  laid  down 
by  any  judge,  and  I  need  not  say  it  has  never  been  laid  down.  Of 
course  fraud  must  be  an  exception.  I  put  the  case  of  a  clerk  knowing 
it  before  he  became  a  partner,  and  not  interfering  with  it  afterwards. 
But  it  is  immaterial  that  the  knowledge  was  acquired  during  the  part- 
nership. *  *  *  It  appears  to  me  that  that  kind  of  notice  will  not 
do  when  it  is  applied  to  cases  of  fraud."  And  says  Lindley:  "If  one 
partner  is  a  trustee,  and  lie  improperly  employs  the  trust  funds  in 
the  partnership  business,  his  knowledge  that  he  is  so  doing  is  not 
imputable  to  the  firm ;  and  therefore,  to  affect  the  other  partners  with 
a  breach  of  trust,  further  evidence  must  be  adduced."  It  is  not  within 
the  scope  of  the  bill  to  subject  Decell's  interest  in  the  partnership  as- 
sets. Besides,  his  administrator  is  not  a  party.  Robertshaw  v.  Han- 
way,  52  Miss.  713,  717.  The  decree  is  reversed,  demurrer  sustained, 
and  bill  dismissed. 


Sec.  6)  rOWEKS    OF    PARTNERS    AFTER    DISSOLUTION.  403 

I 

SECTION  G.— POWERS  OF  PARTNERS  AFTER 
DISSOLUTION.^ 


MAJOR    V.    HAWKES. 
(Supreme  Court  of  Illinois.  1S50.     12  111.  298.) 

The  defendants  in  error  sued  Major,  in  the  McLean  circuit  court, 
to  recover  an  indebtedness  due  to  them  as  copartners.  Major  proved 
the  payment  of  his  indebtedness  to  Hawkes,  one  of  the  copartners, 
after  the  publication  of  a  notice  of  dissokition  by  mutual  consent.  A 
verdict  was  found  on  the  circuit  against  Major,  and  he  brings  the 
cause  to  this  court  by  writ  of  error. 

Trumrull,  J.  Upon  the  voluntary  dissolution  of  partnership,  each 
of  the  partners,  in  the  absence  of  any  agreement  to  the  contrary,  re- 
tains the  right  to  collect  debts  due  the  firm,  and  give  discharges  there- 
for.    Stgry  on  Partnership,  §  328. 

Hawkes  had,  therefore,  just  as  much  right  to  receive  the  money 
from  Major,  and  give  the  receipt  of  the  firm,  as  either  of  the  other 
partners,  and  the  receipt,  if  honestly  obtained,  was  a  defense  to  the 
further  prosecution  of  the  action.  The  fact  that  Major  first  made  an 
attempt  to  settle  the  account  by  giving  Hawkes  credit  upon  a  claim 
which  he  had  against  him  individually,  did  not  prevent  him  from 
afterwards  paying  the  money  to  Hawkes,  when  he  ascertained  that  the 
other  partners  would  not  assent  to  the  first  arrangement.  IMajor  was 
not  responsible  for  the  application  which  Hawkes  made  of  the  money, 
so  that  he  paid  it  in  good  faith ;  nor  does  the  insolvency  of  Hawkes 
at  the  time  alter  the  case.  The  record  shows  that  he  was  known  by 
the  other  partners  to  have  beeen  insolvent  when  the  partnership  was 
formed.  They  were  willing  to  trust  him  notwithstanding,  and  by  be- 
coming his  partners  gave  to  him  the  same  right  to  receive  the  debts 
that  should  become  due  the  firm  which  either  of  them  should  possess. 
It  is  true  that  without  the  assent  of  his  copartners  he  had  no  right 
to  apply  partnership  effects  in  discharge^ of  his  individual  indebted- 
ness, and  a  creditor  of  his,  knowingly  receiving  such  effects  in  dis- 
charge, would  be  responsible  for  the  same  to  the  firm. 

To  deprive  Major  of  the  benefit  of  the  payment  made  to  Hawkes 
it  was  incumbent  upon  the  plaintiffs  below  to  show  that  it  was  not 
made  in  good  faith.  It  has  been  suggested  by  counsel  that  the  money 
was  returned  to  Major  after  being  paid  over;  but  there  is  no  evi- 
dence in  the  case  to  justify  such  a  presumption.  The  witness  to  the 
receipt  testifies  that  the  money  was  paid  over  to  Hawkes  in  his  pres- 

1  As  to  the  effect  of  deatJi  of  one  partner  on  the  firm  property,  and  the 
rights  and  liabilities  of  the  surviving  partner,  see,  further,  chapter  III,  section 
8.  and  chapter  IV,  section  1  (III). 


104  1U.E  POWEKS   OF  PARTNERS.  (Ch,  6 

ence,  and  this  is  all  the  evidence  in  the  record  about  the  money.  For 
aught  that  appears,  Hawkes  may  have  accounted  with  his  copartners 
for  the  money  received  from  Major;  but  whether  he  has  or  not  is 
quite  immaterial  to  Major,  provided  he  honestly  paid  the  money  and 
has  in  no  way  aided  or  abetted  in  the  misapplication  of  it.  There 
would  be  no  safety  in  paying  a  partnership  debt  to  a  single  member  of 
a  firm,  if  the  debtor  was  bound  to  see  that  the  money  was  properly 
applied  by  the  partner  receiving  it. 
Judgment  reversed. 


WHITING  et  al.  v.  FARRAND  et  al. 
(Supreme  Court  of  Connecticut,  1814.    1  Coun.  60.) 

Swift,  J.  This  was  an  action  to  recover  payment  for  books  con- 
tracted to  be  delivered  to  the  defendants.    *    *    * 

It  is  further  insisted  on  by  the  defendants  that  their  copartnership 
was  dissolved  prior  to  the  delivery  of  the  books;  that  the  plaintiffs 
could  not  afterwards  deliver  them,  and  bring  this  action  t©  recover 
payment  for  them ;  but  that  their  remedy  is  by  an  action  for  a  breach 
of  contract  arising  from  the  dissolution  of  the  copartnership. 

Copartners  may  dissolve  their  connection  at  pleasure,  and  this  is 
no  violation  of  any  subsisting  contracts  with  others ;  for  they  may, 
and  they  are  bound  to,  perform  them  in  the  same  manner  as  if  no  dis- 
solution had  taken  place.  No  action  can  ever  be  sustained  against 
them,  stating  a  mere  dissolution  of  the  partnership  as  a  breach  of  con- 
tract; for  they  can  perform  it  notwithstanding  such  dissolution.  In 
the  present  case,  the  contract  being  executory,  the  plaintiffs  could 
have  no  right  of  action  till  they  had  performed  on  their  part.  If,  then, 
a  dissolution  of  the  copartnership  by  the  defendants  could  prevent  the 
plaintiffs  from  delivering  the  books,  and  excuse  the  defendants  from 
receiving  or  becoming  chargeable  for  them,  it  would  be  in  the  power 
of  a  partnership,  by  its  own  act  of  dissolution,  to  destroy  a  previous 
and  subsisting  contract.  This  would  be  directly  subverse  of  the  prin- 
ciples on  which  all  copartnerships  are  founded. 

New  trial  not  to  be  granted. 


GOODSPEED   V.    WIARD    PLOW    COMPANY. 

(Supreme  Court  of  Michigan,  1881.    45  Mich.  322,  7  N.  W.  902.) 

Campbell,  J.  Goodspeed  and  Fales,  prior  to  February  13,  1879, 
were  partners  in  business,  and  on  the  21st  day  of  January,  preceding 
the  dissolution,  Fales,  in  the  name  of  the  lirm,  but  in  the  absence  of 
Goodspeed,  and  without  his  knowledge  or  authority,  gave  to  an  agent 
of  the  Wiard  Plow  Company  an  order  in  writing  for  a  large  number 


Sec.  6)  POWERS    OP   PARTNERS   AFTER    DISSOLUTION.  40.") 

of  articles  connected  with  their  business,  to  be  shipped  on  the  1st 
day  of  April  thereafter.  On  the  13th  of  February  the  firm  was  dis- 
solved, and  on  the  same  day  the  agent  was  informed  of  the  dissolu- 
tion. The  price  of  the  articles  ordered  was  shown  to  be  above  $500. 
On  the  loth  of  February  a  portion  of  the  articles  were  shipped,  and 
the  remainder,  some  earlier  and  some  later  than  April.  All  came  into 
the  hands  of  Fales.  There  was  no  proof  of  any  other  acceptance  of 
the  order  than  the  shipment,  unless  the  agent  at  the  time  of  receiving 
the  order  made  some  arrangement  on  the  subject,  which  is  not  shown. 

On  a  suit  against  Goodspeed  and  Fales  the  court  held  that  the  ship- 
ment of  goods  and  their  reception  by  Fales  bound  Goodspeed,  and 
that  the  fact  that  the  time  of  shipment  was  different  from  that  named 
in  the  order  made  no  difference. 

We  think  this  was  erroneous,  and  that  there  was  no  ground  of  re- 
covery. A  retiring  partner  is  bound  by  all  previous  contracts  made 
within  the  line  of  the  business,  but  after  dissolution  he  is  not  bound 
by  any  new  contract  made  by  his  copartner. 

The  order  given  by  Fales  made  no  contract  until  accepted,  and  un- 
til acceptance  could  at  any  time  be  withdrawn.  Inasmuch  as  the 
amount  of  goods  exceeded  $50,  there  could  be  no  binding  contract  as 
against  the  Wiard  Plow  Company  without  either  a  writing  or  some  act 
done  on  the  faith  of  the  order.  Here  there  was  no  proof  of  accept- 
ance of  the  order  in  writing,  if  at  all.  The  shipment  of  the  goods  was 
not  made  in  accordance  with  the  terms  of  the  order,  and  was  not  made 
until  the  order  had  been  rescinded  by  notice  of  the  dissolution.  Fales 
could  not  waive  any  of  the  conditions,  so  as  to  bind  Goodspeed,  after 
the  dissolution.  The  sale  made  was  not  the  sale  agreed  upon,  if  there 
was  any  agreement.  The  case  is  therefore  doubly  defective,  in  not 
showing  any  valid  agreement  at  all,  and  in  showing  a  departure  from 
the  agreement  proposed.    Either  objection  is  fatal  to  a  recovery. 

Judgment  was  reversed,  and  a  new  trial  ordered. 


PALMER  V.  DODGE. 

(Supreme  Court  of  Ohio.  I8r)4.    4  Ohio  St.  21.  62  Am.  De<'.  271.) 

Ranney,  J.  Short  and  Palmer  were  partners  in  business  from  1S36 
to  June  28,  18-11.  During  the  existence  of  the  partnership  the  firm 
borrowed  money  of  one  Sally  Dana,  for  which  a  promissory  note  was 
given,  and  several  times  renewed,  and  which  remained  unpaid  at  the 
time  the  partnership  was  dissolved.  After  the  dissolution,  and  on 
April  15,  1842,  Short,  in  the  name  of  E.  Short  &  Co.,  with  the  defend- 
ant in  error  as  surety,  executed  a  new  note  to  Mrs.  Dana  for  the  prin- 
cipal and  interest  then  due,  payable  in  one  year.  It  was  proved  that 
the  agent  of  Mrs.  Dana,  who  took  this  note,  knew  the  partnership  was 
dissolved,  and  it  was  further  shown  that  Dodge  took  the  newspaper 


4:06  THE   POWERS   OF   PARTNERS.  (Ch.  5 

in  which  the  notice  of  dissolution  was  published.  This  note  was  once 
renewed  by  the  same  parlies,  and  subsequently,  and  after  the  death  of 
Short,  was  paid  off  by  the  surety,  Dodge,  who  brought  this  action  to 
recover  the  amount  of  Palmer  as  so  much  money  paid  for  the  use  of 
the  firm. 

On  these  facts  the  counsel  for  Palmer  requested  the  court  to  charge 
the  jury  that  E.  Short,  after  the  dissolution,  had  no  authority  to  give 
said  note  to  a  person  having  knowledge  of  the  dissolution,  so  as  to 
bind  the  late  firm  of  E.  Short  &  Co.;  and  the  said  Dodge,  having 
gone  security  on  the  note  given  after  the  dissolution,  and  with  notice 
of  it,  had  no  right  to  recover  from  Palmer  the  money  paid  by  him  in 
discharge  of  the  note. 

The  court  refused  to  give  these  instructions,  but  charged  the  jury 
that  Short,  after  the  dissolution,  could  not  give" a  note  in  the  name  of 
the  firm  so  as  to  bind  his  copartner  thereby )  but  if  Short,  in  the  per- 
formance of  his  agency  in  settling  up  the  business  of  the  firm,  thought" 
it  necessary  for  the  interests  of  the  firm  to  renew  the  note,  and  in  good 
faith  obtained  Dodge  as  security  for  that  purpose,  he  (Dodge)  might 
recover  from  Palmer  the  amount  originally  loaned  to  the  firm,  with 
6  per  cent,  interest  thereon. 

As  no  claim  is  made  that  Palmer  came  under  any  direct  engagement 
to  Dodge,  or  that  he  ever  authorized  Short  to  execute  this  particular 
note,  or  afterward  recognized  or  ratified  his  act,  it  is  evident  the  case 
must  depend  upon  the  authority  retained  by  Short,  as  a  member  of  the 
dissolved  partnership,  or  upon  that  specially  derived  from  the  agree- 
ment of  dissolution.  We  have  carefully  considered  the  case  in  both 
these  aspects,  and  can  see  no  sufficient  reason  why  the  instruction 
asked  for  should  have  been  refused.  Indeed,  it  seems  quite  impossible 
to  justify  the  refusal,  or  support  the  charge  as  given,  consistently 
with  well-established  and  salutary  principles  applicable  to  the  law  of 
partnerships. 

During  the  continuance  of  the  partnership  each  member  has  the 
undoubted  right  to  bind  his  associates  to  the  performance  of  every 
contract  he  may  make  \n  the  name  of  the  firm,  within  the  limits  allow- 
ed by  the  articles  of  association ;  and  they  are  equally  bound  to  third 
persons,  having  no  notice  of  any  special  limitation  of  his  power,  upon 
all  contracts  within  the  scope  and  objects  of  the  partnership,  although 
he  may  have  overstepped  such  limitations.  In  such  cases  the  contract- 
ing partner  acts  for  himself,  and  as  the  authorized  agent  of  his  co- 
partners. His  authority,  it  is  true,  need  not  necessarily  arise  from  the 
express  terms  of  the  partnership  agreement;  but  the  law  implies  it 
from  the  community  of  interest  and  joint  object  for  which  the  asso- 
ciation is  formed,  and,  as  it  is  ordinarily  necessary  to  the  attainment 
of  its  ends,  reasonably  infers  the  power  o£  each  to  act  for  all,  as  with- 
in the  understanding  and  contemplation  of  the  parties.  They  are  sup- 
posed to  have  reposed  this  confidence  in  each  other,  and,  however  much 
it  may  be  abused,  in  behalf  of  innocent  third  persons  the  conclusive 


Sec.  6)  rowERS  of  partners  after  dissolution.  407 

answer  is  that  the  loss  must  fall  upon  those  who  have  given  the  ability 
to  do  the  wrong. 

This  capacity  continues  as  long  as  the  joint  operations  of  the  firm 
endure  and  contracts  are  necessary  to  accomplish  its  purposes.  For 
the  protection  of  tiiird  persons  it  may  continue  longer.  As  the  period 
of  its  dissolution,  by  the  agreement  of  the  parties,  may  only  be  known 
to  themselves,  the  law  exacts,  not  only  that  they  should  hold  them- 
selves out  no  longer  as  operating  jointly,  but  that  they  use  reasonable 
diligence  to  advise  others  of  the  termination  of  their  previous  connec- 
tion. As  to  those  who  have  previously  dealt  with  the  firm,  the  notice 
must  be  actual.  As  to  others,  public  notice  in  some  ncwspapei  circu- 
lating in  the  neighborhood  is  suflficient,  if  even  that  is  required. 

In  such  cases  the  other  partners  are  charged  for  their  negligence  in 
omitting  to  perform  a  duty  which  the  law  requires  at  their  hands,  in- 
tended to  protect  third  persons  against  the  unauthorized  acts  of  their 
associates.  But,  where  no  question  of  notice  intervenes,  the  dissolu- 
tion works  an  absolute  and  unqualified  revocation  of  all  power  and  au- 
thority in  either  of  the  partners  to  bind  tlae  others  to  any  new  engage- 
ment, contract,  or  promise.  In  the  language  of  Judge  Story  (Story 
on  Part.  §  322)  :  "None  of  the  partners  can  create  any  new  contracts 
or  obligations  binding  upon  the  partnership.  None  of  them  can  buy  or 
sell  or  pledge  goods  on  account  thereof.  None  of  them  can  indorse  or 
transfer  the  partnei-ship  securities  to  third  persons,  or  in  any  other 
way  make  their  acts  the  acts  of  the  partnership.  In  short,  none  of  them 
can  do  any  act  or  make  any  disposition  of  the  partnership  property 
or  funds  in  any  manner  inconsistent  with  the  primary  duty,  now  in- 
cumbent on  all  of  them,  of  winding  up  the  whole  concerns  of  the  part' 
nership." 

As  the-dissolution  finds  the  engagements  of  the  company,  they  must 
remain  until  liquidated  and  paid,  unless  all  the  partners  consent  to 
come  under  new  engagements,  or  otherwise  change  their  character. 
But,  while  the  law  thus  effectually  revokes  the  implied  authority  of 
each  partner  to  incur  new  obligations  for  his  fellows,  it  leaves  upon 
each  of  them  the  duty,  and  continues  to  each  the  right,  of  doing  what- 
ever is  necessary  to  collect  the  debts  due  to  the  partnership,  and  to 
adjust,  settle,  and  pay  its  debts.  "For  [as  stated  by  the  same  author] 
all  these  acts,  if  done  bona  fide,  are  for  the  advancement  and  consum- 
mation of  the  great  objects  and  duties  of  the  partners  upon  the  dissolu- 
tion, to  wind  up  the  whole  partnership  concern  and  divide  the  surplus, 
if  any,  among  them,  after  all  debts  and  charges  are  extinguished." 

This  right  of  each  of  the  partners  to  participate  in  the  settlement 
of  its  concerns  cannot  be  interfered  with  by  his  copartners,  without 
subjecting  them  to  the  controlling  power  of  a  court  of  equity;  but  it 
may.  of  course,  be  voluntarily  relinquished  by  himself,  or  he  may.  if 
he  sees  fit,  invest  them  with  more  extended  authority  than  the  law 
will  imply  in  their  behalf. 


408  THE  POWERS   OF   PARTNERS.  (Cll.  5 

Appended  to  the  notice  of  dissolution  signed  by  the  partners  and 
published  in  this  case  is  this  clause :  "The  remaining  unsettled  business 
of  the  firm  will  be  adjusted  by  E.  Short,  who  is  hereby  authorized  to 
close  all  business  transactions  of  the  late  firm."  This  notice  js  good 
evidence  of  the  agreement  of  the  parties,  and  conclusive  in  favor  of 
third  persons  who  have  dealt  with  Short,  relying  up^on  it.  But  no  one 
could  or  had  a  right  to  understand  it  as  authorizing  Short  to  do  more 
than  to  adjust  and  settle  the  unfinished  business  and  close  up  the 
transactions  of  the  firm.  This  power  he  had,  without  the  agreement. 
It  added  nothing  to  the  authority  which  the  law  gave,  and  took  noth- 
ing from  it.  Without  the  agreement,  Palmer  would  have  had  equal- 
authority,  and  the  utmost  effect  that  can  be  given  to  the  stipulation 
would  be  to  consider  it  as  a  surrender  of  the  right  by  him,  and  as  hav- 
ing invested  Short  alone  with  the  power  before  possessed  by  both. 

There  is  not  a  word  in  it  to  indicate  an  intention  to  confer  upon  him 
the  authority  -to  create  new  obligations.  He  is,  therefore,  remitted  to 
his  power  as  a  partner,  and,  considered  in  that  light,  it  is  very  clear 
he  possessed  no  such  authority.  The  elementary  books  and  adjudged 
cases  speak  an  almost  uniform  language  upon  the  subject.     *     *     * 

We  should  find  no  difficulty  in  holding  that  the  proof  of  the  dissolu- 
tion was  sufficient  to  charge  Dodge,  in  the  absence  of  apy  proof  on  his 
part  to  show  that  he  had  dealings  with  the  firm  before  its  dissolution. 
But  this  question  is  wholly  immaterial,  as  the  court  in  effect  took  it 
from  the  jury,  and  charged  that  Dodge  would  be  entitled  to  recover, 
notwithstanding  he  had  notice,  if  Short,  in  good  faith  thought  it  nec- 
essary to  renew  the  note  and  procured  him  to  become  secr.rity  on  it. 
In  this  we  think  they  erred ;  and  the  judgment,  so  far  as  the  amount 
of  this  note  entered  into  it,  must  be  reversed.* 


HUMPHRIES   V.   CITASTAIN. 

(Supreme  Court  of  Georgia,  1848.    5  Ga.  166,  43  Am.  Dec.  247.) 

Assumpsit  on  a  note  indorsed  in  the  firm  name  of  Chastain  &  Har- 
vey, the  indorsement  having  been  made  by  Harvey  (now  insolvent), 
without  the  authority  of  Chastain,  after  the  dissolution  of  the  firm. 
Evidence  offered  to  show  that  the  indorsement  was  in  payment  of  a 
previous  debt  of  the  firm  having  been  rejected,  the  plaintiff,  after 
judgment  against  him,  brought  error  on  that  ground. 

1  In  Smith  v.  Shelden,  35  Mich.  42,  47,  24  Am.  Rep.  529,  supra,  in  passing 
upon  the  question  of  the  power  of  a  partner  after  dissolution  to  give  notes 
in  settlement  of  firm  debts,  Gooley,  C.  J.,  said:  "We  thinlt  It  niuc)i  safer  to 
require  express  authority,  when  such  obligations  are.  contemplated,  than  to 
leave  one  party  at  liberty  to  execute  at  discretion  new  contracts  of  this  nature, 
which  may  postpone  for  an  Indefinite  period  the  settlement  of  their  concerns, 
when  a  settlement  is  the  very  purpose  for  which  he  is  to  act  at  all." 


Sec.  6)  POWERS   OF    PARTNERS    AFTER    DISSOLUTION.  409 

Warner,  J.  The  question  made  by  the  record  in  this  case  is  wheth- 
er one  partner,  after  the  dissolution  of  the  copartnership,  can  bind  his 
copartner  by  a  new  contract  for  the  payment  of  a  pre-existing  copart- 
nership debt.  That  after  the  dissolution  of  a  copartnership,  one  co- 
partner cannot  bind  the  other  by  indorsing  a  note  in  the  coi)artnership 
name  is,  we  think,  well  settled,  both  upon  principle  and  authority ; 
and  that  the  note  so  indorsed  is  in  payment  of  a  debt  due  by  the  co- 
partnership makes  no  difference.  Lyon  on  Part.  274;  Sanford  v. 
Mickles,  4  Johns.  (N.  Y.)  224;  Hackley  v.  Patrick,  3  Johns.  (N.  Y.) 
536;  Folz  v.  Pourie  &  Dawson,  2  Desaus.  Eq.  40.  In  Bell  v.  Morrison, 
1^  Pet.  (U.  S.)  352,  7  L.  Ed.  174,  it  was  held  that  a  dissolution  of  a 
copartnership  puts  an  end  to  the  authority  of  one  partner,  to  bind  the 
other.  It  operates  as  a  revocation  of  all  power  to  create  new  contracts ; 
and  the  court  below  did  not  err  in  rejecting  the  testimony  offered,  and 
ruling  that  Chastain  was  not  bound  by  the  indorsement  made  by  Har- 
vey, in  the  name  of  the  partnership,  after  its  dissolution. 

Let  the  judgment  of  the  court  below  be  affirmed.* 


DARLING  V.  MARCH. 
(Supreme  Court  of  Maine,  1842.     22  Me,  184.) 

Assumpsit  on  a  note  dated  November  13,  1S37,  for  $2,000,  signed 
by  Lincoln,  Foster  &  Co.,  payable  to  Willis  Patten  &  Co.  "at  either 
bank  in  Bangor"  six  months  after  date,  and  indorsed  by  Willis  Patten 
&  Co.  Over  the  indorsement  was  written,  "Holden  without  notice  or 
demand,"  and  no  demand  was  proved;  the  plaintiff  relying  on  the 
waiver. 

It  was  admitted,  or  satisfactorily  proved,  at  the  trial,  that  Amos 
Patten,  the  defendant's  testator,  Willis  Patten  and  Moses  Patten,  Jr., 
constituted  the  firm  of  Willis  Patten  &  Co.  prior  to  the  1st  day  of 
October,  A.  D.  1837 ;  that  on  the  18th  day  of  January,  1838,  and  for 
more  than  three  weeks  subsequently,  notice  that  the  firm  had  been  dis- 
solved on  the  preceding  1st  day  of  October,  and  that  Amos  Patten  had 
retired,  and  that  a  new  firm  under  the  same  name  had  been  formed  by 
Willis  Patten  and  Moses  Patten,  Jr.,  was  published  in  the  Daily  Whig 
and  Courier,  printed  at  Bangor ;  that  the  note,  about  the  time  it  fell 
due  in  May,  1838,  was  left  in  the  Kenduskeag  Bank  for  collection;  that 
the  officers  of  the  bank  had  knowledge  of  the  dissolution  of  the  old 
firm  at  the  tiine  notice  was  published ;  that  about  the  time  the  note  fell 
due  the  words  "Plolden  without  notice  or  demand"  were  written  on 
the  note  by  Moses  Patten,  Jr.     *     *     * 

1  In  Tale  v.  Enmes.  1  Mete.  (Maps.)  486  (1840).  It  was  holrl  that  an  authority 
f:lvon  to  one  yiarlner  by  thp  others,  aftor  dissolntlon.  to  soil  a  ncirotlahle  note 
ma(ie  to  the  firm  before  dissolution,  authorized  the  partner  to  indorse  suth 
note  "without  recourse"  in  the  firm  name. 


410  THE   POWERS   OF   PARTNERS.  (Ch.  6 

The  foregoing  facts  (and  others  not  material  to  the  point  in  part- 
nership under  consideration)  were,  by  agreement,  subniitted  to  the 
court,  who  are  to  order  a  nonsuit  or  default  as  the  facts  and  the  law 
may  warrant.     *     ♦     * 

Shepi.1;Y^  j  ♦  *  ♦  'j'j^g  j-^g-j,^  question  is  whether  one  member 
of  the  firm  could  bind  the  other  members,  after  its  dissolution,  by  a 
waiver  of  demand  and  notice  on  paper  existing  before  ihe  dissolution. 
The  dissolution  operates  as  a  revocation  of  all  authority  for  making 
new  contracts.  It  does  not  revoke  the  authority  to  arrange,  liquidate, 
settle,  and  pay  those  before  created.  For  these  purposes  each  member 
has  the  same  power  as  before  the  dissolution.  If  an  account,  exist- 
ing before  the  dissolution,  be  presented  to  one  of  the  former  partners, 
he  may  decide  whether  it  should  be  paid  or  not,  even  though  it  be  a 
disputed  claim.  He  may  decide  whether  due  notice  had  been  given 
on  negotiable  paper,  and  may  make  or  refuse  payment  accordingly. 
The  waiver  of  demand  and  notice  is  but  the  modification  of  an  exist- 
ing liability,  by  dispensing  with  certain  testimony  which  would  oth- 
erwise be  required.  If  one  of  the  former  partners  could  nqt  dispense 
with  the  proofs,  which  might  be  required  at  the  time  of  the  dissolu- 
tion, he  could  not  liquidate  the  accounts  and  agree  upon  balances.  To 
waive  demand  and  notice,  and  to  settle  accounts,  is  but  to  arrange  the 
terms  upon  which  an  existing  liability  shall  become  perfect  without 
further  proof.  In  doing  this  he  does  not  make  a  riew  contract,  but 
acts  within  the  scope  of  a  continuing  authority. 

Judgment  for  plaintiff. 


BREEN  V.  RICHARDSON  et  al. 
'   (Supreme  Court  of  Colorado,  1883.    G  Colo.  605.) 

Morrison  and  Charist  were  copartners.  Morrison  died,  and  Char- 
ist,^the_  surviving  partner,  to  secure  a  debt  of  the  firm,  gave  a  trust 
deed  upon  certain  real  estate  owned  by  them  in  the  town  of  Silverton. 
Upon  breach  of  the  conditions  of  the  trust  deed  the  land  was  sold  by 
the  trustee,  and  the  appellant,  Breen,  became  the  purchaser  and  was  in 
possession.  The  appellees,  as  heirs  at  law  of  Morrison,  brought  suit 
to  -recover  the  undivided  one-half  interest  in  the  land  in  controversy, 
and  obtained  judgment  in  the  court  below.  To  reverse  that  judgment 
Breen  prosecutes  this  appeal. 

Beck,  C.  J.  *  *  *  This  assignment  involves  the  power  of  a 
surviving  partner  to  dispose  of  the  partnership  property  in  the  settle- 
ment and  payment  of  the  partnership  debts. 

It  sufficiently  appears  that  the  real  estate  in  controversy  was  part- 
nership property.  It  was  property  necessary  for  the  ordinary  busi- 
ness of  the  partnership,  it  was  purchased  for  this  purpose  out  of  the 
funds  of  both  partners  at  the  time  of  the  formation  of  the  partner- 


Sec.  6)  POWERS   OP   PARTNERS   AFTER    DISSOLUTION.  411 

ship,  and  it  was  employed  for  the  uses  of  the  partnership  until  the  firm 
was  dissolved  by  the  death  of  Morrison. 

The  evidence  also  shows  that  at  the  time  of  the  decease  of  Morrison 
the  firm  of  Morrison  &  Charist  was  indebted  beyond  ihe  extent  of 
the  personal  assets. 

It  is  well  settled,  in  such  a  case,  that  the  partnership  real  estate  is 
to  be  considered  as  personally  lor  the  purpose  of  paying  ihe  firm  debts. 
It  is  quite  as  well  settled  that,  for  the  purpose  of  being  appropriated 
to  the  payment  of  the  partnership  debts,  the  real  estate,  like  other  per- 
sonal property  of  the  partnership,  must  pass  under  the  control  of  the 
surviving  partner,  to  be  by  him  disposed  of  for  the  payment  ot  the 
debts.  , 

An  objection  is  made  that  the  surviving  partner  had  no  authority 
to  give  the  trust  deed.  The  evidence  shows  ,the  necessity  for  prompt 
action  at  the  time  the  trust  deed  was  given,  in  order  to  prevent  the 
sacrifice  of  the  property  in  question,  and  the  law,  we  think,  warrant- 
ed the  execution  of  the  trust  deed. 

For  the  errors  mentioned,  the  judgment  will  be  reversed,  and  the 
cause  remanded  for  a  new  trial. 
,  Reversed. 


WOOD  et  al.  v.  BRADDICK. 
(Court  of  Common  Pleas,  1808.     1  Taunt.  104.) 

This  was  an  action  brought  to  recover  from  the  defendant  the  pro- 
ceeds of  certain  linens,  which  the  bankrupts,  in  the  year  1796,  had  con- 
signed for  sale  in  America,  as  the  plaintiffs  alleged,  to  the  defendant, 
jointly  with  one  Cox,  who  was  then  his  partner,  but,  as  the  defend- 
ant contended,  to  Cox  only.  The  defendant  pleaded  the  general  issue 
and  the  statute  of  limitations.  At  the  trial  at  Guildhall,  before  Mans- 
field, C.  J.,  the  plaintiffs  produced  in  evidence  a  letter  from  Cox, 
dated  the  2-1  ih  of  June,  1804,  stating  a  balance  of  £919  to  be  then  due 
to  the  bankrupts  upon  this  consignment. 

It  was  in  proof  that  on  the  30th  of  July,  1802,  Braddick  and  Cox 
dissolved  their  partnership,  as  from  the  17th  of  November,  1800. 

Cockctl  and  Lens  objected  that  this  letter,  being  written  after  the 
dissolution  of  the  partnership,  was  not  admissible  evidence  to  charge 
Braddick.  The  Chief  Justice  overruled  the  objection,  but  reserved  the 
point ;  and  the  jury,  being  of  opinion  that  the  agency  was  undertaken 
by  Cox  on  the  partnership  account,  found  a  verdict  for  the  plaintiff. 

Cockell  now  moved  for  a  new  trial. 

Mansfiki.d,  C.  J.  Clearly  the  admission  of  one  partner,  made  aft- 
er the  partnership  has  ceased,  is  not  evidence  to  charge  the  other,  in 
any  transaction  which  has  occurred  since  their  separation ;  but  the 
power  of  partners  with  respect  to  rights  created  pending  the  partner- 


412  THE   POWERS   OF   PARTNERS.  (Ch.  5 

ship  remains  after  the  dissolution.  Since  it  is  clear  that  one  partner 
can  bind  the  other  during  all  the  partnership,  upon  what  principle  is 
it  that  from  the  moment  when  it  is  dissolved  his  account  of  their  joint 
contracts  should  cease  to  be  evidence,  and  that  those  who  are  to-day  as 
one  person  in  interest,  should  to-morrow  become  entirely  distinct  in  in- 
terest with  regard  to  past  transactions  which  occurred  while  they  were 
united  ? 

Heath,  J.  Is  it  not  a  very  clear  proposition  that,  when  a  partner- 
ship is  dissolved,  it  is  not  dissolved  with  regard  to  things  past,  but 
only  with  regard  to  things  future?  With  regard  to  tilings  past,  the 
partnership  continues,  and  always  must  continue. 

Cockell  took  nothing  by  his  motion. 


MILLER  V.  NEIMERICK  et  al.' 

(Supreme  Court  of  Illinois,  1857.     19  111.  172.) 

Skinner,  J.  Miller  sued  Neimerick  and  Eckert,  as  late  partners, 
upon  a  book  account.  On  the  trial  Miller  offered  in  evidence  a  writ- 
ten statement,  made  by  Neimerick  after  the  dissolution  of  the  part- 
nership, admitting  a  balance  due  from  the  firm  of  Neimerick  &  Eck- 
ert to  Miller.  The  court  rejected  the  evidence,  and  judgment  was 
rendered  for  the  defendants. 

The  question  is  broadly  presented  whether  admission  of  one  part- 
ner, made  after  the  dissolution  of  the  partnership,  relating  to  partner- 
ship transactions  arising  prior  to  the  dissolution,  are  admissible  to 
charge  the  several  members  of  the  dissolved  firm.  In  the  case  of 
Wood  v.  Braddick,  1  Taunt.  104,  such  admissions  were  held  compe- 
tent to  charge  all  the  members  of  the  firm,  and  that  ruling  seems  to 
have  been  followed  in  England  until  finally  avoided  by  act  of  Parlia- 
ment. The  same  rule  has  been  recognized  in  several  states  of  this 
Union,  but  in  many  of  them  the  opposite  doctrine  prevails. 

In  view  of  the  conflict  of  authority  upon  the  question,  we  are  at 
liberty  to  adopt  such  rule  as  is  most  consonant  with  the  reason  and 
analogies  of  the  law  and  best  adapted  to  the  security  of  private  rights. 
It  is  true  that,  during  the  existence  of  the  partnership,  each  partner 
may  act  for  the  whole,  upon  the  ground  that  all  have  delegated  to  each 
authority  to  act. for  them  in  matters  of  joint  concern;  but  this  plenary 
power  of  the  several  members  of  the  partnership  continues  no  longer 
than  the  partnership  out  of  which  it  arises.  Therefore,  when  the  part- 
nership has  terminated,  the  several  partners  lose  their  authority  to  act 
for  the  whole,  and  can  no  longer  bind  them  by  any  undertaking  in  the 
partnership  name;  and  their  powers  become  limited  to  the  adjust- 
ment of  the  partnership  affairs  and  the  winding  up  of  the  partnership. 
For  such  purposes  each  may  receive  and  release  debts  due  the  part- 
nership, and  apply  the  assets  to  the  liquidation  of  the  firm  debts,  the 


Sec.  6)  POWERS   OF   PARTNEK8  AFTER   DISSOLUTION.  413 

pre-existing  rights  of  their  persons  remaining  unaffected  by  the  dis- 
solution; but  the  power  to  bind  the  several  members  of  the  dissolved 
firm,  by  the  creation  of  new  liabilities  and  obligations,  falls  with  the 
partnership. 

The  admission  of  one  partner  of  a  debt  of  the  partnership,  made- 
when  the  partnership  has  no  existence,  if  sufficient  to  establish  the  lia- 
bility of  all  the  partners,  involves  the  power  to  bind  all  by  the  creation 
of  a  partnership  liability;  for  it  is  indifferent  to  the  other  partners 
whether  their  liability  be  established  by  the  admission,  or  the  under- 
taking, written  or  verbal,  of  one  of  their  number. 

The  effect  in  either  case  is  the  same.  A  joint  liability  is  prima  facie 
establisiied  and  imposed,  which  may  be  satisfied,  not  only  out  of  the 
partnership  property,  but  out  of  the  separate  estates  of  the  former 
partners. 

If  the  several  members  of  a  dissolved  firm  can,  by  admission  or 
stipulation,  charge  their  former  partners,  not  only  may  the  partnership 
assets  be  swallowed  up,  but  the  individual  members  of  the  late  firm 
may  be  made  bankrupt,  by  admissions  made  after  the  partnership  has 
ceased  to  exist,  by  one  no  longer  their  agent,  without  the  sanctions 
of  an  oath,  or  any  of  the  ordinary  guarantees  of  truth,  and  who  may 
be  without  pecuniary  ability  to  respond  in  damages,  is  influenced  by 
ill  will  or  private  gain,  and  has  in  fact  no  real  concern  as  to  conse- 
quences of  mere  legal  liability. 

We  hold  the  written  statement  or  admission  incompetent  to  charge 
Eckert. 

Judgment  affirmed. 


MAYBERRY   et   al.   v.   WILLOUGHBY. 
(Supreme  Ck)urt  of  Nebraska,  1S77.    5  Neb.  368,  25  Am.  Rep.  491.) 

Gantt,  J.  In  the  court  below,  service  of  summons  was  had  on 
C.  N.  Mayberry  only.  He  pleaded  the  statute  of  limitations,  and  he 
now  brings  the  case  into  this  court  as  plaintiff  in  error. 

It  appears,  from  the  facts  admitted,  that  the  plaintiff  in  error  and 
J.  C.  Mayberry  were  formerly  partners,  doing  business  in  the  state 
of  Illinois,  under  the  firm  name  of  J.  C.  &  C.  N.  Mayberry;  that  on 
the  14th  day  of  January,  1864,  the  note  on  which  this  action  was 
brought  was  executed  by  the  firm  and  delivered  to  the  defendant  in 
error;  that  on  the  29th  day  of  March,  1864,  the  partnership  was 
wholly  dissolved,  and  that  on  or  about  the  loth  day  of  July,  18GS,  the 
defendant  in  error  had  notice  of  the  dissolution  of  the  partnership; 
that  in  I\Iarch,  1869,  the  plaintiff  In  error  moved  to  the  state  of  Nebras- 
ka, and  has  ever  since  resided  there.  J.  C.  Mayberr}'  made  partial 
payments  on  the  note,  on  the  16th  day  of  November,  1864,  on  the  1st 
day  of  June,  1S68,  on  the  25th  day  of  July.  1870,  and  on  the  29th  day 
oi  November.  1871 ;   and  of  these  payments  the  plaintiff  in  error  had 


114  THE   POWERS   OF  PARTNERS.  (Ch.  5 

no  knowledge  whatever,  until  after  the  commencement  of  the  suit, 
on  the  ISth  day  of  April,  1876. 

The  only  question  raised  in  the  case  is:  Do^these  payments,  made 
by  J.  C.  Mayberry,  take  the  debt  out  of  the  statute  of  limitations  as  to 
the  plaintiit  in  error? 

It  is  said  that  the  statute  is  a  wise  and  beneficial  law,  and  should  not 
be  viewed  in  an  unfavorable  light;  and  it  is  now  generally  conceded 
that  it  is  not  to  be  construed  as  merely  raising  a  presumption  of  pay- 
ment, but  that  in  its  operation  it  is  intended  to  be  emphatically  a  statute 
of  repose. 

Therefore,  in  order  to  take  a  debt  out  of  it,  there  must  be  an  un- 
qualified acknowledgment,  not  only  of  the  debt  as  originally  due,  but 
that  it  continues  so,  or,  if  the  promise  to  pay  is  conditional,  the  condi- 
tion must  be  performed  before  an  action  can  be  maintained  on  the 
promise,  and  the  acknowledgment  or  promise  must  be  made  by  the  per- 
son to  be  charged,  or  by  some  person  legally  authorized  by  him  to 
do  so. 

Again,  as  the  law  strictly  afifects  the  remedy,  and  not  the  merits, 
it  seems  well  settled  that  upon  the  plea  of  the  statute  the  lex  fori  mus^ 
prevail.  McElmoyle  v.  Cohen,  13  Pet.  (U.  S.)  327,  10  L.  Ed.  177; 
Townsend  v.  Jemison,  9  How.  (U.  S.)  413,  13  L.  Ed.  194;  Bell  v. 
Morrison,  1  Pet.  (U.  S.)  351,  7  L.  Ed.  174. 

Hence  the  law  must  be  regarded  as  designed  to  protect  persons 
from  ancient  claims,  whether  well  or  ill  founded,  and  its  tendency  is 
to  produce  speedy  settlements,  and  if  such  settlements  are  not  made 
within  the  time  limited  by  the  law  its  effects  are  such  as  to  extinguish 
the  legal  liability  upon  the  debt,  unless  it  be  revived  by  a  new  promise ; 
and  therefore,  if  the  creditor  by  his  own  fault  and  laches  permits  the 
statute  to  attach,  whatever  may  be  the  nature  or  character  of  his 
claim,  he  cannot  complain  of  the  operation  of  the  law,  since  it  is  by 
his  own  negligence  that  it  can  be  brought  to  bear  against  him. 

But,  as  J.  C.  and  C.  N.  Mayberry  were  partners  at  the  time  the 
debt  was  contracted,  it  is  contended  that,  notwithstanding  the  dissolu- 
tion of  the  partnership  with  notice  thereof  to  the  creditor,  and  not- 
withstanding the  time  limited  by  the  statute  within  which  actions  can 
be  commenced  after  the  cause  of  action  shall  have  accrued,  had  long 
expired,  as  to  the  plaintiff,  yet  the  payments  made  by  J.  C.  Mayberry, 
as  above  stated,  and  without  the  knowledge  or  assent  of  the  plaintiff 
in  error,  constitute  an  admission  by  both,  and  in  law  raise  a  promise 
by  both  to  pay  the  claim;  and  this  proposition  is  urged  upon  the 
ground  that,  as  J.  C.  Mayberry  had  authority  to  discharge  the  debt 
or  make  payments  thereon,  he  necessarily  had  authority,  upon  the 
theory  that  a  virtual  agency  existed  'in  each  co-contractor,  by  his  in- 
dividual promise  to  charge  the  other  with  the  payment  of  the  debt. 
This  is  tru«i  as  to  partners,  for  it  is  a  familiar  and  well-established 
doctrine  that  during  the  existence  of  the  partnership  the  act  of  one 
partner  within  the  legitimate  scope  of  the  partnership  business,  will 


Sec.  G)  POWERS    OF   PARTNERS   AFTER    DISSOLUTION.  415 

bind  the  other  partners;  and  this  doctrine,  no  doubt,  had  its  origin 
in  the  fact  that  in  a  partnership,  constituted  by  vohintary  contract,  with 
the  understanding  that  there  shall  be  a  communion  of  profits  between 
them,  there  must  necessarily  be  in  each  partner  a  community  of  in- 
terest with  the  others  in  the  whole  property,  business,  and  responsi- 
bilities of  the  concern,  and  therefore  each  partner  is  "propositus  ne- 
gotiis  societatis,"  and  in  the  diverse  and  multiplied  transactions  of  the 
business,  each  must,  virtute  officii,  become  the  agent  of  the  others, 
when  acting  within  the  scope  and  objects  of  the  partnership.  But, 
upon  the  dissolution  of  the  partnership,  this  agency,  as  well  as  the 
relation  of  partners,  ceases  to  exist,  and  the  authority  to  create  new 
contracts  is  revoked,  and  the  rights  of  the  partners  thereafter  can 
only  extend  to  the  settlement  of  the  partnership  concerns  and  the 
disbursement  of  the  remaining  funds.  It  is  said  that,  "after  dissolu- 
tion, no  valid  draft,  acceptance,  or  indorsation  can  be  made  by  the 
firm ;  and  it  is  no  authority  to  do  so,  if  any  partner  is  in  the  notice 
empowered  to  receive  and  pay  the  debts  of  the  comjjany.  The  indorsa- 
tion, draft,  or  acceptance  must  be  done  by  all  of  the  partners,  or  by 
one  specially  empowered  to  do  the  act  for  them."  2  Bell's  Com.  644 ; 
Story  on  Part.  §  332;  1  Smith,  Lead.  Cases,  730.  No  new  contract 
can  be  created,  in  the  name  of  the  firm,  and  no  one  of  the  partners  can 
create  such  contract  so  as  to  charge  the  others,  unless  they  specially 
authorize  him  to  do  so  for  them. 

Now,  the  doctrine  seems  well  settled  by  authority  that  an  acknowl- 
edgment is  to  be  considered,  not  as  a  continuation  of  the  old  promise, 
but  as  the  evidence  of  a  new  promise;  and  therefore  it  is  alone  this 
new  promise  which  takes  the  debt  out  of  the  statute.  This  new  prom- 
ise is  a  new  contract,  nothing  more,  nothing  less;  ^^nd  it  is  a  contract 
to  pay  a  pre-existing  debt,  which  of  itself  does  not  bind  the  party, 
because  by  force  of  the  law  it  was  extinguished.  Hence,  is  not  the 
acknowledgment,  in  essence  and  in  law,  the  creation  of  a  new  con- 
tract, which  gives  the  creditor  a  new  cause  of  action,  and  not  simply 
the  enforcement  of  the  old  one?  It  therefore  seems  clear,  both  upon 
principle  and  authority,  that,  after  the  relation  of  partners  has  ceased 
to  exist,  one  of  the  partners  cannot,  upon  the  ground  of  mutual  agency, 
bind  the  others  by  such  contract.  The  relation  of  the  partners  to  their 
creditors,  then,  becomes  that  of  joint  debtors.  Bell  v.  Morrison, 
supra;  Hackley  v.  Patrick,  3  Johns.  (N.  Y.)  537;  Green  v.  Crane, 
2  Lord  Raym.  1101;  Thompson  v.  Pet^s.  12  Wheat.  (U.  S.)  oGo, 
6  L.  Ed.  730;  Tompkins  v.  Brown,  1  Denio  (N.  Y.)  247;  Dean  v. 
Hewit,  5  Wend.  (N.  Y.)  257;  Dunham  v.  Dodge,  10  Barb.  (N.  Y.) 
5G9. 

It  is,  however,  urged  that  the  acknowledgment  relied  on  in  the 
case  at  bar  consists  of  partial  payments  made  on  the  original  debt  of 
J.  C.  Mayberry,  and,  as  some  of  these  payments  w'cre  made  before  the 
time  limited  by  the  statute  had  expired,  the  statute  of  limitations  did 
not  attach  as  to  the  plaintiff  in  error;    but  it  is  said  "that  although 


416  THE   POWERS  OF  PARTNERS.  (Ch,  5 

a  part  payment  of  a  debt  admits  its  existence  as  a  subsisting  obliga- 
tion, and  will,  therefore,  be  sufficient  to  take  it  out  of  the  statute,  yet 
that  it  has  no  greater  effect  than  any  other  unqualified  acknowledg- 
ment, and  must  consequently  be  connected  by  sufficient  evidence,  both 
with  the  parties  to  the  suit  and  the  claim  sought  to  be  enforced."  1 
Smith's  Lead.  Cases,  726.  Such  payments  necessarily  prove  only  the 
existence  of  the  debt  to  the  amount  paid;  but  from  the  fact  of  such 
payment  a  promise  is  inferred  to  pay  the  residue.  Dunham  v.  Dodge, 
supra.  And,  again,  it  is  said:  "The  true  rule  unquestionably  is  that 
whether  the  admission  precedes  or  follows  the  bar  makes  no  differ- 
ence, and  that,  while  proof  of  the  continued  existence  of  the  debt  and 
of  the  willingness  of  the  debtor  to  pay  is  requisite  in  all  cases,  noth- 
ing more  will  be  requisite  in  any."  1  Smith's  Lead.  Cases,  714 ;  Ayers 
V.  Richards,  12  111.  146;   Fryeburg  v.  Osgood,  21  Me.  176. 

And  now  the  question  is,  can  one. joint  debtor,  by  an  assumed  au- 
thority as  the  virtual  agent  of  the  other,  legally  charge  him  with  the 
payment  of  the  debt,  when  otherwise  he  would  be  discharged,  and 
the  debt  be  extinguished  as  to  him,  by  operation  of  the  statute? 

The  doctrine  that  a  promise  or  acknowledgment  by  one  joint  debtor 
takes  the  debt  out  of  the  statute,  and  binds  his  co-contractor,  upon  the 
ground  that  he  who  makes  the  promise  virtually  acts  as  the  agent 
of  the  other,  seems  to  have  originated  in  an  unreasoned  decision  of 
Lord  Mansfield  in  the  case  of  Whitcomb  v.  Whiting,  Doug.  651. 
But  that  case  is  contrary  to  the  previous  case  of  Bland  v.  Haselrig, 
2  Vent.  151,  and  it  must  be  regarded  as  the  cause  of  all  the  confusion 
which  exists  in  the  decisions,  both  in  England  and  America,  on  the 
subject  of  the  statute,  in  respect  to  joint  debtors. 

In  England,  however,  the  doctrine  enunciated  in  Whitcomb  v.  Whit- 
ing has  been  somewhat  restricted,  which  has  remedied  some  of  the 
mischief  inherent  in  it.  1  B.  &  Aid.  467.  And  its  force  has  been  much 
weakened  in  the  case  of  Atkins  v.  Tredgold,  2  Barn.  &  C.  23,  in  which 
Holroyd,  J.,  seems  to  doubt  Whitcomb  v.  Whiting  as  law. 

Story,  in  his  work  on  Partnership  (.section  324),  says  that:  "In 
America  no  small  diversity  of  judicial  decision  has  been  expressed 
on  this  subject.  In  some  of  the  states,  the  English  doctrine  has  been 
approved;  in  others  it  has  been  silently  acquiesced  in,  or  left  doubt- 
ful ;  and  in  a  considerable  number  it  has  been  expressly  overruled." 
In  the  Supreme  Court  of  the  United  States  it  has  been  overruled,  as 
unfounded"  in  principle.  BtW  v.  Morrison,  supra;  Van  Keuren  v. 
Parmelee,  2  N.  Y.  525,  51  Am.  Dec.  322;  Dunham  v.  Dodge,  ^10 
Barb.  (N.  Y.)  570;   Forney  v.  Benedict,  5  Barr  (Pa.)  227.     *     *     * 

It  seems  the  doctrine  that  one  joint  debtor  can  take  a  debt  out  of 
the  statute  as  to  all  is  based  exclusively  on  the  theory  that  there  is 
a  virtual  agency  in  each  co-contractor,  in  such  case,  by  which  the 
promise  of  one  binds  the  rest.  But  upon  what  principle  can  this  doc- 
trine of  mutual  agency  be  maintained?  It  cannot  be  founded  on  a 
communion  of  profits  or  a  'community  of  interests,  as  in  the  case  of 


Sec.  G)  powEus  OF  partners  after  dissolution.  417 

.partnership,  for  the  reason  that  in  fact  no  such  interests  exist  be- 
tween the  persons  who  are  merely  joint  debtors;  and  it  cannot  be 
grounded  merely  upon  a  new  promise  by  only  one  of  the  parties,  for 
the  reason  that  in  fact  and  in  law,  as  seems  now  to  be  well  settled, 
such  promise  is  a  new  contract,  which  is  necessarily  different  from 
the  original  contract  in  respect  to  form,  time,  and  substance,  and  is 
the  creation  of  a  new  cause  of  action ;  and  the  proposition  will  not 
be  questioned  that  one  joint  debtor  can,  by  such  new  contract,  bind 
his  co-contractors.  It  is,  therefore,  certainly  difficult  to  discover  any 
just  grounds  upon  which  the  doctrine  of  mutual  agency  in  joint  debtors 
can  be  founded;  hence  must  it  not  rest  alone  upon  a  mere  assump- 
tion, which  is  untrue  in  fact,  and  unsupported  by  any  reasonable  and 
just  interpretation  of  law? 

It  is  not  only  contrary  to  the  earlier  cases  in  England,  but  we  think 
it  is  opposed  to  the  object  and  spirit  of  our  statute,  which,  it  seems 
clear,  was  intended  to  protect  the  individual  against  claims  after  the 
time  limited  by  the  law  for  the  commencement  of  the  action  has  ex- 
pired. The  statute  is  one  of  repose;  and,  when  the  time  limited  by 
it  has  expired,  then  in  legal  contemplation  the  debt  is  extinguished, 
and  it  can  only  be  revived  by  a  new  promise  by  the  person  sought  to 
be  charged,  or  by  some  person  lawfully  authorized  by  him  for  that 
purpose.     ♦     *     * 

We  are,  therefore,  of  opinion  that  the  plea  of  the  statute  of  limita- 
tions, interposed  by  the  plaintiff  in  error,  constituted  a  good  defense 
in  this  action,  under  the  evidence  in  the  case,  and  that  the  judgment 
of  the  court  below  must  be  reversed,  and  the  cause  remanded. 

Judgment  reversed. 
Gil.  Part.— 27 


418  BIGHTS  AND  DUTIES  OP  PARTNERS  INTER  gftt.  (Ch,  6 

CHAPTER  VI. 
RIGHTS  AND  DUTIES  OF  PARTNERS  INTER  SE. 


SECTION  1.— DUTY  TO  OBSERVE  GOOD  FAITH. 


BURTON  V.   WOOKEY. 

(In  Chancery,  before  Sir  John  Leach,  V.  C,  1822.    6  Madd.  367.) 

The  plaintiff  and  defendant  entered  into  partnership  together  to 
deal  in  lapis  calaminans.  The  defendant,  who  was,  a  shopkeeper,  was 
to  take  the  active  part  in  the  concern,  and  to  purchase  the  lapis  cal- 
aminaris  from  the  miners,  in  whose  neighborhood  he  lived.  Many 
of  the  mmers  were,, before  the  partnership,  in  the  habit  of  dealing  at 
his  shop,  and  continued  ^o  for  some  years  after  the  partnership,  re- 
ceiving from  the  defendant  ready  money  for  the  lapis  calaminaris, 
and  paying  for  their  shop  goods  afterwards  as  they  would  have  done 
to  any  shopkeeper;  but  in  the  year  1817  or  1818,  owing,  as  the  de- 
fendant alleged,  to  the  distress  of  the  times,  a  new  course  of  dealing 
took  place  between  the  defendant  and  the  miners.  In  the  place  of 
paying  them  for  the  lapis  calaminaris  with  money,  he  paid  them  with 
shop  goods,  and  in  his  account  with  the  plaintiff  he  charged  him  as 
for  cash  paid  to  the  amount  of  the  price  of  the  goods. 

The  question  was  whether  he  could  justify  this  charge,  or  whether 
he  must  divide  the  profit  made  by  him  on  the  sale  of  the  goods  with  the 
plaintiff. 

The  Vice  ChanceIvLOR.  It  is  a  maxim  of  courts  of  equity  that  a 
person  who  stands  in  a  relation  of  trust  or  confidence  to  another  shall 
not  be  permitted,  in  pursuit  of  his  private  advantage,  to  place  him- 
self in  a  situation  which  gives  him  a  bias  against  the  due  discharge  of 
that  trust  or  confidence.  The  defendant  here  stood  in  a  relation  of 
trust  or  confidence  towards  the  plaintiff,  which  made  it  his  duty  to 
purchase  the  lapis  calaminaris  at  the  lowest  possible  price.  When,  in 
the  place  of  purchasing  the  lapis  calaminaris,  he  obtained  it  by  barter 
for  his  own  shop  goods,  he  had  a  bias  against  a  fair  discharge  of  his 
duty  to  the  plaintiff.  The  more  goods  he  gave  in  barter  for  the  ar- 
ticle purchased,  the  greater  was  the  profit  which  he  derived  from  the 
dealing  in  store  goods,  and  as  this  profit  belonged  to  him  individually, 
and  as  the  saving  by  a  low  price  of  the  article  purchased  was  to  be 
equally  divided  between  him  and  the  plaintiff,  he  had  plainly  a  bias 
against   the   due   discharge   of   his   trust   or   confidence   towards   the 


Sec.  1)  DUTY    TO    OBSERVE    GOOD    FAITH.  419 

plainlifT.  I  must  therefore  decree  an  account  of  the  profit  made  by 
the  defendant  in  his  barter  of  goods,  and  must  declare  that  the  plain- 
tiff is  entitled  to  an  equal  division  of  that  profit  with  the  plaintiff. 


MITCHELL    V.    REED. 

(Commission  of  Appeals  of  New  York,  1S7(;.    Gl  N.  Y.  123.  10  Am.  Rep.  2.'.2.) 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme  Court 
in  the  First  Judicial  Department,  affirming  a  judgment  in  favor  of 
defendant,  entered  upon  decision  of  the  court  at  Special  Term. 

This  action  was  brought  to  have  certain  leases,  obtained  by  the  de- 
fcnc^ant  during  the  existence  of  a  copartnership  between  him  and 
plaintiff,  for  terms  to  commence  at  its  termination,  of  premises  leased 
and  occupied  by  the  firm,  declared  to  have  been  taken  for  the  partner- 
ship, and  to  have  it  adjudged-that  the  defendant  held  them  as  trustee 
for  the  partnership.     *     *     * 

The  court  found,  as  conclusions  of  law,  that  the  defendant.  Reed, 
was  the  sole  owner  of  the  leases  executed  to  him  as  aforesaid,  and 
that  the  plaintiff  had  no  right,  title,  or  interest  in  or  to  them,  or  either 
of  them,  and  that  the  defendant  have  judgment  accordingly,  to  which 
plaintiff  duly  excepted.     Judgment  was  rendered  accordingly. 

Earl,  C.  The  relation  of  partners  with  each  other  is  one  of  trust 
and  confidence.  Each  is  the  general  agent  of  the  firm,  and  is  bound  to 
act  in  entire  good  faith  to  the  other.  The  functions,  rights,  and  duties 
of  partners  in  a  great  measure  comprehend  those  both  of  trustees  and 
agents,  and  the  general  rules  of  law  applicable  to  such  characters  are 
applicable  to  them.  Neither  partner  can,  in  the  business  and  affairs 
of  the  firm,  clandestinely  stipulate  for  a  private  advantage  to  himself. 
He  can  neither  sell  to  nor  buy  from  the  firm  at  a  concealed  profit  to 
himself.  Every  advantage  which  he  can  obtain  in  the  business  of  the 
firm  must  inure  to  the  benefit  of  the  firm.  These  principles  are  ele- 
mentary, and  are  not  contested.  Story,  §§  174,  175;  Collyer,  §§  181, 
182.  It  has  been  frequently  held  that  when  one  partner  obtains  the  re- 
newal of  a  partnership  lease  secretly,  in  his  own  name,  he  will  be  held 
a  trustee  for  the  firm  as  to  the  renewed  lease.  It  is  conceded  that 
this  is  the  rule  where  the  partnership  is  for  a  limited  term,  and  either 
partner  takes  a  lease  commencing  within  the  term;  but  the  contention 
is  that  the  rule  does  not  apply  where  the  lease  thus  taken  is  for  a  term 
to  commence  after  the  expiration  of  the  partnership  by  its  own  limita- 
tion, and  whether  this  contention  is  well  founded  is  one  of  the  grave 
questions  to  be  determined  upon  this  appeal. 

It  is  not  necessary,  in  maintaining  the  right  of  the  plaintiff  in  this 
case,  to  hold  that  in  all  cases  a  lease  thus  taken  shall  inure  to  the 
benefit  of  the  firm,  but  whether,  upon  the  facts  of  this  case,  these 
leases  ought  to  inure  to  the  benefit  of  this  firm.     I  will  briefly  allude 


420  RIGHTS  AND   DUTIES  OF   PARTNERS   INTER   SE.  (Cll.  6 

to  some  of  the  prominent  features  of  this  case.     These  parties  had 
been  partners  for  some  years.     They  were  equal  in  dignity,  although 
their  interests  differed.     The  plaintiff  was  not  a  mere  subordinate  in 
the  firm,  but,  so  far  as  appears,  just  as  important  and  efficient  in  its 
affairs  as  the  defendant.    They  procured  the  exclusive  control  of  the 
leases  of  the  property,  to  terminate  May  1,  1871,  and  their  partnership 
was  to  terminate  on  the  same  day.     They  expended  many  thousand 
dollars  in  fitting  up  the  premises,  a  portion  thereof  after  the  new 
leases  were  obtained,  and  they  expended  a  very  large  sum  in  furnish- 
ing them.    By  their  joint  skill  and  influence  they  built  up  a  very  large 
and  profitable  business,  which  largely  enhanced  the  rental  value  of  the 
premises.     More  than  two  years  before  the  expiration  of  their  leases 
and  of  their  partnership  the  defendant  secretly  procured,  at  an  in- 
creased rent,  in  his  own  name,  the  new  leases,  which  are  of  great 
value.     Although  the  plaintiff  was  in  daily  intercourse  with  the  de- 
fendant, he  knew  nothing  of  these  leases  for  about  a  year  after  they 
had  been  obtained.    There  is  no  proof  that  the  lessors  would  not  have 
leased  to  the  firm  as  readily  as  to  the  defendant  alone.    The  permanent 
fixtures,  by  the  terms  of  the  leases,  at  their  expiration  belonged  to  the 
lessors.    But  the  movable  fixtures  and  the  furniture  were  worth  vastly 
more  to  be  kept  and  used  in  the  hotel  than  to  be  removed  elsewhere. 
Upon  these  facts  I  can  entertain  no  doubt,  both  upon  principle  and 
authority,  that  these  leases  should  be  held  to  inure  to  the  benefit  of 
the  firm.     If  the  defendant  can  hold  these  leases,  he  could  have  held  - 
them  if  he  had  secretly  obtained  them  immediately  after  the  partner- 
ship commenced,  and  had  concealed  the  fact  from  the  plaintiff  dur- 
ing the  whole  term.     There  would  thus  have  been,  during  the  whole 
term,  in  making  permanent  improvements  and  in  furnishing  the  hotel, 
a  conflict  between  his  duty  to  the  firm  and  his  self-interest.     Large 
investments  and  extensive  furnishings  would  add  to  the  value  of  his 
lease,  and  defendant  would  be  under  constant  temptation  to  make 
them.     While  he  might  not  yield  to  the  temptation,  and  while  proof 
might  show  that  he  had  not  yielded,  the  law  will  not  allow  a  trustee 
thus  situated  to  be  thus  tempted,  and  therefore  disables  him   from 
making  a  contract  for  his  own  benefit.    Terwilliger  v.  Brown,  44  N.  Y. 
237,  and  cases  cited.     It  matters  not  that  the  court  at  Special  Term 
found  upon  the  evidence  that  the  improvements  were  judicious  and 
prudent  for  the  purposes  of  the  old  term.     The  plaintiff  was  entitled 
to  the  unbiased  judgment  of  the  defendant  as  to  such  improvements, 
uninfluenced  by  his  private  and  separate  interest.     But,  further,  the 
parties  owned  together  a  large  amount  of  hotel  property  in  the  form 
of  furniture  and  supplies,  considerably  exceeding,  as  I  infer,  $100,000 
in  value.    Assuming  that  the  partnership  was  not  to  be  continued  after 
the  1st  day  of  May,  1871,  this  property  was  to  be  sold,  or  in  some 
way  disposed  of  for  the  benefit  of  the  firm,  and  each  partner  owed  a 
duty  to  the  firm  to  dispose  of  it  to  the  best  advantage.    Neither  could, 
without  the  violation  of  his  duty  to  the  firm,  place  the  property  in  such 


Sec.  1)  DUTT  fro  observe  good  faith.  421 

a  situation  that  it  would  be  sacrificed,  or  that  he  could  purchase  it  for 
his  separate  benefit,  at  a  great  profit.  Much  of  this  property,  such 
as  mirrors,  carpets,  etc.,  was  fitted  for  use  in  this  hotel,  and  it  is  quite 
manifest  that  all  of  it  would  sell  better  with  a  lease  of  the  hotel  than 
it  would  to  be  removed  therefrom.  It  is  clear  that  one  or  both  of  these 
parties,  could  obtain  advantageous  leases  of  the  hotel  for  a  term  of 
years,  and  hence,  if  the  parties  had  determined  to  dissolve  their  part- 
nership, it  would  have  been  a  measure  of  ordinary  prudence  to  have 
obtained  the  leases  and  transferred  property  with  the  leases  as  the 
only  mode  of  realizing  its  value.  This  was  defeated  by  the  act  of  the 
defendant,  if  he  is  allowed  to  hold  these  leases,  and  thus  place  him- 
self in  a  position  where  the  property  must  be  largely  sacrificed  or 
purchased  by  himself  at  a  great  advantage.  This  the  law  will  not 
tolerate.  The  language  of  Lord  Eldon,  in  Featherstonhaugh  v.  Fen- 
wick,  17  Ves.  311,  a  case  in  many  respects  resembling  this,  is  quite  in 
point.  He  says:  "If  they  [the  defendants]  can  hold  this  lease,  and 
the  partnership  stock  is  not  brought  to  sale,  they  are  by  no  means  on 
equal  terms.  The  stock  cannot  be  of  equal  value  to  the  plaintiff,  who 
was  to  carry  it  away  and  seek  some  place  in  which  to  put  it,  as  to  the 
defendants,  who  were  to  continue  it  in  the  place  where  the  trade  was 
already  established;  and  if  the  stock  was  sold  the  same  construction 
would  give  them  an  advantage  over  the  bidders.  In  effect  they  would 
have  secured  the  good  will  of  the  trade  to  themselves  in  exclusion  of 
their  partner."  For  these  reasons,  independently  of  the  consideration 
that  the  leases  themselves  had  a  value  to  which  the  firm  was  entitled, 
upon  other  grounds  and  upon  authorities,  to  be  hereafter  cited,  the 
plaintiflF.  who  commenced  his  suit  about  one  year  before  the  term  of 
the  partnership  expired,  was,  upon  undisputed  principles  and  au- 
thorities applicable  to  all  trustees  and  persons  holding  a  fiduciary  re- 
lation to  others,  entitled  to  the  relief  he  prayed  for.    *    *    * 

I  am  therefore  of  opinion  that  the  judgment  should  be  reversed, 
and  new  trial  granted;    costs  to  abide  the  event. 


JENNINGS  et  al.  v.  RICKARD. 

(Supreme  Court  of  Colorado,  1887.     10  Colo.  395,  15  Pac.  677.) 

Elbert,  J.  Charles  Rickard,  the  plaintiff  below,  on  the  18th  of 
December,  1882,  filed  his  bill  of  complaint  against  the  defendants,  John 
and  Daniel  Jennings,  claiming  a  decree  against  them  for  $20,200,  on 
account  of  certain  partnership  transactions.  He  alleges  that  in  the 
fall  of  1874  he  and  the  defendants  entered  into  a  mining  copartner- 
ship for  the  purpose  of  collecting  mineral  specimens,  and  also  for  thr 
purpose  of  discovering,  locating,  and  developing  Irtdes  and  mining 
properties;  that  by  the  terms  of  such  copartnership  agreement  Rickard 
was  to  furnish  certain  moneys,  horses,  wagons,  etc. ;  that  the  drxend- 


422  RIGHTS   AND    DUTIES   OF   PARTNERS   INTER   SB.  (Ch.  G 

ants  were  to  do  the  active  work  in  the  field  in  prospecting  and  locating 
mining  claims,  and  that  each  were  to  have  a  one-third  interest  in  all 
mining  claims  discovered  and  located  by  the  defendants;  that  this 
copartnership  continued  until  April,  1878;  that  during  this  time  the 
defendants  discovered  and  located  the  i\Iammoth,  the  Empire,  and  the 
Trail  lodes,  and  a  certain  claim  to  coal  lands,  and  reported  the  same 
to  plaintiff  as  properties  belonging  to  the  copartnership;  that  they 
reported  the  aforesaid  lodes  as  being  all  that  had  been  discovered, 
located,  and  claimed  by  them  during  the  continuance  of  the  copartner- 
ship agreement.  He  alleges  that  on  the  19th  of  March,  1878,  he  con- 
veyed to  said  defendants,  for  the  sum  of  $100,  all  his  interest  in  and 
to  the  foregoing  copartnership  properties.  Concerning  this  convey- 
ance of  the  19th  of  March,  1878,  he  alleges  a  distinct  and  separate 
fraud  upon  the  part  of  defendants  Jennings,  by  reason  of  which  he  is 
entitled  to  a  decree  against' them  for  $200.  This  fraud  concerns  prop- 
erties admittedly  belonging  to  the  copartnership,  and  will  be  consid- 
ered first. 

Under  the  terms  of  the  copartnership,  the  lodes  were  located  for 
convenience  in  the  names  of  the  defendants,  and  they  were  authorized 
■  to  negotiate  and  sell  them,  accounting  to  plaintiff  for  one-third  of  the 
proceeds.  The  evidence  clearly  shows  that  on  or  about  the  19th  of 
March,  1878,  the  defendants  approached  the  plaintiff  concerning  a 
purchase  of  his  third  interest  in  the  foregoing  copartnership  properties, 
and  that  the  negotiation  resulted  in  the  sale  by  plaintiff  to  defendants 
of  his  third  interest  in  the  same  for  the  sum  of  $400,  which  he  then 
and  there  conveyed  by  deed  of  that  date  to  defendants.  It  also  quite 
clearly  appears  that  at  the  time  of  this  sale  the  defendants  were  ne- 
gotiating a  sale  of  the  copartnership  coal  claim  to  one  Smith,  for  the 
sum  of  $1,800.  Although  this  sale  to  Smith  was  not  consummated 
until  some  time  thereafter,  the  deed  to  Smith,  which  was  placed  in 
escrow,  bears  date  March  19,  1878,  the  date  of  the  conveyance  by  the 
plaintiff  to  defendants  of  his  one-third  interest  in  the  copartnership 
properties.  The"  one-third  interest  of  the  plaintiff  in  the  proceeds  of 
the  sale  of  this  coal  mine  would  have  amounted  to  $600,  $200  more 
than  the  defendants  paid  him  for  his  entire  interest  in  the  four  claims. 
The  partnership  relation  is  a  trust  relation,  and  the  members  of  a 
copartnership  are  held  to  a  strict  rule  of  good  faith  and  fair  and  open 
dealing.  He  who  assumes  the  relation  invites  the  confidence  of  his 
copartners,  and  pledges  fidelity  to  the  interests  of  the  copartnership. 
The  requirements  of  the  copartnership  relation  which  the  defendants 
sustained  to  the  plaintiff  demanded  that,  at  the  time  of  the  negotiation 
for  a  sale  of  his  third  interest  in  the  copartnership  properties,  they 
should  have  made  known  to  him  the  negotiation  which  was  ^  then 
pending  with  Smith  for  the  sale  of  the  coal  claim  for  the  sum  of 
$1,800.  Their  ctoncealment  of  this  negotiation  from  the  plaintiff  was 
the  concealment  of  an  important  fact,  affecting  the  value  of  plaintiff's 
copartnership  interest  for  which  they  were  negotiating.     It  enabled 


Sec.  1)  DUTY    TO    OBSERVE    GOOD    FAITH.  42-3 

them  to  deal  with  him  on  unfair  and  unequal  terms.  It  was  a  fraud, 
and  equity  and  good  conscience  required  that  defendants  should  ac- 
count to  plaintiff  for  one-third  of  the  proceeds  of  that  sale. 

The  sale  by  plaintiff  to  defendants  of  his  one-third  interest  in  the 
copartnership  properties,  to  wit,  the  Mammoth,  the  Empire,  and  the 
Trail  lodes,  and  the  coal  claim,  was  a  sale  in  gross  for  $100.  The 
consideration  paid  for  each  property  respectively,  does  not  appear. 
As  the  plaintiff  introduced  no  evidence  upon  this  point,  and  only 
prayed  in  his  bill  of  complaint  that  the  defendants  be  decreed  to  ac- 
count for  the  sum  of  $:300.  the  difference  between  the  entire  considera- 
tion paid  him  for  the  whole  property  and  his  third  interest  in  the  pro- 
ceeds of  the  sale  of  the  coal  claiin,  the  court  was  justified  in  limiting 
its  decree  in  this  behalf  to  that  sum. 

Secondly.  The  plaintiff  alleges  another  and  distinct  fraud  respecting 
certain  mining  properties,  wdiich  he  claimed  belonged  to  the  copartner- 
ship, a  claim  which  the  defendants  contest.  Plaintiff  alleges  that, 
during  the  continuance  of  said  copartnership  agreement,  the  defend- 
ants discovered  and  located  certain  other  mining  claims,  viz.,  the  Cliff, 
the  North  Star,  the  Hiawassee,  the  Galena,  the  East  Wing,  the  Buck- 
eye, and  the  Sylvanite ;  that  under  the  terms  of  their  copartnership 
agreement  he  was  entitled  to  a  one-third  interest  in  the  same,  but  that 
the  defendants  fraudulently  concealed  from  him  the  discovery  and  lo- 
cation of  said  claims,  and  that  he  never  knew  of  the  existence  of  said 
claims,  or  of  his  rights  therein,  until  on  or  about  the  27th  day  of 
September,  1879,  when  the  defendants  sold  and  conveyed  said  claims 
to  one  Ballcntine  for  the  sum  of  $G0,000.  By  reason  of  this  fraud 
upon  the  part  of  defendants,  the  plaintiff  claims  a  decree  for  $20,000, 
one-third  of  the  proceeds  of  said  sale  to  Ballentine. 

The  defendants,  in  their  answer,  deny  the  copartnership,  except  as 
thereinafter  stated,  and  "thereinafter"  they  say  "that  they,  the  defend- 
ants, further  answering,  admit  that  they  entered  into  an  agreement  with 
plaintiff  to  gather  specimens  and  prospect  for  lodes,  substantT;- "ly  as 
set  out  in  the  complaint,  and  that  such  agreement  continued  until  the 
early  part  of  the  year  1878."  They  set  forth  the  sale  and  deed  of  the 
19th  of  March,  1878,  by  plaintiff  to  defendants,  and  say  "that,  upon 
the  completion  of  such  sale  by  plaintiff  to  defendants,  it  was  then 
and  there  agreed  by  and  between  them  that  all  former  associations, 
agreement,  copartnership,  and  business  relations  theretofore  existing 
between  plaintiff  and  these  defendants  should  cease,  and  the  same 
were  then  and  there  fully  dissolved  and  terminated."  In  view  of  the 
testimony,  as  will  be  seen,  thi^  is  an  important  admission.  They  deny 
any  fraudulent  concealment  of  lodes  discovered  and  located  as  alleged 
in  the  complaint,  but  claim  that  the  Mammoth,  the  Empire,  the  Trail 
lodes,  and  the  claim  to  coal  lands,  reported  by  them  to  plaintiff  as 
copartnership  properties,  were  all  the  lodes  discovered  and  located  by 
them  during  the  continuance  of  the  copartnership,  from  the  fall  of 
1874  to  the  spring  of  1878. 


424  RIGHTS   AND   DUTIES   OF   PARTNERS   INTER   SE.  (Ch.  6 

Upon  the  admissions  of  the  defendants  in  their  answer  and  testi- 
mony, the  CUff,  the  Hiawassee,  the  Galena,  and  the  North  Star  must 
be  treated,  without  hesitancy,  as  properties  belonging  to  the  copartner- 
ship. The  defendants,  in  their  answer,  admit  that  the  copartnership 
formed  in  1874  continued  until  the  spring-  of  1878.  The  copartner- 
ship must  be  treated  as  extending  to  all  mining  properties  discovered 
and  located  by  the  defendants  during  that  period,  in  the  absence  of 
any  limitation.  John  Jennings  admits  in  his  testimony  that  the  four 
lodes  named  were  discovered  and  located  in  1876  and  1877.  The 
defendant,  Daniel  Jennings,  while  he  does  not  testify  upon  this  point, 
does  not  in,  any  way  controvert  or  disclaim  it.  It  is  true  that  they 
both  claim  in  their  testimony  that  they  understood  that  the  copartner- 
ship was  dissolved  in  the  spring  of  1876,  when  the  copartnership 
"specimen  store"  was  sold;  but  this  testimony  does  not  support  the 
allegations  of  the  answer,  the  admissions  of  which,  upon  this  point, 
must  be  held  to  control. 

It  appears  from  the  testimony  that  these  four  mines  belonged  to  the 
group  of  ten  which  were  sold  to  BaUentine  for  the  sum  of  $12,000. 
There  is  no  evidence  fixing  the  separate  value  of  the  mines  which 
constitute  this  group.  In  the  absence  of  any  evidence  upon  this  point, 
the  respective  mines  constituting  the  group  must  be  treated  of  equal 
value.  In  so  far,  therefore,  as  the  decree  of  the  court  below  was 
based  upon  the  right  of  the  plaintiff  to  recover  one-third  of  the  pro- 
ceeds arising  from  the  sale  of  the  Cliff,  the  Hiawassee,  the  North 
Star,  and  the  Galena  is  concerned,  we  think  it  is  justified  by  the  plead- 
ings and  the  evidence. 

It  appears  that  three  other  mines  which  plaintiff  claims  belong  to 
the  copartnership,  viz.,  the  Sylvanite,  the  Buckeye,  and  the  East  Wing, 
were  at  the  same  time,  namely,  on  the  27th  of  September,  1879,  con- 
veyed to  BaUentine  by  a  separate  deed,  and  that  the  true  consideration 
therefor  was  $48,000.  This  sum,  together  with  the  $12,000  for  which 
the  other  group  sold,  constitutes  the  $60,000  for  the  one-third  of 
which  plaintiff  claims  a  decree. 

It  remains,  therefore,  to  determine  whether,  upon  the  evidence, 
these  three  mines  belonged  to  the  copartnership.  The  two  Jennings  and 
other  witnesses  testify  positively  to  their  discovery  and  location  in 
1879,  after  the  copartnership  had  been  admittedly  dissolved.  It  ap- 
pears that  the  Sylvanite  was  by  far  the  most  valuable  of  the  three; 
that  the  other  two  were  not  regarded  as  of  much  value.  There  was  an 
effort  upon  the  part  of  the  plaintiff  to  show  that,  while  the  Sylvanite 
was  not  located  until  1879,  it  was  really  discovered  by  the  Jennings 
during  the  existence  of  the  copartnership,  and  its  discovery  fraudu- 
lently concealed  from  the  plaintiff.  Daniel  Jennings  admits  in  his 
testimony  that  some  years  prior  to  1879,  while  prospecting,  he  dis- 
covered some  "float"  upon  the  mountain  side  some  four  or  five  hun- 
dred feet  from  where  the  Sylvanite  was  afterwards  discovered,  and 
that  he  stuck  a  stake  there  to  indicate  the  locality,  with  a  view  of  re- 


Sec.  1)  DUTY    TO    OBSERVE    GOOD    FAITH.  425 

turning  at  some  future  day  to  prospect  for  the  vein  from  which  it 
came,  but  that  he  never  did  return  to  renew  his  search  until  1879. 
Other  witnesses  testify  to  substantially  the  same  admission  on  his 
part.  At  the  worst,  this  was  but  a  neglect  upon  his  part  to  pursue 
a  search  that  might  have  terminated  beneficially  to  the  copartnership. 
His  failure  to  do  so,  however,  does  not  appear  to  have  been  fraudu- 
lent. It  is  not  shown  that  at  the  time  he  stuck  the  stake  where  he 
found  the  "float,"  that  he  discovered  the  vein  from  which  it  came, 
or  that  he  had  any  knowledge  respecting  it  that  would  render  his 
failure  to  make  further  search  for  the  mine  fraudulent.  Such  and 
other  indications  of  the  existence  of  mineral  veins  are  frequent  in  the 
path  of  the  prospector.  All  that  can  be  required  of  him  is  that  he 
pursue  his  search  with  diligence  and  good  faith.  His  failure  to  follow 
up  a  particular  "float,"  or  other  indication  of  a  lode,  is  not  a  fraud  as 
of  course.  It  will  not  do  to  say,  under  the  circumstances  of  this  case, 
that  Jennings,  after  the  dissolution  of  the  copartnership,  could  not 
return  to  and  prospect  in  Elk  Mountain  district  for  other  lodes,  ex- 
cept at  the  peril  of  having  to  yield  to  plaintiff  a  one-third  interest  in 
their  discoveries,  upon  the  proposition  that  by  proper  diligence  they 
might  have  discovered  such  lodes  during  the  existence  of  the  copart- 
nership. The  evidence  does  not  show  the  fraudulent  concealment  of  a 
discovery,  as  in  the  case  of  the  other  group  of  mines. 

In  so  far,  therefore,  as  the  decree  of  the  court  below  was  based 
upon  the  rights  of  the  plaintiff  to  recover  one-third  of  the  proceeds 
arising  from  the  sale  of  these  three  mines,  we  do  not  think  it  justified 
by  the  evidence.    *    *    * 

The  decree  of  the  court  below  is  reversed,  and  the  cause  remanded. 


LATTA  V..KILBOURN. 

(Supreme  Court  of  the  United  States.  TS9:}.    150  U.  S.  .524,  14  Sup.  Ct.  201.  37 

L.  Ed.  11G9.) 

Bill  by  appellees,  Kilbourn  and  Olmstead,  as  members  of  a  dissolved 
partnership,  against  appellant,  Latta,  another  member  thereof,  for  an 
account  of  profits  made  by  the  latter  in  certain  transactions  alleged  to 
have  been  within  the  scope  of  the  partnership  busmess,  and  which,  as 
claimed,  it  was  his  duty  to  have  conducted  for  the  benefit  of  the  firm, 
instead  of  for  his  individual  advantage.  Kilbourn  and  Latta  had  been 
partners  in  carrying  on  business  as  real  estate  brokers.  Their  business 
was  one  of  agency,  and  consisted  in  negotiation  and  making  sales  and 
purchases  of  real  property  for  others.  Afterwards  one  Olmstead  was 
admitted  to  the  firm,  the  scope  of  the  partnership  business  remaining 
unchanged.  During  the  existence  of  both  firms,  each  member  thereof, 
with  the  knowledge  of  the  others,  had  purchased  real  estate  and  other 
property  on  his  individual  account,  and  no  question  was  ever  made  of 


426  RIGHTS   AND   DUTIES   OF   PARTNERS   INTER   SB.  (Ch.  6 

the  righi  to  do  so,  nor  did  any  partner  ever  claim  that  the  profits 
realized  Lorn  such  purchases  should  be  treated  as  belonging  to  the 
partnership  or  subject  to  division  among  its  members.  By  special 
agreement  and  as  a  special  venture  they  had  several  times  bought  real 
estate  and  property  on  joint  speculation  and  had  divided  the  profits. 
During  the  existence  of  the  firm  Latta  entered  into  an  agreement  with 
one  Stearns  by  which  they  undertook  to  engage  in  the  buying  and 
selling  of  real  estate  on  joint  speculation.  These  speculations  re- 
sulted in  large  profits,  and  the  present  action  is  to  compel  Latta  to 
account  for  his  share  of  those  profits  and  share  them  with  his  copart- 
ners, Olmstead  and  Kilbourn. 

The  court  below  entered  a  decree  requiring  Latta  to  account  to 
his  former  partners  for  this  share  of  these  profits.  From  this  decree 
Latta  appealed. 

Jackson,  j_  *  *  *  fhe  court  below  based  its  opinion  upon 
two  grounds :  First,  that  the  scope  of  the  copartnership  business  and 
agreement,  as  alleged  in  the  third  paragraph  of  the  bill  was  estab- 
lished, and  that  the  appellant  could  not  engage  in  purchases  of  real 
estate  on  his  own  account  or  in  connection  with  others,  except  by 
the  consent  of  his  copartners,  without  violating  the  duty  and  obliga- 
tion which  he  owed  to  his  firm;  and,  secondly,  that  even  if  the  co- 
partnership did  not  include  the  business  of  buying  and  selling  real 
estate  on  partnership  account,  still  the  appellant  could  not  employ  the 
knowledge  and  information  acquired  in  the  course  of  the  partnership, 
business  in  respect  to  the  real  estate  market  in  making  purchases  or 
transactions  for  his  own  benefit. 

The  general  principles  on  which  the  court  proceeded  admit  of  no 
question,  it  being  well  settled  that  one  partner  cannot,  directly  or  in- 
directly, use  partnership  assets  for  his  own  benefit ;  that  he  cannot, 
in  conducting  the  busmess  of  a  partnership,  take  any  profit  clandes- 
tinely for  himself;  that  he  cannot  carry  on  the  business  of  the  part- 
nership for  his  private  advantage;  that  he  cannot  carry  on  another 
business  in  competition  or  rivalry  with  that  of  the  firm,  thereby  de- 
priving it  of  the  benefit  of  his  time,  skill,  and  fidelity,  without  being 
accountable  to  his  copartners  for  any  profit  that  may  accrue  to  him 
therefrom ;  that  he  cannot  be  permitted  to  secure  for  himself  that 
which  it  is  his  duty  to  obtain,  if  at  all,  for  the  firm  of  which  he  is  a 
member;  nor  can  he  avail  himself  of  knowledge  or  information  which 
may  be  properly  regarded  as  the  property  of  the  partnership,  in  the 
sense  that  it  is  available  or  useful  to  the  firm  for  any  purpose  within 
the  scope  of  the  "partnership  business. 

It  therefore  becomes  necessary,  in  testing  the  liability  of  the  appel- 
lant to  account  for  the  profits  realized  from  the  transactions  with 
Stearns,  to  consider  and  ascertain  what  was  the  scope  of  the  partner- 
ship agreement  in  reference  to  the  purchase  and  sale  of  real  estate. 
This  is  the  underlying  and  essential  fact  on  which  rests  the  proper 
determination  of  the  question  whether  the  appellant,  in  engaging  in 


Sec.  1)  DUTY    TO    OBSEUVE    GOOD    FAITH.  427 

the  joint  enterprises  with  Stearns,  violated  any  duty  or  obHgation 
which  he  owed  to  the  firm  of  Kilbourn  &.  Latta.  In  other  words,  the 
question  on  this  branch  of  the  case  depends  entirely  upon  this :  Were 
or  were  not  those  transactions  within  the  scope  of  the  firm  business, 
in  respect  to  which  Latta  owed  a  duty  to  his  firm,  or  in  respect  to 
which  he  could  properly  be  said  to  be  the  agent  of  the  firm? 

In  his  answer,  which  was  called  for  under  oath,  Latta  positively 
and  in  direct  terms  denied  the  allegation  of  the  bill  that  it  was  ever 
agreed  that  the  firm  should  carry  on  the  business  of  buying  and  selling 
real  estate,  and  that  at  no  time  was  such  transaction  within  the  scope 
of  the  partnership  business. 

Under  the  well-settled  rules  of  equity  pleading  and  practice  his  an- 
swer must  be  overcome  by  the  testimony  of  at  least  two  witnesses,  or 
of  one  witness  with  corroborating  circumstances.  The  proofs  in  the 
present  case  not  only  fail  to  break  down  his  denial  on  this  point,  but» 
on  the  contrary,  affirmatively  establish  that  neither  under  the  first 
nor  the  second  firm  of  Kilbourn' &  Latta  did  the  partnership  agree- 
ment extend  to  the  business  of  buying  and  selling  real  estate  either 
for  investment  or  for  speculation  on  firm  account.  Neither  of  the 
appellees  testified  to  the  contrary.  The  appellee  Kilbourn,  when 
pressed  upon  the  question,  evaded  a  reply  thereto ;  and  Olmstead,  in 
his  sworn  testimony,  failed  to  support  the  allegation  of  the  bill  as 
made  on  that  particular  subject.  On  the  other  hand,  the  testimony 
of  the  appellant  fully  supported  the  denial  of  his  answer,  and  he  is 
corroborated  by  all  the  facts  and  circumstances  in  the  case,  such  as 
the  character  o|  the  business  as  advertised  and  as  actually  conducted. 
The  well-known  characteristics  of  "real  estate  and  note  brokers,"  in- 
dicating, as  the  words  imply,  those  engaged  in  negotiating  the  sale 
and  purchase  of  real  property  for  the  account  of  others,  afford  a  pre- 
sumptive limitation  upon  the  scope  of  the  business,  such  as  the  appel- 
lant asserted  and  testified  to  in  this  case.  His  sworn  answer  and  tes- 
timony on  this  point  has  not  been  overcome  by  the  vague  and  equivocal 
testimony  of  the  appellees.  The  court  below  was  in  error  in  finding 
as  a  matter  of  fact  that  the  partnership  extended  to  the  buying  and 
selling  of  real  estate  for  the  account  of  the  firm.  There  is,  therefore,, 
no  right  on  the  part  of  the  complainants  to  relief  in  this  cause,  based 
upon  the  consideration  that  the  scope  and  character  of  the  partnership 
business  embraced  the  purchase  and  sale  of  real  estate,  either  for  the 
-firm  alone^or  jointly  with  others. 

The  further  allegation  of  the  bill  "that  all  profits  resulting  from 
operations  in  real  estate  by  any  member  of  the  firm  of  Kilbourn  & 
Latta  during  the  existence  of  said  partnership  should  belong  to  said 
firm,  and  be  entered  upon  the  books  of  the  firm,  and  be  paid  into  the 
partnership  account,  and  that  no  member  of  said  firm  should  engage 
in  the  business  of  buying  and  selling  real  estate  in  the  said  District  on 
his  own  account,  or  with  any  other  person  or  persons,  except  in  cases 
where  the  proposed  transaction  had  been  explained  to  the  said  firm. 


4e28  rights  and  duties  of  partners  inter  SB.  (Ch.  6 

and  the  firm  had  declined  to  take  any  part  therein,"  was  also  positively 
denied  by  the  answer  of  the  appellant  under  oath.  There  is  no  testi- 
mony in  the  cause  to  oyercome  that  denial.  On  the  contrary,  the  evi- 
dence establishes  that  there  was  no  such  restriction  or  limitation  im- 
posed upon  the  individual  members.  So  that  the  complainants  were 
entitled  to  no  relief  on  that  ground. 

But,  aside  from  the  foregoing  questions  of  fact,  how  stands  the  case 
on  the  assumption  that  there  was  a  new  stipulation  or  agreement  when 
Olmstead  was  taken  into  the  firm  (as  claimed  by  Kilbourn  and  Olm- 
stead,  and  as  set  out  above)  that  knowledge  and  information  obtained 
by  any  member  of  the  firm  as  to  bargains  in  real  estate  should  be  first 
communicated  to  the  firm,  with  the  view  of  giving  the  firm,  or  the 
members  thereof,  the  first  opportunity  of  purchasing,  before  any  in- 
dividual member  thereof  could  act  upon  such  knowledge  or  informa- 
tion for  his  own  benefit?  Can  the  agreement  to  furnish  information 
as  to  bargains  in  real  estate,  and  give  copartners  the  option  of  taking 
benefit  of  such  bargains,  be  considered  as  so  enlarging  the  scope  of 
the  partnership  business  as  to  include  therein  the  purchase  and  sale 
of  real  estate  on  joint  account?  It  would  be  a  perversion  of  language 
and  a  confusion  of  ideas  to  treat  such  a  stipulation,  if  it  were  clearly 
established,  as  creating  a  partnership  in  future  options  to  buy  what  did 
not  already,  by  the  terms  of  the  copartnership,  come  within  the  scope 
and  character  of  the  partnership  business.  That  alleged  stipulation, 
instead  of  enlarging  the  partnership  business,  was  manifestly  a  re- 
striction and  limitation  upon  the  power  and  authority  of  the  copart- 
ners to  bind  the  firm,  or  the  members  thereof,  in  any  real  estate  trans- 
action, until  each  member  had  expressly  consented  or*  agreed  to  join 
in  the  particular  purchase,  specially  submitted  for  consideration. 

By  the  well-settled  law  of  partnership  each  member  of  the  firm  is 
both  a  principal  and  an  agent  to  represent  and  bind  the  firm  and  his 
associate  partners  in  dealings  and  transactions  within  the  scope  of  the 
copartnership.  No  express  authority  is  necessary  to  confer  this  agency 
or  fiduciary  relation  in  respect  to  the  business  of  the  firm.  If  the 
buying  and  selling  of  real  estate  was  a  part  of  the  business  of  Kil- 
bourn &  Latta,  the  alleged  stipulation  about  giving  an  option  to  the 
firm  and  the  members  thereof  to  accept  special  bargains  would  have 
been  an  idle  arrangement.  But  under  the  alleged  stipulation  each  and 
every  purchase  of  real  estate  was  a  special  and  individual  transaction 
or  enterprise,  requiring  the  special  assent  and  agreement  of  each  part- 
ner thereto,  before  it  became  a  subject  of  partnership,  or  was  iDrought 
within  the  scope  of  the  partnership  business.  Under  the  operation 
of  the  agreement,  a  partner  who  purchased  real  estate,  either  on  joint 
or  partnership  account,  did  so  not  under  or  by  virtue  of  the  partner- 
ship articles,  or  under  authority  derived  from  the  partnership  business 
and  his  implied  agency  to  represent  the  firm  therein,  but  solely  and" 
exclusively  from  the  special  assent  or  agreement  of  his  associates  to 
engage  in  that  particular  purchase.     So  that  each  parcel  of  real  estate 


Sec.  1)  DUTY   TO   OBSERVE    GOOD    FAITH.  429 

to  be  acquired,  as  well  as  the  agreement  to  purchase  the  same,  was 
first  made  the  subject  of  a  special  arrangement.  It  is  difficult  to  un- 
dei  stand  how,  under  such  circumstances  and  conditions,  a  copartner- 
ship could  properly  be  said  to  include  or  extend  to  the  business  of 
purchasing  and  selling  real  estate. 

The  special  subject  of  each  purchase,  as  admitted  by  Kilbourn,  like 
the  purchase  of  bonds  and  other  securities,  did  not  and  could  not  come 
within  the  operation  of  the  copartnership,  or  become  a  part  of  the 
partnership  agreement  until  each  particular  piece  of  property  had 
been  selected  and  agreed  upon.  It  is  undoubtedly  true  that,  under  this 
alleged  agreement,  if  a  partner  had  submitted  to  the  firm  or  his  as- 
sociates the  question  of  buying  a  particular  parcel  of  land,  and  they 
had  agreed  to  make  that  purchase,  he  would  thereafter  have  occupied 
an  agency  or  fiduciary  relation  in  respect  to  that  particular  piece  of 
property.  But  the  question  here  is  whether  his  failure  to  give  the  firm, 
or  his  copartners,  the  opportunity  of  making  an  election  to  buy  cer- 
tain real  estate,  and  his  making  the  purchase  thereof  for  his  own  ac- 
count, or  jointly  with  another,  is  such  a  violation  of  his  fiduciary  re- 
lations to  the  firm  and  his  associates  in  respect  to  copartnership  busi- 
ness as  to  entitle  the  latter  to  call  him  to  account  for  profits  realized 
in  such  transactions.  In  other  words,  will  the  violation  of  his  under- 
taking to  give  to  the  firm,  or  his  associates,  the  opportunity  or  option 
to  engage  in  any  particular  transaction,  not  within  the  scope  of  the 
firm's  business,  entitle  the  copartners  to  convert  him  into  a  constructive 
trustee  in  respect  to  the  profits  realized  therefrom? 

That  the  members  of  the  firm,  prior  to  1871,  or  after  that  date,  by 
special  agreement,  made  purchases  of  particular  parcels  of  real  es- 
tate on  speculation  or  for  investment,  did  not  make  such  speculative 
transactions  a  part  of  the  partnership  business  so  as  to  invest  either 
partner  with  the  implied  authority  to  engage  therein  on  account  of 
the  firm.  The  name  of  the  firm  was  never,  in  fact,  used  in  such  spe- 
cial ventures,  which  no  partner  had  authority  to  enter  into  except  and 
until  the  consent  of  the  others  had  been  specifically  obtained  so  to 
do,  each  instance  of  buying  on  firm  or  joint  account  being  the  subject 
of  a  separate,  special  and  distinct  agreement. 

It  may  be  said  of  any  and  every  partnership,  irrespective  of  its 
regular  business,  that  by  consent  of  all  the  members  other  matters  be- 
yond the  scope  of  the  partnership  may  become  the  subject  of  invest- 
ment or  speculation  on  joint  account;  but  such  special  transactions 
cannot  properly  be  said  to  come  within  the  scope  of  the  partnership. 
The  very  fact  that  the  express  consent  of  each  partner  was  required 
in  order  to  engage  in  such  special  ventures  goes  clearly  to  show  that 
the  transactions  were  not  within  the  scope  of  the  partnership,  for,  if 
they  were,  special  consent  could  not  be  required  as  a  condition  prece- 
dent for  engaging  therein. 

Matters  within  the  scope  of  the  partnership  are  regulated  and  con- 
trolled by  a  majority  of  the  partners,  but  by  the  alleged  stipulation 


430  RIGHTS  AND  DUTIES  OF  PARTNERS   INTER   SE.  (Ch.  6 

under  consideration  a  single  member  of  the  firm  could  control  the 
firm's  action  in  respect  to  purchases  of  real  estate.  This  is  inconsistent 
with  the  idea  that  the  business  of  the  firm  extended  to  such  purchases. 

Again,  the  alleged  agreement  does  not  provide  how  such  future 
acquisitions  as  might  be  specially  selected  or  agreed  upon  for  specula- 
tion or  for  investment  were  to  be  paid  for,  or  in  what  proportion  the 
several  partners  should  be  interested  therein.  Neither  does  it  dis- 
tinctly appear  from  the  allegations  of  the  bill,  nor  from  the  testimony 
of  the  appellees,  whether,  in  acting  upon  information  given,  the  spe- 
cial purchases  were  to  be  made  for  the  account  of  the  partnership  or 
for  the  account  of  the  several  members  of  the  firm.  The  methods  of 
keeping  the  accounts  of  such  transactions  in  the  name  of  the  Individual 
members  rather  than  in  the  name  of  the  firm  would  indicate  that  such 
purchases  were  for  the  benefit  of  the  separate  partners  rather  than 
for  the  firm. 

There  is  no  allegation  in  the  bill,  nor  any  direct'  statement  in  the 
testimony  of  the  appellees,  that  if  the  information  had  been  given  as 
to  the  Stearns  transactions,  either  the  firm  or  themselves  would  have 
exercised  the  option  of  engaging  therein  upon  the  conditions  of  allow- 
ing Stearns  to  determine  "when,  at  what  price,  and  on  what  terms  any 
portion  of  the  real  estate  might  be  sold."  Neither  is  it  alleged  in  the 
bill,  nor  shown  by  the  proofs,  that  the  appellant  in  any  way  neglected 
the  partnership  business,  nor  that  the  firm  and  his  copartners  sustained 
any  damage  whatever  from  the  transactions.  On  the  contrary,  it  is 
shown  that  from  the  purchases  and  sales  of  the  property  bought  on 
joint  account  with  Stearns  the  firm  derived  its  regular  commissions. 

This  alleged  new  stipulation  amounts,  if  it  has  any  legal  force  and 
operation,  simply  to  an  agreement  for  a  future  partnership,  or  the 
joint  acquisition  of  such -special  properties  as  might  by  mutual  and 
unanimous  consent  be  considered  as  holding  out  a  prospect  of  profita- 
ble speculation ;  and  at  most  could  only  be  regarded  as  an  agreement 
for  a  future  partnership  in  respect  to  such  properties  as  might  be 
specially  selected  for  speculation.  It  is  well  settled  in  such  cases  that 
no  partnership  takes  place  until  the  contemplated  event  actually  oc- 
curs. It  stands  upon  the  same  principle  as  an  option  to  become  a  part-, 
ner,  which  creates  no  partnership  until  the  option  is  actually  exercised. 

If  the  stipulation  in  question  could  be  construed  into  an  agreement 
that  no  partner  should  engage  in  the  buying  and  selling  of  real  es- 
tate on  his  own  account,  would  that  entitle  the  other  members  of  the 
firm  to  share  in  the  profits  that  Latta  made  in  real  estate  speculations 
without  having  first  secured  the  consent  of  his  copartners  to  his  en- 
gaging therein?    No  such  proposition  can  be  sustained. 

In  Murrell  v.  Murrell,  33  La.  Ann.  1233,  it  was  held  that  a  partner 
who,  in  violation  of  the  act  of  partnership,  enters  into  another  firm, 
does  not  thereby  give  the  right  to  his  original  copartner  to  claim  a 
share  in  the  profits  of  the  new  firm.  The  violation  of  the  agreement 
may  give  rise  to  an  action  for  damages,  but,  inasmuch  as  the  original 


Sec.  1)  DUTY    TO    OBSERVE    GOOD    FAITH.  431 

copartner  could  not  be  held,  without  his  consent,  for  the  debts  of  the 
new  firm,  he  cannot  claim  to  be  made  a  partner  therein. 

In  Dean  v.  Macdowell,  8  Ch.  Div.  345,  one  of  the  stipulations  in 
the  articles  of  copartnership  was  that  "said  C.  A.  MacDowell  should 
diligently  and  faithfully  employ  himself  in  and  about  the  business  of 
the  partnership,  and  carry  on  and  conduct  the  same  to  the  greatest 
advantage  of  the  partnership,"  and  by  another  article  it  was  stipu- 
lated that  neither  partner  should  "either  alone  or  with  another  per- 
son, either  directly  or  indirectly,  engage  in  any  trade  or  business  ex- 
cept upon  the  account  and  for  the  benefit  of  the  partnership."  The 
business  of  the  firm  was  to  deal  as  merchants  and  brokers  in  selling 
the  produce  of  salt  works  on  commission,  and  during  its  existence 
Macdowell  clandestinely  purchased  a  share  in  a  firm  of  salt  manu- 
facturers. A  bill  was  filed  by  the  other  partner  for  an  account  of  the 
profits  realized  in  the  new  business,  and  it  was  held  by  the  master 
of  the  rolls  that  the  bill  could  not  be  sustained.  On  appeal  this  judg- 
ment was  afiirmed.  Lord  Justice  James,  after  stating  the  general 
principles  of  partnership  law,  said:  "The  business  which  the  defend- 
ant has  entered  into  was  the  business  of  manufacturing  salt,  which 
was  to.  be  the  subject-matter  of  the  trade  of  the  first  firm.  If  in  that 
he  had  in  any  way  deprived  the  firm  of  any  profits  they  otherwise 
would  have  made,  if  by  his  joining  in  the  partnership  for  the  manu- 
facture he  had  diverted  the  trade  from  the  firm  in  which  he  was  a 
partner  to  some  other  firm,  I  can  see  that  that  would  be  a  breach  of 
his  duty;  but  it  is  not  pretended  or  alleged  that  any  alteration  took 
place  in  the  business  of  the  firm  by  reason  of  his  having  become  a 
partner  in  the  other  business.  It  is  not  pretended  that  there  was  any 
alteration  in  the  commission  or  anything  else.  Everything  remained 
exactly  as  it  was,  so  that  it  cannot  be  suggested  that  there  was  a  far- 
thing's worth  of  actual  damages  done  to  the  original  firm  by  reason 
of  his  having  become  a  partner  in  the  works  which  produced  the  arti- 
cles in  which  the  firm  traded.  Under  these  circumstances  it  seems  to 
me  that  we  cannot  say  it  was  a  benefit  arising  out  of  his  partnership. 
It  was  not  a  benefit  derived  from  his  connection  with  the  partnership, 
or  a  benefit  in  respect  of  which  he  was  in  a  fiduciary  relation  to  the 
partnership.  He  was  only  in  a  fiduciary  relation  to  the  partnership  in 
this  respect,  namely,  the  same  as  a  covenantor  is  with  regard  to  any 
other  covenantee  in  respect  of  any  other  covenant  which  is  broken. 
It  was  a  partner  entering  into  a  covenant  with  a  partner ;  still  it  was 
simply  a  covenant  that  he  would  not  do  something  which  would  re- 
sult in  damage.  But  it  was  not  a  covenant,  in  my  view,  which  was 
in  any  way  connected  with  the  fiduciary  relations  between  the  parties. 
That  being'so,  it  seems  to  me  that  the  master  of  the  rolls  was  right 
in  sayincr  that  you  cannot  extend  the  cases  with  regard  to  a  share  in 
the  profits  to  a  case  in  which,  as  between  these  parties,  there  was 
really  nothing  but  a  breach  of  covenant,  which  breach  in  truth  did  not 
result  and  could  not  have  resulted  in  a  farthing's  worth  of  loss  to 


432  RIGHTS   AND   DUTIES   OF   PARTNERS   INTER   SB.  (Ch.  6 

the  partnership,  unless,  indeed,  it  could  lead  to  this :  That  the  man  was 
neglecting  his  business,  devoting  himself  to  the  other  business,  and 
employing  his  time  and  attention  and  mind  in  it,  and  diverting  him- 
self from  the  business  in  which  he  was  engaged."  These  views,  which 
were  concurred  in  by  the  other  members  of  the  court,  are  directly  in 
point  in  the  present  case,  which,  in  principle,  cannot  be  distinguished 
from  the  case  there  under  consideration. 

We  are  clearly  of  opinion  that  the  alleged  new  stipulation  that  each 
copartner  should  furnish  to  the  firm,  or  to  the  members  thereof,  in- 
formation as  to  bargains  in  real  estate,  and  give  it  or  them  the  option 
to  engage  in  the  acquisition  thereof  before  acting  upon  such  informa- 
tion for  his  own  benefit,  neither  enlarged  the  scope  of  the  partnership 
so  as  to  make  it  include  the  purchases  and  sales  of  real  estate,  nor 
precluded  any  member  of  the  firm  from  making  purchases  on  his  own 
account  or  jointly  with  others;  and  that  the  act  of  the  appellant  in 
purchasing  property  with  Stearns  was  no  such  a  violation  of  his  duty 
and  obligation  to  the  firm  of  Kilbourn  &  Latta,  or  to  the  members 
thereof,  as  to  entitle  the  appellees  to  share  in  the  profits  which  he 
realized  therefrom. 

In  respect  to  the  second  ground,  on  which  the  court  below,  rested 
its  judgment,  that  the  appellant  could  not  take  advantage  of  the  skill, 
knowledge,  and  information  as  to  the  real  estate  market  acquired  in 
the  course  of  his  connection  with  the  partnership  of  Kilbourn  &  Latta, 
so  as  to  gain  any  profit  individually  therefrom,  but  was  bound  to  share 
with  his  copartners  all  the  beneficial  results  which  could  be  derived 
from  his  knowledge  or  information  on  that  subject,  we  need  not  do 
more  than  to  say  that  this  proposition  is  wholly  unsupported  either 
by  the  authorities  or  by  any  legal  principle  applicable  to  partnership 
law. 

It  is  well  settled  that  a  partner  may  traffic  outside  of  the  scope 
of  the  firm's  business  for  his  own  benefit  and  advantage,  and  without 
going  into  the  authorities  it  is  sufficient  to  cite  the  thoroughly  con- 
sidered case  of  Aas  v.  Benham  [1891]  2  Ch.  244,  255,  in  which  it 
was  sought  to  make  one  partner  accountable  for  profits  realized  from 
another  business,  on  the  ground  that  he  availed  himself  of  informa- 
tion obtained  by  him  in  the  course  of  his  partnership  business,  or  by 
reason  of  his  connection  with  the  firm,  to  secure  individual  advantage 
in  the  new  enterprise.  It  was  there  laid  down  by  Lord  Justice  Lindley 
that  if  a  member  of  a  partnership  firm  avails  himself  of  information 
obtained  by  him  in  the  course  of  the  transaction  of  the  partnership 
business,  or  by  reason  of  his  connection  with  the  firm,  for  any  purpose 
within  the  scope  of  the  partnership  busihess,  or  for  any  purpose  which 
would  compete  with  the  partnership  business,  he  is  liable  to  account 
to  the  firm  for  any  benefit  he  may  have  obtained  from  the  use  of  such 
information ;  but  if  he  uses  the  information  for  purposes  which  are 
wholly  without  the  scope  of  the  partnership  business,  and  not  com- 
peting with  it,  the  firm  is  not  entitled  to  an  account  of  such  benefits. 


Sec.  '^)       RIGUT8   AND    DUTIES   AS   TO    CONDUCT   OF    BUSINESS. 


433 


It  was  further  laid  down  in  that  case,  in  explanation  of  what  was 
said  by  Lord  Justice  Cotton  in  Dean  v.  iSIacdowell,  ubi  supra,  that 
"it  is  not  the  source  of  the  information,  but  the  use  to  which  it  is  ap- 
plied, which  is  important  in  such  matters.  To  hold  that  a  partner  can 
never  derive  any  personal  benefits  from  information  which  he  obtains 
as  a  partner  would  be  manifestly  absurd."  And  it  was  said  by  Lord 
Justice  Bowen  that  the  character  of  information  acquired  from  the 
partnership  transaction,  or  from  connection  with  the  firm,  which  the 
partner  might  not  use  for  his  private  advantage,  is  such  information 
as  belongs  to  the  partnership  in  the  sense  of  property  which  is  valuable 
to  the  partnership,  and  in  which  it  has  a  vested  right. 

Tested  by  these  principles,  it  cannot  be  properly  said  that  Latta 
used  any  information  which  was  partnership  property,  so  as  to  ren- 
der him  chargeable  with  the  profits  made  therefrom.  His  knowledge 
of  fhe  real  estate  market,  or  in  respect  to  profitable  investments  therein, 
was  not  used  in  competition  with  the  business  of  the  firm,  nor  in  any 
manner  so  as  to  come  within  the  scope  of  the  firm's  business. 

The  points  already  considered  being  sufficient  to  dispose  of  the  case, 
we  do  not  deem  it  necessary  to  go  into  the  other  question  discussed 
as  to  whether  a  parol  partnership  in  respect  to  purchasing  and  selling 
real  estate,  or  an  agreement  between  copartners  to  give  each  other 
the  option  of  engaging  in  such  purchases,  would  come  within  the  oper- 
ation of  the  statute  of  frauds. 

We  are  clearly  of  opinion,  upon  the  whole  case,  that  the  decree  should 
be  reversed,  and  the  cause  remanded  to  the  court  below  with  directions 
to  dismiss  the  bill  at  the  costs  of  the  appellees. 


SECTION  2.— RIGHTS  AND  DUTIES  AS  TO  THE  CONDUCT 
OF  THE  BUSINESS. 


KATZ  V.  BREWINGTON. 

(Court  of  Appeals  of  Maryland,  1889.    71  Aid.  79.  20  Atl.  139.) 

Charles  Brewington  filed  a  bill  of  complaint  against  Louis  Katz, 
alleging  that  in  May,  1887,  they  had  entered  into  a  copartnership  un- 
der the  name  of  L.  Katz  &  Co.,  and  that  the  business  had  been  carried 
on  under  the  firm  name  until  the  time  of  the  filing  of  the  bill.  It  was 
further  charged  that  the  books  of  the  firm  were  in  the  possession  and 
control  of  Louis  Katz,  who  refused  to  permit  complainant  to  have 
access  to  the  same,  and  that  Katz  had  sole  control  and  possession  of 
the  goods  of  the  firm,  and  was  disposing  of  the  same  in  fraud  of 
complainant;  that  complainant  no  longer  felt  safe  with  the  books 
and  assets  of  said  firm  in  the  possession  of  said  Katz,  and  desired 
Gii>.Pabt. — 28 


434  RIGHTS   AND   DUTIES  OF   PARTNERS   INTER   SB.  (.Cll.  G 

that  said  copartnership  should  be  wound  up  under  the  order  and 
direction  of  this  court ;  that  Katz  absolutely  excluded  complainant 
from  all  control  of  the  business,  and  refused'  to  give  him  any  in- 
formation in  regard  to  the  business  of  the  tirm,  having  carried  the 
books  of  the  firm  away  from  the  place  of  business  of  said  firm, 
and  refused  to  disclose  the  place  where  said  books  were  deposited. 
*  *  *  The  court  ordered  an  injunction,  and  set  down  for  hearing 
the  application  for  a  receiver,  directing  that  notice  should  be  given  to 
the  defendant.  The  notice  was  not  served  in  due  time,  but  neverthe- 
less the  parties  appeared  in  court,  by  counsel,  on  the  day  appointed 
for  the  hearing;  and,  after  the  court  had  heard  their  statements  on 
the  bill  and  exhibit,  it  appointed  a  receiver.  After  the  appointment 
of  a  receiver,  an  answer  was  filed  by  defendant,  and  an  appeal  was 
taken. 

Bryan,  J.  We  are,  of  course,  on  this  appeal,  confined  to  the  state- 
ments of  the  bill  of  complaint.  The  defendant  might  have  objected 
to  the  motion  for  a  receiver  on  the  ground  that  he  had  not  received 
the  required  notice,  but  he  does  not  appear  to  have  done  so.  If  he 
had  filed  his  answer  before  the  hearing  it  would  have  been  con- 
sidered both  in  the  court  below  and  in  this  court.  The  time  appointed 
for  the  continuance  of  the  partnership  had  expired  before  the  filing 
of  the  bill  of  complaint,  and  it  was  then  existing  only  by  the  mutual 
consent  of  partners.  The  agreement  of  partnership  required  Katz 
to  furnish  all  the  capital,  and  the  profits  were  to  be  equally  divided 
after  payment  of  debts  and  expenses.  It  was  not  alleged  by  com- 
plainant that  any  profits  had  been  made,  or  that  there  were  any  debts 
due  by  the  partnership.  It  was,  however,  alleged  that  the  defendant 
had  excluded  him  from  all  control  of  the  business  of  the  firm,  and 
had  refused  to  give  him  any  information  respecting  it,  and  had  car- 
ried away  the  books  from  the  place  of  business,  and  had  refused  to 
disclose  the  place  in  which  they  were.  Each  partner  has  an  equal 
right  to  take  part  in  the  management  of  the  business  of  the  firm.  Al- 
though one  of  them  may  have  an  interest  only  in  the  profits,  and  not 
in  the  cdpital,  yet  his  rights  are  involved  in  the  proper  conduct  of  the 
aflFairs  of  the  firm,  so  that  profits  may  be  made.  So  each  partner  has 
an  equal  right  to  information  about  the  partnership  affairs,  and  to 
free  access  to  its  books.  The  complainant  had  a  right  to  learn  from 
the  books  whether  there  were  profits,  and  whether  there  were  debts. 
If  he  were  denied  this  information,  as  charged  in  his  bill  of  complaint, 
a  sufficient  reason  appears  for  not  alleging  that  profits  had  been  earned, 
and  that  debts  existed.  In  Const  v.  Harris,  1  Turn.  &  R.  496,  Lord 
Eldon  said:  "The  most  prominent  point,  in  which  the  court  acts,  in 
appointing  a  receiver  of  a  partnership  concern,  is  the  circumstance 
of  one  partner  having  taken  upon  himself  the  power  to  exclude  an- 
other partner  from  as  full  a  share  in  the  mariagement  of  the  partner- 
ship as  he  who  assumes  that  power  himself  enjoys."  This  principle 
seems  to  be  universally  approved  by  the  authorities.  It  is  decisive  of 
the  present  question.     The  order  must  be  affirmed. 


Sec.  2;     kights  and  duties  as  to  conduct  of  business.  435 

LINDSEY  V.  STRANAHAN. 

(Supreme  Court  of  Peiuisylvauia,  1S80.     129  Pa.  63.1,  18  Atl.  524.) 

.Per  Curiam.  There  is  but  a  single  question  in  this  case:  Is  J.  R. 
Lindsey,  the  plaintiff*,  entitled  to  compensation  for  his  services  as  a 
partner?  It  is  conceded  that  there  was  no  express  contract  that  he 
should  be  paid  for  such  services,  and  there  is  no  principle  better  set- 
tled than  that  the  law  will  not  imply  a  contract  in  such  cases.  The 
reason  is  that  the  partner  is  but  attending  to  his  own  affairs.  This 
rule  is  inexorable;  as  much  so  as  that  between  parent  and  child. 
Were  it  otherwise,  we  might  have  a  contract  between  the  partners 
upon  the  settlement  of  every  partnership  account  as  to  the  value  of 
their  respective  services.  It  is  true  this  principle  may  work  hardship 
in  particular  cases — almost  every  general  rule  does ;  but  that  is  a 
weak  argument  against  the  soundness  of  the  rule.  When  the  copart- 
nership agreement  contemplates  that  one  partner  shall  manage  the 
business,  or  do  more  than  his  share  of  the  work,  it  is  easy  to  provide 
for  his  compensation  in  the  agreement  itself;  and  if  no  such  stipula- 
tion is  then  made,  as  before  said,  the  law  will  not  imply  one.  Even 
where  a  liquidating  or  surviving  partner  settles  up  the  business,  it  has 
been  repeatedly  held  that  he  is  not  entitled  to  compensation  for  doing 
so.  although,  in  such  case,  he  performs  all  the  services.  Beatty  v. 
Wray,  19  ^Pa.  516,  57  Am.  Dec.  677;  Brown  v.  McFarland,  41  Pa. 
129.  80  Am.  Dec.  598:  Gyger's  Appeal.  62  Pa.  73,  1  Am.  Rep.  382; 
Brown's  Appeal,  89  Pa.  139.    Judgment  affirmed. 


THAYER  v.  BADGER. 

(Supreme  Judicial  Court  of  Massachusetts.  1898.    171  Mass.  279,  50  N.  E.  541.) 

Contract,  by  the  surviving  partner  of  the  firm  of  Hayden  &  Thayer, 
to  recover  a  balance  alleged  to  be  due  from  the  defendant,  as  ad- 
ministrator of  the  estate  of  his  deceased  partner,  on  the  settlement  of 
the  firm's  affairs.  The  case  was  submitted  to  an  auditor,  and  the  sole 
question  was  whether  the  plaintiff  had  a  right  to  pay  a  commission 
to  the  new  firm  of  Thayer,  Owen  &  Tyler,  of  which  he  was  a  member, 
for  selling  the  property  of  the  firm  of  Hayden  &  Thayer  in  liquidation. 
The  auditor  found  "as  a  fact  that  the  method  adopted  by  the  sur- 
viving partner  in  disposing  of  the  merchandise  of  the  old  firm  in  the 
course  of  the  settlement  of  the  affairs  of  that  firm  was  a  prudent  and 
reasonable  one,  that  the  charge  for  selling  merchandise  made  by  the 
(new  firm  was  a  reasonable  one,  and  ruled  as  matter  of  law  that  there 
was  no  objection  under  the  circumstances  to  the  charge  of  $650  com- 
mission made  by  the  firm  of  Thayer,  Owen  «&  Tyler  for  selling  the 
merchandise  of  the  firm  of  Hayden  &  Thayer  in  liquidation."    At  the. 


436  EIGHTS  AND   DUTIES  OF   PARTNERS  INTER  SB.  (Ch.  6 

trial  in  the  superior  court,  on  the  auditor's  report  alone,  without  a  jury, 
before  Hardy,  J.,  the  defendant  asked  a  ruling  that  the  surviving 
partner  had  no  right  to  make  any  charge  for  winding  up  the  affairs 
of  the  late  firm,  and  therefore  had  no  right  to  turn  over  the  mer- 
chandise of  the  firm  of  Hayden  &  Thayer  to  be  sold  by  the  firm  of 
which  he  was  a  member  on  commission,  and  that  the  sum  charged  by 
such  firm  as  a  commission  for  making  the  sale,  or  at  least  that  portion 
of  such  commission  which  the  surviving  partner  was  entitled  to  as  a 
member  of  said  new  firm,  ought  not  to  have  been  charged  in  the  ac- 
count. The  judge  declined  so  to  rule,  adopted  the  findings  of  the  audi- 
tor, and  found  for  the  plaintiflf;  and  the  defendant  alleged  exceptions. 
The  judge  reported  the  case  for  the  determination  of. this  court.  If  the 
ruling  was  right,  the  finding  was  to  stand;  if  wrong,  a  new  trial  was 
to  be  granted. 

Holmes,  J.  The  only  question  in  this  case  is  whether  the  judge 
below  was  bound  to  rule  as  matter  of  law  that  a  surviving  partner  has 
no  right  to  turn  over  merchandise  of  the  late  firm  to  a  new  firm  of 
which  he  is  a  member,  to  be  sold  upon  commission  by  the  latter;  and 
that  the  commission  charged,  or  at  least  the  surviving  partner's  share, 
"should  not  be  allowed  in  the  account  between  him  and  the  executor 
of  his  deceased  partner.  In  this  case  the.  auditor  has  found  that  the 
course  adopted  was  prudent  and  reasonable,  and  the  charge  reason- 
able. Whether  we  should  have  made  the  same  findings  we  cannot 
tell,  but,  they  having-  been  made,  and  we  being  bound  by  them,  we 
are  not  disposed  to  go  so  far  as  to  say  that  it  is  impossible  that  the 
charge  should  have  been  justified  by  the  saving  to  the  old  firm  and 
the  trouble  to  the  new  from  the  arrangement.  It  is  true,  no  doubt,, 
that  there  is  a  disinclination  to  allow  pay  to  a  surviving  partner  for 
winding  up  (Dunlap  v.  Watson,  124  Mass.  305),  but  the  tendency 
is  to  deal  with  such  questions  on  their  particular  circumstances,  rather 
than  by  absolute  rules.  Turnbull  v.  Pomeroy,  140  Mass.  117,  118,  3 
N.  E.  15 ;  Robinson  v.  Simmons,  146  Mass.  167,  176,  15  N.  E.  658, 
4  Am.  St.  Rep.  299. 
Findings  to  stand. 


SECTION  3.— INDEMNITY  AND  CONTRIBUTION. 


DOWNS    v.    JACKSON. 

(Supreme  Court  of  Illinois,  1864.    33  111.  465,  85  Am.  Dec.  289.) 

Beckwith,  J,  This  was  a  bill  in  chancery  for  contribution  and 
set-oflf.  The  parties  were  partners,  sharing  profits  and  losses  equally 
in  the  manufacture  and  sale  of  furniture  for  one  year,  ending  No- 
vember 22,  1860,  when  the  copartnership  was  dissolved,  and  the  plain- 


Sec,  3)  INDEilNITY    AND    CONTUIBLTION.  437 

tiff  in  error  bought  the  interest  of  the  defendant  in  error  in  certain 
furniture  belonging  to  the  firm,  and  gave  his  notes  therefor,  a  part 
of  which  were  paid,  but  upon  the  remainder  there  was  due  at  the 
commencement  of  the  suit  about  $200.  At  the  time  of  said  dissolu- 
tion the  firm  was  indebted  to  Roundy,  Chabin  &  Co.  in  the  sum  of 
about  $'iOO,  upon  which  indebtedness  a  judgment  was  rendered  in 
April,  18G1.  An  execution  was  afterwards  isssued  thereon  and  sat- 
isfied by  a  sale  en  masse  of  certain  lands  belonging  to  the  parties  sev- 
erally. On  the  1st  day  of  January,  18G2,  the  plaintiff  in  error  redeem- 
ed from  the  sale  by  paying  to  the  purchaser  the  amount  of  his  bid, 
with  interest,  for  which  he  gave  a  receipt  upon  the  back  of  the  cer- 
tificate of  sale,  which  he  delivered  to  the  plaintiff  in  error.  In  the 
spring  of  1863  the  parties  had  a  settlement  of  all  their  copartnership 
matters,  except  the  claim  of  the  plaintiff  in  error  to  be  repaid  one- 
half  of  the  amount  paid  by  him  to  redeem  said  lands  and  the  balance 
due  upon  said  notes.  The  plaintiff  in  error  by  the  present  suit  seeks 
contribution  for  a  moiety,  of  the  sum  paid  by  him  and  a  set-off  of  the 
same  against  the  amount  due  upon  his  notes.  The  liability  of  the  par- 
ties to  Roundy,  Chabin  &  Co.  was  a  joint  one,  and  it  was  the  duty  of 
each  party  to  exonerate  the  other  from  a  moiety  of  it.  No  act  falling 
short  of  a  complete  exoneration  of  the  one  party  and  his  property  from 
so  much  of  the  liability  as  he  was  entitled  to  be  exonerated  from  will 
operate  as  a  discharge  of  the  other  party  from  his  obligation  in  that  re- 
gard. The  sale  en  masse  of  the  lands  of  the  defendant  in  error  wdth 
those  of  the  plaintiff  in  error  did  not  discharge  any  part  of  the  prop- 
erty sold,  nor  the  parties  from  their  respective  duties.  Neither  party 
could  obtain  a  discharge  of  his  property  without  paying  the  whole 
amount  of  the  purchase  money  and  interest,  and  each  oi  them  had 
the  same  right  after  the  sale,  within  the  time  allowed  by  law,  to  re- 
deem the  lands  for  that  purpose  as  he  had  before  that  time  to  pay  the 
debt  to  discharge  himself  from  personal  liability.  The  sale  may  have 
been  irregular,  and  for  tha|:  reason  might  have  been  set  aside;  but 
setting  aside  the  sale  would  have  revived  the  debt,  and  we  are  unable 
to  discover  any  satisfactory  reason  for  requiring  the  plaintiff  in  error 
to  make  the  charge  upon  his  property  a  personal  debt  against  the  de- 
fendant in.  error  and  himself  before  satisfying  it.  The  law  does  not 
require  acts  to  be  done  where  tKere  is  no  conceivable  object  to  be 
gained  by  doing  them.  In  the  present  case  the  right  to  contribution  is 
founded  upon  the  duty  of  exoneration.  The  plaintiff  in  error  has 
been  compelled  to  pay  money  to  exonerate  his  property  from  a  lia- 
bility, a  moiety  of  which  he  ought  to  have  been  exonerated  from  by 
the  defendant  in  error.  The  lands  were  discharged  from  the  sale  by 
the  purchasers  accepting  the  redemption  money.  The  statute,  pro- 
viding a  mode  of  evidencing  the  redemption,  may  be  enforced  by  an 
appropriate  remedy  ,1  but  a  compliance  with  its  provisions  is  not  a  con- 
dition precedent  to  the  assertion  of  the  right  of  plaintiff  in  error  to 
contribution.     The   court   below   should   have   rendered   a   decree   in 


438  RIGHTS   AND    DUTIES   OF   PAKTNERS   INTER   SE.  (Ch.  6 

favor  of  the  plaintiff  in  error  for  the  one-half  of  the  sums  paid  by 
him,  with  interest  thereon  from  the  time  of  its  payment.  The  plaintiff 
in  error  was  not  entitled  to  the  set-off  claimed  by  the  bill.  There 
was  no  proof  of  the  insolvency  of  the  defendant  in  error,  nor  of  any 
special  equity  requiring  the  set-off  to  be  made.     *    *    * 

The  decree  of  the  court  below  will  be  reversed,  and  the  cause  re- 
manded. 

Decree  reversed. 


MURPHY    V.    CRAFTS.  ' 

(Supreme  Court  of  Louisiaua,  1S58.     13  La.  Arm.  519,  71  Am.  Dec.  519.) 

Land,  J.  The  plaintiff  and  defendant  were  commercial  partners, 
transacting  a  general  commission  business  under  the  name  and  style 
of  Murphy  &  Crafts  in  the  city  of  New  Orleans.  Their  contract  of 
partnership  was  in  writing,  and  the , third  article  thereof  was  in  these 
words:  "We  will  not  indorse  any  note,  draft,  or  give  our  signature 
separately  or  collectively,  except  for  our  legitimate  business  purposes." 
Crafts,  in  violation  of  this  article  of  the  partnership  agreement,  ac- 
cepted in  the  partnership  name,  for  the  accommodation  of  his  brother- 
in-law,  John  C.  Robertson,  of  the  city  of  Boston,  bills  of  exchange  to 
the  amount  of  $12,500.  Robertson  failed  in  business,  and  the  firm 
of  Murphy  &  Crafts  lost,  in  consequence  of  these  acceptances,  the  sum 
of  $5,592.90.  The  principal  question  in  this  case  is  whether  Crafts  is 
liable  to  his  partner  for  the  loss.     ♦     ♦     * 

Judge  Story,  in  his  Commentaries  on  the  Law  of  Partnership,  says : 
"One  of  the  most  obvious  duties  and  obligations  of  all  the  .partners  is 
strictly  to  conform  themselves  to  all  the  stipulations  contained  in  the 
partnership  articles,  and  also  to  keep  within  the  bounds  and  limitations 
of  the  rights,  powers,  authorities,  and  acts  belonging  and  appropriate 
to  the  due  discharge  of  the  partnership,  trade,  or  business.  Of  course, 
every  known  deviation  from,  and  every  excess  in,  the  exercise  of  such 
rights,  powers,  authorities,  and  acts,  which  produce  any  loss  or  injury 
to  the  partnership,  are  to  that  extent  to  be  borne  by  the  partner  who 
causes  or  occasions  the  loss  or  injury,  and  he  is  bound  to  indemnify 
the  other  partners  therefor.  The  same  doctrine  is  recognized  by 
Pothier  as  existing  in  the  French  law ;  and  it  seems,  indeed,  so  clear- 
ly the  result  of  natural  justice  as  to  require  no  particular  exposition." 
See  Story  on  Part.  §  173. 

According  to  these  rules,  the  defendant  is  clearly  bound  to  indemnify 
the  plaintiff  for  the  loss  resulting  from  his  breach  of  the  third  article 
of  their  contract  of  partnership,  unless  the  same  was  superseded  or 
waived  in  the  course  of  their  business  with  the  assent  of  the  plaintiff. 
And  this  is  the  defense  made  by  the  defendant  to  the  action;  but  we 
concur  with  the  district  judge  that  the  evidence  is  insufficient  to  show 


Sec.  3)  INDEMNITY   AND    CONTRIBUTION.  439 

that  the  partners  came  to  a  new  arrangement  in  the  course  of  their 
business,  and  thereby  superseded  article  3  of  their  contract,  or  that  the 
plaintiff  ratified  the  acceptance  in  favor  of  Robertson. 
Jud^ancnt  affirmed. 


CHARLTON  v.  SLOAN. 

(Supreme  Court  of  Iowa,  l&SS.     76  Iowa,  2SS,  41   N.  W.  303.) 

Action  in  chancery  to  dissolve  a  partnership  and  to  settle  its  affairs. 
A  decree  to  that  etifect  was  entered,  and  provision  was  made  for 
the  division  of  the  assets  of  the  firm. 

Beck,  J.  The  petition  alleges  that  plaintiff  and  defendant,  under 
a  written  agreement,  entered  into  a  copartnership  for  the  sale  of 
jewelry,  books,  stationery,  etc.  The  contract  is  se't  out  by  copy  as  an 
exhibit  to  the  petition.  It  is  shown  that  plaintiff  paid  into  the  concern 
cash  or  its  equivalent  equaling  the  amount  of  the  stock  he  was  re- 
quired to  pay  under  the  contract.  It  is  alleged  and  charged  that  de- 
fendant, with  the  dishonest  intention  to  defraud  plaintiff,  made  false 
and  "blind"  entries  in  the  books  of  the  firm,  and  drew  out  and  mis- 
applied the  money  of  the  firm,  and  failed  to  charge  himself  with  money 
appropriated  to  his  own  use,  and  in  other  matters  acted  dishonestly. 
It  is  also  alleged  that  defendant,  during  plaintiff's  absence,  and  with- 
out his  knowledge  and^  consent,  leased  at  a  large  rent  a  new  storeroom, 
and  thereby  lost  the  trade  and  good  will'  of  the  business  connected 
with  the  old  stand,  and  that  this  was  done  after  plaintiff  had  suggested 
to  defendant  that  the  business  of  the  firm  ought  to  be  closed  up,  in 
which  defendant  concurred,  and  agreed  that  it  should  be  done.  It  is 
shown  that  the  lease  cannot  be  disposed  of  or  surrendered  except  at 
a  loss  of  '$1,G00.  It  is  alleged  in  the  petition  that  defendant  is  in- 
debted to  plaintiff,  on  account  of  the  business  of  the  partnership,  in  the 
sum  of  $5,000,  and  that  defendant  is  in  poor  health,  and  for  that 
reason  is  incapable  of  managing  the  business  of  the  firm.  A  receiver 
was  appointed,  who  proceeded  under  the  direction  of  the  court  to 
manage  the  affairs  of  the  partnership.  The  defendant  denies  the 
charges  of  fraud,  and  dishonest  and  unfaithful  management  of  the 
firm's  business,  and  declares  that  he  is  ready  and  willing,  and  now 
oft'ers,  to  settle  the  partnership  business,  and  to  account  for  all  sums 
received  by  him  from  the  firm,  and  that  plaintiff  has  refused  to  settle 
unless  defendant  would  pay  $1,600,  the  alleged  loss  arising  from  the 
lease  of  the  new  storeroom.     *     *     * 

In  our  opinion  the  evidence  fails  to  support  the  charge  of  bad  faith 
and  dishonesty  made  by  plaintiff'  in  the  petition  against  defendant ; 
and  we  think  it  is  not  shown  that  defendant  wrongfully  withheld  from 
the  partnership  any  money  or  property  to  which  it  was  entitled.  It 
may  be  that  the  new  storeroom  was  unwisely  rented  by  defendant, 


440  RIGHTS  AND   DUTIES  OF  PARTNERS  INTER  SB.  (Ch.  6 

but  the  act  was  not  wanton  or  fraudulent,  or  done  with  any  improper 
motive,  which  would  render  him  liable  to  make  good  to  the  firm  or  to 
his  partner  the  loss  resulting  therefrom.     *     *     * 

We  reach  the  conclusion  that  the  decree  of  the  district  court  ought 
to  be  affirmed. 


YORKS  V.  TOZER. 

(Supreme  Court  of  Minnesota,  18^.     59  Minn.  78,  60  N.  W.  846,  28  L.  R.  A. 
86,  50  Am.  St.  Rep.  395.) 

Action  by  Thomas  J.  Yorks  against  David  Tozer  for  an  accounting- 
between  plaintiff  and  defendant,  as  partners,  and  to  recover  money  paid 
under  the  partnership  agreement.  Judgment  for  plaintiff,  and  defend- 
ant appeals. 

Canty,  J.  It  is  conceded  by  both  parties,  and  found  by  the  court, 
that  the  plaintiff  and  defendant  were  partners  in  the  purchase  of  a 
tract  of  land;  that  it  was  agreed  by  and  between  them  that  the  title 
should  be  taken  in  the  name  of  defendant;  that  he  should  advance 
the  purchase  price,  and  pay  the  taxes,  and  plaintiff  should  sell  the 
land,  and,  after  repaying  defendant  the  money  so  advanced  by  him 
and  7  per  cent,  interest  thereon,  the  balance  of  the  proceeds  of  such 
sale  should  be  divided  equally  between  them.  The  land  was  so  pur- 
chased April  23,  1883,  for  $450,  and  the  title  so  taken.  The  land  was 
sold  and  conveyed  by  defendant  August  6,  1890,  for  $1,560.  Said 
purchase  money  and  the  taxes  paid  by  defendant,  and  interest  on  all 
of  the  same  up  to  the  time  of  said  sale,  amount  to  $807.32,  leaving 
$752.68,  the  balance  of  the  proceeds  of  said  sale,  so  to  be  divided  be- 
tween them.  This  action  is  brought  for  an  accounting  and  a  recovery 
of  the  sum  due  plaintiff  under  said  agreement,  and  the  trial  court 
awarded  plaintiff  one-half  of  said  balance  of  $752.68,  and  from  the 
judgment  entered  thereon  defendant  appeals.  There  is  no  settled  case; 
and  the  error  assigned  is  that  the  judgment  is  not  sustained  by  the 
findings  of  fact. 

The  court  further  finds  that  in  July,  1890,  without  the  knowledge 
of  plaintiff,  defendant  negotiated  a  sale  of  said  land  to  said  purchaser; 
that  the  purchaser  procured  an  abstract  of  title  to  said  real  estate  from 
the  register  of  deeds ;  that  said  abstract  was  in  fact  false,  as  it  omit- 
ted one  recorded  conveyance,  a  link  in  the  chain  of  title,  and  by  such 
abstract  it  appeared  that  the  original  patentee  was  still  the  owner  in 
fee  of  the  land,  whereas  in  fact  defendant  had  a  good  title  of  record; 
that  the  purchaser  submitted  the  abstract  to  two  different  and  com- 
petent attorneys,  who  each  advised  him  that,  according  to  the  ab- 
stract, the  defendant  had  no  title,  and  defendant  was  informed  by  such 
purchaser  of  the  opinion  of  said  attorneys.  Defendant,  believing  he 
had  no  title,  at  an  expense  of  $526-,  then  procured  a  conveyance  to 
himself   from   said   original   patentee,   and   claims    that   this    expense 


Sec.  3)  INDEMNITY    AND   CONTRIBUTION.  441 

should  be  allowed  him  in  said  accounting  as  a  part  of  the  cost  of  the 
land  to  be  deducted  from  such  proceeds  of  said  sale,  and  that  plaintiff 
is  entitled  to  only  one-half  of  the  balance  of  such  proceeds,  after  this 
$526  is  also  deducted  therefrom.  It  is  further  found  by  the  court 
that  defendant  did  not  inform  plaintiff  of  any  of  said  negotiations, 
or  of  the  apparent  defect  in  said  title,  or  show  him  or  inform  him  of 
said  abstract,  or  consult  him  as  to  purchasing  the  supposed  title  of  said 
patentee,  and  that  plaintiif  had  no  knowledge  or  notice  of  any  of 
these  things,  or  of  the  sale  of  said  property  to  said  purchaser  from  de- 
fendant, until  after  the  deed  thereof  was  recorded,  and  he  discovered 
it  by  an  examination  of  the  records;  "that  had  said  defendant  ex- 
hibited said  abstract  of  title  to  said  plaintiff,  or  informed  him  in  what 
respect  said  title  of  said  defendant  was  claimed  to  be  defective,  said 
plaintiff  could  at  once  have  informed  said  defendant  that  said  abstract 
was  not  a  true  and  correct  abstract  of  title  to  said  lands;"  and  "that 
plaintiff  was  not  in  any  manner  ever  consulted  by  defendant  in  regard 
to  said  supposed  defect  of  title."  The  court  further  finds  that  defend- 
ant acted  in  good  faith  in  the  sale  of  the  land,  and  in  expending  said 
sum  of  $526  in  attempting  to  cure  the  supposed  defect  in  his  title,  but 
holds  that  he  cannot  compel  plaintiff  to  stand  one-half  or  any  part  of 
such  expense.  We  are  of  the  same  opinion.  If  defendant  did  not 
act  in  bad  faith,  he  was,  to  say  the  least,  grossly  negligent.  It  does 
not  appear  that  the  plaintiff  was  not  accessible  and  could  not  be  com- 
municated with  in  a  reasonable  time.  This  land  was  the  only  partner- 
ship property,  and  its  purchase  and  sale  was  the  only  partnership  busi- 
ness. It  was  not  an  act  in  the  usual  course  of  the  partnership  busi- 
ness, but  one  which  went  to  the  very  foundation  of  the  partnership. 
It  is  found  by  the  court  that  the  plaintiff,  and  not  the  defendant,  con- 
ducted the  negotiations  for  the  purchase  of  this  land,  and  procured  the 
conveyance  to  defendant;  and  he  should  be  presumed  to  have  had 
some  knowledge  of  Ihe  state  of  the  title.  No  reason  is  given  by  de- 
fendant why  all  the  negotiations  for  the  sale  of  the  land  and  the  pur- 
chase of  this  supposed  title  by  him  were  kept  secret  from  plaintiff.  In 
every  important  exigency  the  partner  about  to  act  should  consult  the 
other  partner,  at  least  if  there  are  no  circumstances  which  excuse  him 
from  so  doing.    The  order  appealed  from  should  be  affirmed. 


WARRING  V.  ARTHUR  et  a!. 

(Court  of  Appeals  of  Kentucky,  1895.    98  Ky.  34,  32  S.  W.  221.) 

Eastin^  J.  This  action  was  brought  by  appellant  in  the  Bell  cir- 
cuit court,  alleging  the  existence  of  a  partnership  between  himself  and 
appellees,  and  seeking  to  enforce  an  alleged  right  of  contribution  from 
appellees  of  certain  sums  which  he  claimed  to  have  paid  in  excess  of 
his  proportion  of  the  partnership  indebtedness.     It  is  charged  in  the 


442  RIGHTS  AND   DUTIES   OF  PARTNERS  INTER  SE.  (Ch.  6 

petition  that  this  partnership  relation  arose  by  operation  of  law  out 
of  the  fact  that  appellant  and  some  of  the  appellees  had,  in  the  year 
1890,  signed  articles  of  incorporation,  and  undertaken  to  organize  a 
corporation  in  the  town  of  Middlesborough,  under,  chapter  56  of  the 
General  Statutes  of  Kentucky,  and  that  all  of  the  appellees  had  sub- 
scribed for  and  become  the  owners  of  stock  in  this  proposed  corpora- 
tion, which  had  never,  in  fact  or  in  law,  becorrie  a  corporation,  by  rea- 
son of  the  failure  of  the  projectors  thereof  to  comply  substantially 
with  the  requirements  of  the  statute  regulating  the  formation  of  cor- 
porations in  Kentucky.  It  is  alleged,  however,  that  this  abortive  cor- 
poration commenced  business  and  incurred  liabilities  which  it  was  un- 
able to  pay,  and  that,  the  defects  in  its  organization  being  discovered, 
and  the  fact  that  it  had  no  legal  corporate  existence  becoming  known 
to  some  of  its  creditors,  suits  were  brought  against  appellant  to  charge 
him  individually,  as  one  of  the  incorporators  and  stockholders  thereof, 
and  that  he  had  thus  been  compelled  to  pay  on  its  account  the  sum  of 
$1,327.68.  It  is  further  alleged  that  by  reason  of  the  failure  to  become 
legally  incorporated  the  relation  between  appellant  and  his  associates 
became  that  of  partners,  and  that  they  all  became  equally  liable  to 
creditors  for  said  indebtedness,  and  that  he  was  entitled  to  contribu- 
tion from  the  others  for  their  respective  proportions  of  the  amount 
paid  by  him  individually.  It  is  stated,  however,  that  of  his  several 
associates  only  two,  to  wit,  the  appellees  John  M.  Brooks  and  R.  H. 
Fox,  were,  at  the  time  of  the  filing  of  the  petition,  either  solvent,  or 
within  the  jurisdiction  of  the  court,  and  appellant  therefore  asked  that 
they  be  required  to  contribute  equally  with  him  the  amount  he  had  so 
paid  out,  and  asked  judgment  against  each  of  them  for  an  amount 
equal  to  one-third  thereof,  or  $442.56.  To  this  petition  a  general  de- 
murrer was  sustained  by  the  court,  and,  leave  being  given  to  amend, 
appellant,  at  a  subsequent  term  of  the  court,  filed  an  amended  peti- 
tion, in  which  he  alleged  for  the  first  time  that  the  company  or  part- 
nership referred  to  in  his  original  petition  was  insolvent  at  the  time 
of  the  filing  thereof;  that  it  never  liad  any  invested  capital;  that  its 
business  had  been  done  on  credit ;  that  it  had  long  since  ceased  to  do 
business;  that  all  the  property  it  ever  had  had  been  sold  by  prder  of 
court;  that  from  the  time  of  the  attempted  organization  it  had  been 
insolvent,  and  had  long  since  been  dissolved.  To  the  petition  as  thus 
amended  appellees  Fox  and  Brooks  again  demurred,  but,  their  de- 
murrers being  overruled,  they  excepted,  and  were  given  time  to  answer. 
Separate  answers  were  afterwards  filed  by  these  appellees,  to  which  ap- 
pellant filed  replies,  and  also  general  and  special  demurrers,  which 
were  not  then  passed  upon  by  the  court,  and  separate  rejoinders  were 
then  filed  by  Fox  and  Brooks,  thus  making  up  the  issues  on  the  plead- 
ings. Appellant  testified  in  his  own  behalf.  Brooks  gave  his  disposi- 
tion ;  and  a  written  statement  by  Fox,  which  was  agreed  to  be  read 
as  his  deposition,  was  filed,  and  these,  with  the  exhibits  attached  to 
them,  constituted  the  evidence  heard  upon  the  trial.     Upon  the  hear- 


Sec.  3)  INDEMNITY    AND    CONTRIBUTION.  443 

ing  the  court  below  overruled  the  demurrers  filed  by  appellant  to  the 
answers  of  Brooks  and  Fox,  respectively,  but  on  the  merits  adjudged 
that  appellant  take  nothing  by  his  petition,  and  dismissed  the  same 
with  costs,  to  all  of  which  appellant  excepted,  and  prayed  an  appeal. 

The  record  before  us  presents  some  questions  of  more  than  ordinary 
interest,  especially  that  arising  on  the  merits  of  tiie  case  as  prepared, 
and  pertaining  to  the  mutual  obligations  to  each  other  of  parties  stand- 
ing in  the  relation  of  the  parties  to  this  action ;  but,  interesting  as  a 
consideration  of  that  question  might  be,  it  is  unnecessary,  in  our  view 
of  the  case,  and  the  decision  of  the  court  will  be  based  entirely  upon 
the  sufficiency  of  appellant's  petition  to  sustain  the  action  against  ap- 
pellees. It  is  to  be  observed  that  the  liability  sought  to  be  fixed  by 
appellant  on  appellees  is  that  of  partners.  The  very  foundation  of 
the  cause  of  action  rests  upon  the  assumption  that  the  failure  of  these 
parties  to  pursue  substantially  the  course  pointed  out  in  and  required 
by  the  statute  for  the  organization  of  a  corporation  made  them  part- 
ners in  this  business,  and,  a  partnership  being  thus  established  by  op- 
eration of  law,  this  action  for  contribution  as  between  partners  was 
brought  to  charge  each  with  his  proportion  of  what  one  member  there- 
of had  been  cpmpellfed  to  pay  on  account  of  partnership  liabilities.  Yet 
it  is  nowhere  alleged  in  the  petition  as  amended,  nor  is  it  anywhere 
claimed  in  the  case,  that  there  had  ever  been  any  settlement  of  the 
partnership  accounts,  or  any  accounting  between  the  parties,  whereby 
a  balance  had  been  struck,  or  whereby  the  appellees  were  found  to  be 
indebted  to  the  firm  in  any  sum  on  final  settlement.  That  this  is,  as 
a  general  rule,  necessary  in  order  to  enable  one  partner  to  maintain 
an  action  of  this  kind  against  his  copartners,  is  too  well  settled  to 
require  discussion.  Where  the  transaction  out  of  which  the  liability 
arises  is  independent  of  or  outside  of  the  partnership  business,  or 
where  the  partnership  covers  a  single  venture,  or  but  one  transaction, 
so  that  no  accounting  is  necessary,  the  rule  is  perhaps  different ;  but 
in  a  business  such  as  the  one  under  consideration  here,  covering  a 
variety  of  transactions,  we  know  of  no  exception  to  the  rule  as  above 
stated.  This  rule  is  recognized  by  this  court  in  the  cases  of  Lawrence 
v.  Clark,  9  Dana,  259,  35  Am.  Dec.  133,  Shearer  v.  Francis  (Ky.) 
5  S.  W.  559,  and  Stone  v.  Mattingly  (Ky.)  19  S.  W.  402,  and  may 
be  said  to  be  fundamental  as  to  the  right  of  one  partner  to  sue  his  co- 
partner. It  is  true  that  this  action  was  brought  in  equity,  and  that 
the  petition  contains  a  prayer  for  all  general  relief;  but  it  does  not 
ask  for  a  settlement  of  the  partnership  accounts,  or  for  a  winding  up 
of  its  affairs.  It  does  state  that  the  partnership  is  insolvent,  but  it 
nowhere  says  anything  as  to  the  nature  or  amount  of  its  indebtedness ; 
and  while  it  alleges  that  appellant  has  made  these  payments  for  it.  it 
takes  no  account  of  the  fact  that  other  members  of  the  firm  may  also 
have  paid  out  money  for  it,  as  Brooks  in  his  testimony  swears  that  he 
has  done.  And  this  shows  the  importance  of  the  rule  referred  to,  for 
how  could  this  one  partner  have  known  the  state  of  the  account  be- 


444  RIGHTS   AND   DUTIES   OF   PAIITXERS   INTER   SB.  (Ch.  6 

tween  this  firm  and  each  of  the  other  partners  when  there  had  been 
no  settlement  of  the  partnersliip  accounts,  and  how  unreasonable  it 
would  be  to  allow  him  to  maintain  an  action  against  each  of  the  others 
for  their  full  proportion  of  what  he  might  have  paid  without  refer- 
ence to  the  question  as  to  what  they  may  have  paid  ?  In  other  words, 
how  can  there  be  any  fair  or  just  contribution,  or  any  claim  to  con- 
tribution, as  between  partners,  until  after  a  final  settlement  and  ascer- 
tainment of  the  exact  state  of  the  account  of  each  partner,  and  a  full 
settlement  of  the  partnership  affairs?  Admitting  all  that  is  alleged 
in  this  petition  to  be  true,  it  might  Well  be  that  appellant  was  entitled 
to  recover  nothing  from  his  partners  by  way  of  contribution  on  ac- 
count of  what  he  had  paid,  for,  as  there  is  no  pretense  that  the  part- 
nership accounts  have  ever  been  settled,  it  might  appear  on  such  set- 
tlement that  appellant  was  still  indebteded  to  the  partnership  in  a 
large  sum,  and  that  his  partners  had  actually  paid  for  it  much  more  than 
he  had  done.  Indeed,  this  very  claim  is  here  made  by  his  partners. 
It  is  charged  by  them  that,  though  he  subscribed  for  stock  to  the 
amount  of  $2,500,  yet  he  has  paid  for  no  part  of  it;  and  while  he 
claims  that  it  was  agreed  that  he  should  not  pay  ,for  it,  still  Brooks 
and  Fox  deny  that  there  was  any  such  agreement.  We  only  refer  to 
this,  however,  as  illustrating  the  imperative  necessity  for  and  the  emi- 
nent propriety  of  the  rule  which  forbids  that  such  an  action  be  main- 
tained in  the  absence  of  a  full  settlemeftt  of  the  partnership  afifairs 
which  will  show  the  exact  state  of  the  account  between  it  and  every 
other  person,  and  especially  the  other  members  of  the  firm,  so  that 
the  claims  and  demands  of  the  partners,  as  between  themselves,  may 
be  known. 

Another  point  to  which  attention  may  be  called  is  the  fact  that  this 
petition  fails  to  state  that  this, alleged  partnership  was  an  equal  part- 
nership, or  that  the  appellees.  Fox  and  Brooks,  who  are  each  asked 
to  contribute  equally  with  appellant,  are  equally  interested  with  him 
in  the  partnership.  It  appears  from  the  record  that  appellant  sub- 
scribed for  $2,500  of  the  stock,  while  each  of  the  appellees  named  sub- 
scribed for  $1,000  of  the  same.  The  fact  that  they  were  stockholders 
is  the  fact  relied  on  for  holding  them  liable  as  partners.  Mr.  Lindley, 
in  his  work  on  Partnership,  lays  it  down  as  a  general  rule  "that  part- 
ners must  contribute  ratably  to  their  shares  towards  the  losses  and 
debts  of  their  firm"  (2  Lindl.  Partn.  p.  386)  ;  and  this,  we  think,  is 
the  accepted  doctrine  on  the  subject.  Certainly  any  other  rule  would 
be  very  inequitable  in  this  case,  and  while  we  do  not  care  to  decide 
that  this  must  be  the  basis  of  recovery  in  every  such  case,  yet  we 
would  call  attention  to  the  absence  from  the  petition  in  this  case  of 
any  allegation  as  to  the  respective  interests  of  the  partners  among 
whom  this  loss  is  sought  to  be  apportioned.  In  conclusion,  it  is  clear 
from  the  views  above  expressed  that  no  error  was  committed  by  the 
court  below  to  the  prejudice  of  appellant,  and  the  judgment  dismissing 
his  petition  with  costs  is  therefore  affirmed. 


Sec.  3)  INDEMNITY   AND   CONTUIBUTION.  445 

MAGILTON  V.  STEVENSON  et  al. 
(Supreme  Court  of  Pennsylvania,  1890.     173  Pa.  ri(jO,  34  Atl.  235.) 

Bill  in  equity  for  the  dissolution  of  a  partnership  and  an  account. 
The  master  to  whom  the  case  was  referred  reported  as  follows: 
Whereas,  in  accordance  with  the  terms  of  the  partnership  agreement, 
Magilton  "shall  in  no  event  be  put  to  a  loss  of  more  than  $1,250,  and 
the  balance  shall  be  made  up  and  paid  to  him  in  case  of  greater  loss 
by  the  other  partners,"  the  amount  contributed  by  the  plaintiflF  being 
the  sum  of  $4,G70,  adding  to  which  the  amount  advanced  by  him  to 
the  receiver  of  $100,  making  a  total  of  $4,770,  from  which,  deducting 
the  amount  which  it  was  agreed  should  represent  the  maximum  loss 
of  the  plaintiff  of  $1,250,  leaving  a  balance  of  $3,520  which  should 
be  paid  by  the  defendants  to  the  plaintiff,  and  they  should  be  held  to  be 
jointly  and  severally  liable  to  the  full  payment  of  the  same,  together 
with  the  costs  of  the  cause,  including  a  suitable  allowance  for  the 
services  of  the  receiver.  Exceptions  to  the  master's  report  were  over- 
ruled by  the  court,  which  was  assigned  as  error. 

Fell,  J.  The  first  contention  of  the  appellant  is  that  the  decree 
in  this  case  should  not  have  been  entered,  as  the  partnership  affairs 
had  not  been  settled  and  the  plaintiff's  loss  ascertained.  The  part- 
nership was  formed  for  the  single  purpose  of  constructing  waterworks 
in  Mayfield,  Ky.  The  only  contribution  of  capital  was  that  made 
by  the  plaintiff.  The  land  on  which  the  works  were  to  have  been  con- 
structed had  been  transferred,  and  the  enterprise  abandoned,  and  the 
business  was  a  total  failure.  The  receiver  was  unable  to  obtain  a  bid 
for  the  few  articles  of  personal  property  found  on  the  premises,  and 
nothing  of  value  came  into  his  possession.  The  report  of  the  learned 
master  that  the  remaining  property  of  the  partnership  was  "practically 
worthless,"  as  explained  by  the  testimony  and  other  parts  of  his  report, 
is  in  effect  a  finding  that  they  were  worthless.  There  were  no  as- 
sets, no  accounts  to  settle,  and  nothing  remained  but  to  adjust  the 
equities  between  the  parties. 

The  partnership  agreement  provides  that  "the  profits  and  losses 
are  to  be  shared  equally  by  the  partners,  each  being  entitled  to  one- 
fourth  of  the  profits,  and  to  be  liable  for  one-fourth  of  the  losses ; 
provided,  however,  that  the  said  Magilton  shall  in  no  event  be  put 
to  a  loss  more  than  $1,250,  and  the  balance  shall  be  made  up,  and  paid 
to  him  in  case  of  greater  loss,  by  the  other  parties."  The  master  held 
that  the  liability  of  the  defendants  to  pay  the  loss  of  the  plaintiff  in 
excess  of  $1,250  was  a  joint  and  several  liability.  It  is  conceded  that 
the  finding  of  the  .master  on  this  point  would  be  correct  if  the  parties 
stood  in  the  relation  of  strangers ;  but  it  is  contended  that,  in  view 
of  their  partnership  relation,  the  proviso,  read  in  connection  with  the 
contract,  imposes  a  liability  on  each  of  the  remaining  partners  to 
bear  only  one-third  of  the  plaintiff's  loss  in  excess  of  $1,250.     The 


446  RIGHTS   AND   DUTIES   OF   PARTNERS   INTER   SE.  (Ch.  6 

plaintiff  furnished  the  whole  cash  capital,  and  the  twofold  purpose  of 
the  proviso  was  to  fix  a  limit  beyond  which  his  loss  should  not  extend, 
and  to  secure  the  repayment  by  the  other  partners  of  the  balance  of 
his  contribution  to  the  common  property.  This  was  done  by  providing 
that  the  balance  should  be  paid  to  him  by  them.  This  is  the  plain 
meaning  of  the  words  used.  In  the  preceding  clause,  there  is  a  dis- 
tinct limitation  of  individual  liability  for  the  general  losses  of  the 
business;  and  the  omission  of  this  Hmitation  from  the  proviso  is  sig- 
nificant, and  indicates  an  intention  that  each  should  be  liable  for  the 
whole  in  the  event  of  the  failure  of  the  others  to  pay  their  shares. 
As  the  partnership  had  ended,  and  the  defendants  had  refused,  after 
demand,  to  adjust  the  accounts  in  accordance  with  the  agreement,  we 
see  no  error  in  the  allowance  of  interest.  The  decree  is  affirmed,  at 
the  cost  of  the  appellant. 


SECTION  4.— A  PARTNER'S  RIGHT  TO  HAVE  FIRM  PROP- 
ERTY APPLIED  TO  FIRM  DEBTS. 


WARREN   V.   TAYLOR   et   al. 
(Supreme  Court  of  Alabama,  1877.    60  Ala.  218.) 

The  original  bill  in  this  case  was  filed  by  John  F.  Warren  against 
Joseph  W.  Taylor  and  Mrs.  Mary  C.  Benagh,  and  sought  a  settlement 
of  a  partnership  which  had  existed  between  Warren  and  Taylor,  the 
foreclosure  of  a  mortgage  which  Taylor  had  given  to  Warren  on  his 
interest  in  the  partnership  effects,  and  the  adjustment  of  the  con- 
flicting liens  of  Warren's  mortgage  and  a  mortgage  owned  by  Mrs. 
Benagh.  The  mortgage  by  Taylor  to  Warren  was  given  to  secure  him 
against  any  liability  on  account  of  certain  bills  of  exchange,  drawn  by 
Taylor,  in  the  firm  name,  for  his  personal  use,  with  Warren's  consent. 
The  mortgage  from  Taylor  to  Mrs.  Benagh  was  also  given  to  secure 
her  for  a  loan  to  Taylor  for  his  personal  use.  Both  mortgages  were 
on  Taylor's  interest  in  the  firm  of  Taylor  &  Warren.  The  mortgage  to 
Mrs.  Benagh  Was  recorded  some  time  prior  to  the  mortgage  to  War- 
ren. The  chancellor  held  that  the  complainant  had  no  lien  as  a  partner, 
on  account  of  the  said  bills  of  exchange  he  had  been  obliged  to  pay, 
but  must  rely  only  on  his  mortgage,  and  that  Mrs.  Benagh's  mort- 
gage, having  been  first  recorded,  was  entitled  to  preference  over  his 
mortgage.     Decree  accordingly.     Complainant  appealed. 

Stone,  J,  Money  was  borrowed  separately  from  two  persons,  each 
transaction  having  its  inception  about  the  same  time — January,  1874. 
The  evidence  of  the  indebtedness  was  in  each  case  renewed  from  time 
to  time,  and  mortgages  given  as  security  on  the  same  property — the 


Sec.  4)  APPLICATION    or    FIRM    PROPEKTT.  447 

borrower's  interest  in  the  Times  newspaper  and  its  property.  In  the 
case  of  Mrs.  Benagh's  loan,  the  first  mortgage  was  executed  directly 
to  her,  on  the  same  date  as  the  loan,  January  8,  1874.  This  mortgage 
was  renewed  every  three  months.  In  the  loan  by  Fitts  &  Co.,  bankers, 
the  bill  of  Taylor  &  Warren,  partners  and  joint  owners  of  the  Times 
newspaper,  was  taken  as  security,  due  at  a  short  interval.  This  debt 
was  increased  during  the  year,  and  was  renewed  every  30  days.  A 
mortgage  on  Taylor's  interest  in  the  Times  newspaper  was  given  to 
Warren  to  indemnify  him  against  the  use  of  the  firm  name,  Taylor  & 
Warren.  This  mortgage  was  also  renewed  at  short  intervals.  At 
the  request  of  Taylor  none  of  the  mortgages  were  put  on  record  until 
March,  1875.  Each  series  of  mortgages  was  renewed  within  every 
three  months ;  and  this,  it  was  believed,  would  preserve  the  Hen  from 
the  date  of  the  several  mortgages  given  in  renewal,  without  expense 
and  notoriety  of  registration.  In  other  words,  it  was  believed  that 
mortgages  on  personalty  might  be  recorded  within  three  months  after 
their  execution,  and  this  would  operate  constructive  notice  to  cred- 
itors and  purchasers  from  their  date.  Each  of  the  loans  was  for  the 
personal  use  of  Mr.  Taylor,  and  no  part  of  the  money  was  applied 
to  the  purposes  of  the  partnership  of  Taylor  &  Warren.  Neither  Mrs. 
Benagh,  nor  Mr.  \Varren,  knew  of  the  mortgage  to  the  other,  or  that 
the  other  loan  had  been  negotiated.  On  the  23d  of  March,  1875,  Mr. 
Taylor  being  short  in  the  payment  of  interest,  promised  quarterly,  to 
Mrs.  Benagh,  she  consulted  counsel,  and  on  his  advice  had  her  mort- 
gage recorded  on  that  day.  Warren's  mortgage  was  recorded  four 
days  afterwards.  The  question  presented  is,  which  has  the  paramount 
claim  on  the  mortgaged  property?  Warren  has  paid  up  the  bill  to 
Fitts  &  Co.  out  of  his  private  funds,  and  he  is  the  actor  in  this  suit. 
1.  In  settling  partnership  accounts,  each  partner  is  clothed  with  the 
right  to  insist  that  the  partnership  effects  shall  be  first  applied  to  the 
payment  of  the  partnership  debts;  and  this  right  will  prevail  over 
the  claims  of  an  alienee  or  creditor  of  the  copartner.  So  clearly  de- 
fined is  this  right — so  necessary  to  persons  engaging  in  joint  ad- 
ventures of  this  kind — that  it  has  been  long  and  firmly  settled  that  each 
partner  has  a  lien  on  the  effects  that  they  shall  be  applied  primarily  to 
the  extinguishment  of  the  partnership  liabilities.  This  results,  natural- 
ly and  necessarily,  from  the  nature  of  the  enterprise  and  of  the  title 
by  which  the  property  is  held.  The  title  is  in  the  company  or  associa- 
tion of  individuals,  and  no  one  of  the  number  has  a  separate  owner- 
ship or  right  to  any  part  or  piece  of  the  property  or  effects  of  the 
partnership.  And  the  lien  goes  further  than  this.  After  the  debts 
are  all  paid,  each  partner  has  a  lien  on  the  remaining  partnership  ef- 
fects for  any  balance  due  him  upon  a  proper  accounting  together.  1 
Story's  Eq.'ju.  §  677;  Moore  v.  Smith,  19  Ala.  774;  Donelson's 
Adm'rs  v.  Posey,  13  Ala.  752;  Cannon  v.  Copcland,  43  Ala.  201; 
McGown  V.  Sprague,  23  Ala.  524;  Reynolds  v.  Mardis'  Heirs.  17 
Ala.  32:   Reese  v.  Bradford.  13  Ala.  837:    Lucas  v.  Atwood.  2  Stew 


448  RIGHTS   AND   DUTIES   OF   PARTNERS   INTER  SB.  (Ch.  6 

378;  Emanuel  v.  Bird,  19  Ala.  596,  54  Am.  Dec.  200;  Bridge  v.  Mc- 
CuUough's  Adm'rs,  27  Ala.  661;  Waldron  v.  Simmons,  28  Ala.  629; 
Andrews  v.  Keith,  34  Ala.  722;  Coster's  Ex'rs  v.  Bank  of  Georgia, 
24  Ala.  37;  Parsons  on  Partnership,  265,  350,  351,  352,  168,  502; 
Fourth  Nat.  Bank  v.  Railroad  Co.,  11  Wall.  (U.  S.)  624,  20  L.  Ed. 
82;  Rodriguez  v.  Hefferman,  5  Johns.  Ch.  (N.  Y.)  417;  Sitler  v. 
Walker,  Freem.  Ch.  77. 

2.  The  disputed  question  in  this  case  is  whether  the  claim  of  War- 
ren is  a  partnership  demand.  There  can  be  no  question  that  it  was  a 
partnership  debt,  so  long  as  it  remained  unpaid  to  Fitts  &  Co. ;  and 
they  could  have  claimed  and  asserted  all  the  rights  against  the  part- 
nership and  its  effects  which  the  law  accords  to  partnership  creditors. 
The  bill  was  executed  in  the  firm  name,  with  the  knowledge  and  con- 
sent of  both  partners ;  and  this  bound  the  firm.  Even  if  the  firm  name 
had  been  signed  by  one,  without  authority  from  the  other,  the  bill  was 
made  to  be  used,  and  was  used  in  borrowing  money;  and  there  is  no 
evidence  that  Fitts  &  Co.  knew  the  use  to  which  the  money  was  to 
be  applied.  We  are  not  prepared  to  say  that  the  debt  would  not  have 
been  a  partnership  liability,  even  if  the  bill  had  been  executed  as  last 
supposed.  Knapp  v.  McBride,  7  Ala.  19 ;  Jemison  v.  Bearing's  Ex'rs, 
41  Ala.  283;  Cullum  v.  Bloodgood,  15  Ala.  34;  2  Brick.  Dig.  306, 
§  103 ;    Sprague  v.  Zunts,  18  Ala.  382. 

The  relation  between  partners  is  one  of  generous  confidence.  In 
the  absence  of  special  agreements  to  the  contrary,  the  law  constitutes 
each  the  agent  of  the  other,  and  the  representative  of  the  firm  in  the 
conduct  of  all  the  ordinary  business  of  the  partnership.  The  act  of 
one  is  the  act  of  all.  If  it  be  a  mercantile  partnefship,  a  sale  by  one  is 
a  sale  by  all.  And  a  payment  to  one  member  of  the  firm  discharges  the 
debt,  although  that  member  may  misapply  or  squander  the  money. 
It  is  not  unfrequently  the  case  that  one  partner  becomes  more  in- 
debted to  the  firm  than  another.  He  may  use  more  of  the  income  and 
effects  in  his  personal  and  private  affairs,  may  overdraw  his  share,  or 
may  anticipate  future  receipts  and  emoluments,  sometimes  with  and 
sometimes  without  his  copartner's  knowledge  or  permission.  In  ei- 
ther case,  his  share  of  the  profits,  or  of  the  capital,  if  needed,  will 
stand  incumbered  by  a  lien  to  make  good  such  deficit  to  his  copart- 
ner; and  that  lien  will  be  paramount  to  the  right  of  any  alienee  or 
creditor  of  his.  "In  general,  when  a  sum  of  money  is  advanced  to  a 
partner,  or  a  partner  is  permitted  to  take  it  as  a  loan,  and  there  are 
no  express  terms  agreed  on,  his  profits  are  in  the  first  place  answer- 
able;  and,  if  they  are  insufficient,  his  share  of  the  stock  goes  to  dis- 
charge this  balance ;  and,  if  that  is  insufficient,  he  becomes  a  personal 
debtor  for  the  balance."  Parsons  on  Partnership,  241.  See,  also,  3 
Kent's  Com.  marg.  p.  40  et  seq. 

If,  instead  of  borrowing  the  firm's  credit  to  raise  money  on,  Mr. 
Taylor  had  used  its  money,  or  had  hypothecated  its  bills  receivable, 
and  thus  realized  the  sum  of  them  on  his  private  account — ?nd  this 


Sec.  4)  APPLICATION    OF    FIIlM    PHOi^ilHTT.  449 

either  with  or  without  Mr.  Warren's  consent— the  rule  above  de- 
clared would  have  applied  in  all  its  force,  and  Mr.  Warren  would  have 
held  a  lien.  So,  if  there  had  been  a  partnership  debt  of  Taylor  &  War- 
ren, and  Mr.  Warren  had  paid  it  out  of  his  private  funds,  this  would 
have  given  him  a  claim  and  lien  against  Taylor's  interest  in  either 
'profits  or  capital  of  the  partnership,  paramount  to  the  rights  of  cred- 
itors of  or  purchasers  from  Taylor.  And  such  creditor  or  purchaser 
would  have  no  right  to  complain ;  for  he  would  realize,  by  the  trans- 
action, all  that  Taylor  could  claim.  He  would  be  entitled  to  no  more. 
In  other  words,  Mrs.  Benagh,  in  this  suit,  can  claim  what  Taylor  could 
claim,  if  he  were  suing  Warren;  no  more.  She  purchased  no  other 
right.'  See  Donelson's  Adm'rs  v.  Posey,  and  other  authorities  supra. 
She  cannot  complain  of  this;  for,  purchasing  a  partner's  interest  in 
partnership  effects,  it  was  her  duty  to  inquire  of  the  other  partner  how 
the  account  stood  between  them. 

It  will  be  seen  that  we  have  placed  Warren's  superior  claim  on  the 
lien  which  the  law  gave  him  as  a  partner.  Hence  it  was  not  neces- 
sary for  him  to  take  a  mortgage,  or,  taking  it,  to  have  it  recorded. 
When  he  incurred  the  liability  for  Taylor,  by  allowing,  him  to  pledge 
the  credit  of  the  firm,  he  had  no  knowledge  or  notice  of  Mrs.  Benagh's 
claim.  We  need  not  and  do  not  decide  that  his  claim  would  prevail 
over  ]\Irs.  Benagh's,  if,  before  the  firm  became  bound  to  Fitts  &  Co., 
he  had  been  notified  of  the  conveyance  to  her. 

We  hold  that,  after  taking  a  proper  account  between  the  partners, 
charging  Taylor  with  the  sum  paid  Fitts  &  Co.  and  interest  as  so  much 
paid  to  and  for  him  by  Warren,  the  business  manager,  and  charging 
to  each  partner  all  proper  debits,  and  allowing  to  each  all  proper  cred- 
its, if  a  balance  be  found  due  to  Warren,  he  has  a  first  lien  on  the 
partnership  effects,  income  and  capital,  for  its  payment.  This  is  his 
share  in  the  partnership  effects,  and  he  is  entitled  to  it,  before  Mrs. 
Benagh  can  take  anything  by  her  mortgage ;  any  balance  to  be  equally 
divided  between  Warren  and  Taylor,  and  the  interest  of  the  latter, 
as  far  as  necessary,  to  be  applied  to  the  payment  of  Mrs.  Benagh's 
.  mortgage  and  interest  thereon  from  January  1,  1876.  Should  the  bal- 
ance, on  taking  the  account,  be  found  in  favor  of  Taylor,  and  against 
Warren,  then  such  balance  to  be  a  first  lien  in  favor  of,  and  applied, 
as  far  as  necessary,  to  the  payment  of,  Mrs.  Benagh's  mortgage  debt, 
computed  as  above;  any  balance  of  partnership  effects  to  be  equally 
divided  between  the  partners,  and  Taylor's  share  to  go  to  ]Mrs. 
Benagh,  so  far  as  necessary  to  extinguish  her  mortgage  claim.  If 
anything  be  realized  from  the  mortgaged  property  in  Greene  county, 
the  product  to  be  applied  to  the  payment  of  Warren's  claim,  if  neces- 
sary, after  exhausting  the  partnership  effects.  Should  any  of  the  part- 
nership property  and  effects  be  used  in  paying  a  balance  found  due  to 
Warren,  and  should  any  portion  of  ISIrs.  Benagh's  claim  remain  un- 
paid, and  should  there  remain  a  surplus  of  proceeds  of  the  Greene 
county  mortgaged  property,  after  paying  Warren's  claim,  then,  to  the 
Gil.Paet.— 29 


450  RIGHTS   AND   DUTIES   OF   PARTNERS   INTER   SB.  (Ch.  6 

extent  that  Taylor's  interest  mortgaged  to  Mrs.  Benagh  is  applied  to 
W'arren's  claim,  she  (j\Irs.  Benagh)  is  subrogated  to  the  mortgage 
rights  of  Warren  in  the  surplus  of  the  proceeds  of  the  Greene  county 
mortgaged  property.  , 

The  decree  of  the  chancery  court  is  reversed,  and  a  decree  is  here 
rendered,  in  accordance  with  the  principles  declared  above.  Costs  of 
appeal  to  be  paid  by  the  appellees. 


Sec.  1)  EEMEDIES   OF   PAUTNICKS   INTER  SO.  ^•-•^ 

CHAPTER  VII. 
REMEDIES  OF  PARTNERS  INTER  SE. 


SECTION  1.— ACTIO x\S  AT  LAW. 


SADLER  V.   NIXON. 

.(Court  of  King's  Bench,  1834.    5  Barn.  &  Adol.  930.) 

Assumpsit  for  money  paid  by  the  plaintiff  to  the  defendant's  use, 
etc.  At  the  trial  before  Denman,  C.  J.,  at  the  London  Sittings  after 
last  Michaelmas  Term,  the  following  appeared  to  be  the  facts  of  the 
case:  The  plaintiff,  the  defendant,  and  another  person,  being  co- 
partners in  trade,  employed  a  builder  to  repair  a  building  which  was 
their  joint  property  and  in  which  they  carried  on  their  trade.  The 
builder  brought  an  action  against  the  three  copartners  for  the  repairs, 
and  obtained  judgment,  but  took  the  plaintiff  only  in  execution,  who, 
in  order  to  regain  his  liberty,  paid  the  whole  debt.  The  present  ac- 
tion was  brought  to  recover  one-third  of  the  money  so  paid.  It  was 
contended  that  the  plaintiff,  one  of  the  three  joint  contractors,  having 
been  compelled  to  pay  money  which  his  co-contractors  were  jointly  li- 
able to  pay,  was  entitled  to  maintain  this  action.  On  the  other  hand,  it 
was  said  that,  the  plaintiff  and  the  defendants  in  the  first  action  being 
not  merely  co-contractors,  but  copartners  in  trade,  one  of  them  could 
not  maintain  an  action  against  the  other  to  recover  money  paid  on  ac- 
count of  the  firm,  but  that  his  remedy  was  by  bill  in  equity ;  the  rea- 
son why  an  action  at  law  in,  such  a  case  was  not  maintainable  being  that 
it  would  be  useless  for  one  partner  to  recover  what,  upon  taking  a 
general  account  among  all  the  partners,  he  might  be  liable  to  refund, 
and  this  objection  applying  as  well  to  a  compulsory  as  to  a  voluntary 
payment.  The  Lord  Chief  Justice  was  of  that  opinion,  and  nonsuited 
the  plaintiff,  but  reserved  liberty  to  him  to  move  to  enter  a  verdict. 
F.  Pollock  on  a  former  day  in  this  term  moved  accordingly.  It 
may  be  conceded  that,  where  one  partner  voluntarily  makes  a  payment 
on  account  of  the  others,  he  cannot  maintain  an  action  at  law  against 
his  copartners;  but  it  is  otherwise  where  the  payment  is  by  compul- 
sion. The  principle  on  which  the  plaintiff  is  entitled  to  recover  is  that 
he  has  been  compelled  to  pay  out  of  his  own  funds  money  which  the 
defendant  was  jointly  liable  to  pay. 


452  REMEDIES   OF   PARTNERS   INTER  SE.  (Ch.   7 

Lord  Denman,  C.  J.,  now  delivered  judgment,  and  said  the  court 
were  of  opinion  that  there  was  no  ground  for  the  distinction  taken  on 
the  part  of  the  plaintiff,  and,  therefore,  there  would  be  no  rule. 

Rule  refused. 


JACKSON   V.    STOPHERD. 

(Court  of  Exchequer,  1S34.     2  Cromp.  &  M.  361.) 

Assumpsit  for  goods  sold  and  delivered,  with  the  money  counts,  and 
a  count  on  an  account  stated.    Plea,  the  general  issue. 

At  the  trial,  before  Bolland,  B.,  at  the  last  Assizes  for  the  county  of 
Lancaster,  it  appeared  that,  several  years  prior  to  December,  1831, 
the  plaintiff  and  defendant  became  joint  lessees  of  a  coal  mine,  and  had 
jointly  carried  on  the  working  of  the  mine  down  to  that  period.  At 
that  time,  the  coal  having  been  all  gotten  and  the  pit  filled  up,  one 
Whitehead,  at  the  request  of  the  plaintiff  and  defendant,  balanced  the 
profit  and  loss  of  the  concern,  with  the  exception  of  some  small  coal 
on  the  coal-pit  hill,  and  some  debts  due  to  the  firm,  and  accounts  to  a 
small  amount  which  were  not  then  come  in.  The  plaintiff  said  he 
would  join  in  no  more  coal  pits.  The  defendant  said  he  would  open 
another  coal  pit,  whether  the  plaintiff  joined  in  it  or  not.  It  was  agreed 
that  Whitehead  should  value  the  materials  and  utensils  used  for  work- 
ing the  coal  mine,  and  that  they  should  take  each  an  article  successively, 
article  by  article,  until  the  whole  had  been  divided.  Whitehead  made 
an  inventory  and  a  valuation,  and  a  few  days  afterwards  he  met  them 
by  appointment,  in  order  to  arrange  about  the  division  of  the  utensils 
valued,  and  told  them  that  £171.  19s.  9d.  was  the  amount  of  the  valua- 
tion, and  gave  each  a  copy  of  the  inventory  and  valuation.  It  was 
ultimately  agreed  that  the  defendant  should  take  the  whole  of  the 
utensils  at  the  valuation,  and  the  defendant  afterwards  took  possession 
of  the  whole  of  the  materials  and  utensils  accordingly. 

The  valuation  made  by  Whitehead  was  produced,  but  it  was  not 
stamped,  and  it  was  thereupon  objected  for  the  defendant  that  it  was 
not  admissible  in  evidence,  and  that  parol  evidence  of  the  amount  was 
also  inadmissible.  It  was  likewise  objected  that  the  action  could  not 
be  maintained,  inasmuch  as  there  had  been  no  final  settlement  of  the 
partnership  accounts,  and  no  express  promise  to  pay  the  moiety  of  the 
value  of  the  materials.  The  learned  Baron  overruled  the  objections, 
but  gave  the  defendant  leave  to  move  on  both  points.  His  Lordship 
told  the  jury  that  if  they  were  of  opinion  that  the  partnership  was 
dissolved,  and  that  the  footing  on  which  the  defendant  took  the  uten- 
sils was  that  he  was  to  pay  for  one-half  of  them,  the  plaintiff  was  en- 
titled to  their  verdict.  The  jury  found  a  verdict  for  the  plaintiff  for 
the  sum  of  £85.  19s.  lOd.,  being  half  the  amount  of  the  valuation. 

F.  Pollock,  in  Michaelmas  Term  last,  obtained  a  rule  to  show  cause 


Sec.  1)  ACTIONS    AT   LAW.  453 

why  the  verdict  should  not  be  set  aside,  and  a  nonsuit  entered,  or  a  new 
trial  granted. 

B.vvLiiY,  B.  Upon  the  general  rule  of  law  there  is  no  difficulty. 
One  partner  cannot  maintain  an  action  for  a  balance  on  the  partnership 
account  until  the  accounts  have  been  settled  and  adjusted,  and  until  it 
is  ascertained  what  is  the  balance  due  from  the  partner  against  whom 
the  claim  is  made.  But  there  may  be  special  bargains  by  which  par- 
ticular transactions  are  insulated  and  separated  from  the  winding  up 
of  the  concern,  and  are  taken  out  of  the  general  law  of  partnership. 
When  we  consider  the  circumstances  of  this  case,  the  plaintiff's  right 
of  action  may  be  put  upon  the  footing  of  a  separate  transaction;  and 
I  collect  that  that  was  the  footing  upon  which  it  was  placed  by  my 
Brother  Eolland. 

The  parties  were  about  to  divide  the  different  articles,  so  as  to  put 
half  in  the  one  scale  and  half  in  the  other;  and  if  they  had  done  that, 
and  the  plaintiff  had  afterwards  sold  his  to  the  defendant,  justice 
would  have  required  that  the  plaintiff  should  pay  the  defendant  for 
his  moiety.  But  they  might  come  to  another  agreement — that  one 
partner  should  take  the  whole  of  the  property,  paying  the  value,  dis- 
tinct from  the  general  account;  and,  upon  the  whole,  I  think  that 
that  was  the  transaction,  and  it  is  so  found  by  the  jury.  Independently, 
therefore,  of  the  general  law  of  partnership,  it  seems  to  me  that  the 
nature  of  the  bargain  as  to  the  division  of  the  property  raised  an  im- 
plied obligation  on  the  defendant  to  pay  in  money  before  a  final  set- 
tlement of  the  accounts.  The  case  of  Fromont  v.  Coupland  does  not 
seem  to  me  at  variance  in  any  respect  with  the  other  decisions,  or 
with  the  view  which  I  take  of  this  case.  A  claim,  by  way  of  set-off, 
was  there  made,  not  on  a  bargain  of  an  insulated  nature,  but  on  a 
balance  of  weekly  accounts,  and  the  court  decided  that  it  could  not 
be  maintained,  as  there  had  not  been  any  final  settlement.  Here,  unless 
there  had  been  a  consent  and  a  purchase,  the  defendant  would  not 
have  been  entitled  to  use  this  property  for  his  own  separate  purposes. 
It  may  be  observed  that  the  partnership  there  was  continuing,  and  that 
the  balance  in  favor  of  one  partner  at  the  end  of  one  week  might  he 
against  him  at  the  end  of  the  next,  or  at  the  conclusion  of  the  partner- 
ship. As  to  the  question  of  the  stamp,  it  seems  to  me  that  St.  55  Geo. 
Ill,  c.  184,  sch.  part  1,  does  not  apply,  as  the  valuation  was  for  the 
information  of  the  parties,  and  not  binding  upon  them,  although  it 
was  afterwards  made  the  foundation  of  an  agreement. 

Vaughan,  B.  I  am  of  the  same  opinion.  I  think  this  rule  cannot 
be  supported  on  either  ground.  It  is,  no  doubt,  a  general  rule  that 
one  partner  cannot  maintain  an  action  on  a  partnership  transaction  so 
long  as  the  partnership  concerns  remain  unadjusted;  but.  if  any  sub- 
ject be  withdrawn,  and  made  the  foundation  of  a  distinct  settlement, 
it  is  then  no  objection  that  other  accounts  remain  unadjusted.  The 
question  whether  there  was  an  agreement  that  the  defendant  wa<  to 


454  REMEDIES   OP   PARTNERS   INTER   SB.  (Ch.   7 

take  the  materials  and  utensils,  and  to  pay  the  .plaintiff  one-half  of 
the  value  of  the  whole,  was  left  to  the  jury,  and  they  found  that  it 
was  so. 
Rule  discharged.* 


BURLEY  &  HARRIS  v.  HARRIS. 

(Superior  Court  of  Judicature  of  New  Ilnuipshire,  1840.     8  N.  H.  233,  29  Am. 

Dec.  0.jO.) 

This  was  assumpsit  on  an  account  annexed  to  the  writ.  The  cause 
was  tried  on  the  general  issue,  and  a  brief  statement  was  filed,  alleging 
the  causes  of  defense  disclosed  in  this  case.  It  was  admitted  that 
Harris,  the  defendant,  was  a  partner  in  the  firm  of  Burley  &  Harris, 
in  whose  name  the  suit  was  brought.  The  defendant  had  received 
goods  belonging  to  the  firm  to  the  amount  of  $4:95.84,  for  which  he 
was  liable  to  account  to  the  firm ;  but  it  was  not  admitted  or  proved 
that  the  defendant,  on  a  full  adjustment  of  the  partnership  affairs, 
would  be  found  indebted  to  the  firm.  The  parties  ofi'ered  in  evidence 
the  original  articles  of  partnership  betwixt  them,  and  an  assignment 
of  the  partnership  demands  to  Burley,  with  an  agreement  that  Burley 
was  to  account  for  these  demands  in  payment  of  certain  company  debts, 
and  in  payment  of  Harris's  portion  of  the  partnership  profits,  if  there 
should  be  any.  The  partnership  business  remains  unsettled  at  this 
time.  On  the  disclosure  of  these  facts  the  court  directed  a  nonsuit, 
subject  to  the  opinion  of  the  court;  and  it  was  agreed  by  the  parties 
that,  if  this  ruling  of  the  court  should  not  be  sustained,  the  nonsuit 
was  to  be  set  aside,  and  judgment  rendered  for  the  plaintiffs  for  the 
amount  of  the  account  annexed. 

Upham,  J.  The  authorities  are  very  clear  that  an  individual  can- 
not stand  in  the  relation  of  plaintiff  and  defendant  in  the  same  suit. 
A  judgment  in  such  case  would  avail  nothing,  as  the  defendant  would 
have  the  same  right  to  discharge  an  execution  founded  on  it  as  the 
plaintiff.  The  question  has  arisen  in  numerous  instances  where  an  in- 
dividual has  been  a  member  of  different  firms,  in  which  one  firm  held 
claims  against  the  other  and  attempted  to  enforce  them  at  law.  Judge 
Story,  in  his  treatise  on  Equity,  says  that  no  suit  can  be  maintained  at 
law  in  regard  to  any  actions  or  debts  between  two  firms,  where  in- 
dividuals of  the  firms  are  partners  in  each.  In  such  a  case,  all  the 
partners  must  join  and  be  joined;  and  no  person  can  maintain  a  suit 
against  himself,  or  against  himself  with  others.  The  objection  is  a 
complete  bar  to  the  action.  '  Nay,  even  after  the  death  of  the  partner 
or  partners  belonging  to  both  firms,  no  action  upon  any  contract,  or 
mutual  dealing  ex  contractu,  is  maintainable  by  the  survivors  of  one 

1  The  concurring  opinion  of  Gumey,  B.,  is  omitted- 


Sec.  1)  ACTIONS   AT    LAW.  455 

firm  ag-ainst  those  of  the  other  firm ;  for  in  a  legal  view  there  never 
was  any  subsisting  contract  between  the  firms,  as  a  partner  cannot 
contract  with  himself.  1  Story's  Eq.*  630 ;  Bosanquet  v.  Wray,  6 
Taunt.  597;  Mainwaring  v.  Newman,  2  Bos.  &  P.  120;  Jones  et  al. 
v.  Yates  et  al.,  9  Barn.  &  Cres.  532.  In  Eastman  v.  Wright,  G  Pick. 
(Mass.)  31 G,  and  May  v.  Parker,  12  Pick.  (Mass.)  39,  22  Am.  Dec. 
393,  are  remarks  of  the  court  to  the  same  effect.  In  the  case  of  Holmes 
V.  Higgins,  1  Barn.  &  Cres.  68,  it  appeared  that  a  number  of  persons 
had  associated  themselves  together  and  subscribed  sums  of  money  for 
the  purpose  of  obtaining  a  bill  in  Parliament  to  make  a  railway.  It 
was  holclen  that  they  were  partners,  and  that  a  subscriber  who  acted 
as  a  surveyor  in  their  employ  could  not  maintain  an  action  against 
all  or  any  of  the  subscribers.  Chief  Justice  Abbot  held  that  the  sub- 
scribers were  partners,  and  that  it  was  perfectly  clear  that  one  partner 
could  not  maintain  an  action  against  his  copartners  for  work  and  labor 
performed,  or  money  expended,  on  account  of  the  copartnership. 

But  in  this  case  the  partnership  effects  have  been  assigned  to  one 
of  the  firm,  and  it  is  contended  that  the  assignment  should  be  protected 
and  the  holder  of  the  partnership  property  permitted  to  enforce  all 
claims  in  the  partnership  name.  This  doctrine  is  correct.  In  many 
instances  of  dissolution  of  partnerships  the  remaining  partner  is,  by 
agreement,  exclusively  authorized  to  arrange  the  joint  aflfairs  and  to 
receive  the  partnership  credits  as  the  fund  out  of  which  to  discharge 
the  partnership  debts.  Where  this  is  the  case,  and  notice  as  well  of  the 
dissolution  as  of  the  private  arrangement  between  the  parties  is  given, 
a  debtor  to  the  firm  cannot,  by  colluding  with  the  outgoing  partner, 
obtain  from  him  a  discharge  of  the  debt.  Gow  on  Part.  275 ;  Hender- 
son V.  Wild,  2  Camp.  561;  Skaife  v.  Jackson,  3  Barn.  &  Cres.  421; 
Scott  v.  Trents,  1  Wash.  (Va.)  77;  Mountstephen  v.  Brooks,  1  Chit. 
390;  Arton  et  al.  v.  Booth.  4  Moore,  192.  The  claims  of  the  firm 
against  all  persons,  other  than  the  partners,  may  well  be  enforced 
under  such  an  arrangement.  But  until  a  final  adjustment  is  made  of 
the  balance  due  on  all  partnership  accounts,  or  at  least  until  some 
balance  is  struck,  and  a  specific  sum  is  found  due  to  some  one  part- 
ner, no  suit  can  be  enforced  by  one  member  of  a  firm  against  another. 
Gow  on  Part.  88;  Walker  v.  Long,  2  Browne  (Pa.)  125;  Ozeas  v. 
Johnson,  4  Dall.  (Pa.)  434,  1  L.  Ed.  897;  Murray  v.  Bogert  et  al., 
14  Johns.  (N.  Y.)  318,  7  Am.  Dec.  466;  Beach  v.  Hotchkiss,  2 
Conn.  425;  Bond  v.  Hays,  12  Mass.  34;  Wilby  v.  Phinney,  15  Mass. 
116;  Fanning  v.  Chadwick,  3  Pick.  (Mass.)  420,  15  Am'  Dec.  233; 
Brinley  v.  Kupfer,  6  Pick.  (Mass.)  179;  Foster  v.  Alanson,  2  D.  & 
E.  479. 

No  settlement  of  the  partnership  claims  has  been  made  in  this  case. 
The  assignment  to  Burley  is  in  fact  a  mere  power  of  attorney,  au- 
thorizing him  to  collect  the  partnership  demands  and  apply  them  in 
payment  of  the  partnership  debts,  while  he  was  to  hold  the  balance 
to  be  adjusted  by  the  partners.     The  partner  who  took  upon  himself 


45G  REMEDIES   OF   PARTNERS   INTER  SE.  (Ch.   7 

the  business  of  collection  covenanted  to  account  for  all  the  property 
received,  to  pay  the  debts,  and  to  pay  the  defendant  his  share  of  the 
profits  upon  a  final  settlement,  if  the  firm  should  be  found  to  have  real- 
ized any  profits  for  division.  The  partnership  business  as  betwixt  the 
partners  was  left  entirely  unsettled,  and  in  case  of  any  difficulty  in 
the  settlement  betwixt  them  their  claims  were  to  be  submitted  to  the 
arbitration  of  individuals  designated  in  the  articles  of  dissolution. 
There  is  no  pretense,  then,  for  maintaining  this  suit,  on  the  ground  of 
any  adjusted  balance  made  betwixt  the  parties.  It  is  a  mere  naked 
suit  brought  by  a  firm  against  a  partner  for  an  indebtedness  to  the 
firm.  The  suit  is,  therefore,  felo  de  se.  The  parties  on  either  side 
upon  the  record  are  the  same.  Should  any  difficulties  arise  in  the 
final  settlement  of  the  concerns  of  these  partners,  there  is  a  plain  rem- 
edy in  equity,  where  the  objections  which  occur  here  would  not  exist. 
Suit  dismissed,  without  costs. 


LEDFORD  V.  EMERSON. 

(Supreme  Court  of  North  Carolina,  1905.    140  N.  C.  288,  52  S.  E.  641,  4  L.  R. 

A.  [N.  S.]  130.) 

The  principal  action  was  instituted  in  July,  1903,  to  recover  plain- 
ciff's  share  arising  from  a  sale  of  certain  options  on  land  situated  in 
'north  Georgia,  same  having  been  procured  by  plaintiff  in  the  years 
1900,  1901,  etc.,  and  sold  by  defendant  in  April,  1903,  at  a  price  of 
$10,000.  The  allegation  and  testimony  of  plaintiff  tended  to  show  that 
plaintiff  procured  a  large  number  of  options  on  land  in  north  Georgia, 
and  took  same  in  the  name  of  defendant,  under  an  agreement  that  de- 
fendant was  to  advance  the  incidental  expenses,  sell  said  options,  and 
divide  the  profits  equally  with  the  plaintiff;  that  defendant,  having 
sold  said  options  at  the  price  of  $10,000,  fraudulently  concealed  the 
facts  from  plaintiff  and  paid  plaintiff  $250  which  plaintiff  took  under 
false  and  fraudulent  assurances  as  to  the  disposition  of  the  options, 
giving  defendant  his  receipt  in  full,  and  defendant  had  failed  to  make 
any  other  or  further  payments  to  plaintiff  by  reason  of  said  deal,  etc. 
As  ancillary  to  the  principal  action,  an  order  of  arrest  was  issued  in 
the  cause  on  affidavits  duly  made  on  February  15,  1904,  and  defend- 
ant was  arrested  thereunder  and  held  to  bail.  There  was  a  motion 
to  discharge  the  order  of  arrest,  heard  before  Judge  Neal,  as  stated. 
Motion  allowed,  and  plaintiff  excepted  and  appealed. 

Hoke,  J.  The  judge  below  on  the  hearing  found  the  facts  contain- 
tained  in  the  plaintiff's  affidavits  to  be  true,  and  held,  as  a  matter  of 
law,  that  on  these  facts  there  was  no' right  shown  to  arrest  defend- 
ant. His  honor  thereupon  discharged  the  order  of  arrest  and  entered 
judgment  exonerating  the  bail  from  any  and  all  liability  by  reason 
of  his  suretyship.     This,  as  we  understand,  was  on  the  idea  that  the 


Sec.  1)  ACTIONS    AT    LAW.  4o7 

facts  disclosed  a  case  of  partnership,  and  in  such  case  there  was  no 
legal  right  in  one'  partner  to  cause  the  arrest  of  another.  It  is  a  well- 
recognized  principle  that,  during  the  continuance  of  a  partnership, 
one  partner  cannot  sue  another  on  any  special -transaction  which  may 
be  made  an  item  of  charge  or  discharge  in  a  general  partnership  ac- 
count. This  has  sometimes  been  put  on  the  ground  that  such  a  suit 
would  necessitate  that  the  party  complained  of  should  be  both  plain- 
tiff and  defendant.  But  I  apprehend  a  reason  of  more  moment  is 
tiiat  as  to  such  a  transaction,  till  a  full  accounting  is  had,  it  cannot 
be  ascertained  or  declared  what  portion  of  such  claims  belong  to  the 
one  or  the  other;  and  so  it  is  true  that  one  partner,  during  the  con- 
tinuance of  the  partnership,  cannot  ordinarily  bring  trover  or  tres- 
pass against  the  other  by  reason  of  acts  concerning  partnership  prop- 
erty, unless  the  same  be  destroyed  or  removed  entirely  beyond  the 
reach  or  control  of  the  complaining  party,  for  one  has  no  more  right 
to  deal  with  the  property  than  the  other.  Where,  however,  the  part- 
nership has  terminated,  and,  all  the  debts  having  been  paid  and  the 
partnership  affairs  otherwise  adjusted,  nothing  remains  to  be  done 
but  to  pay  over  an  amount  due  from  one  to  the  other,  to  be  ascertained 
by  a  reckoning  as  to  one  special  item,  or  even  several  items,  the  mat- 
ter presenting  no  complication  of  any  kind,  as  in  Clarke  v.  Mills,  '36 
Kan.  393,  13  Pac.  569;  or  where  the  partnership  was  for  a  single 
venture  or  special  purpose,  which  has  been  closed,  and  nothing  remains 
but  to  pay  over  the  claimant's  share  of  the  proceeds,  as  in  Jacques 
V.  Hulit,  16  N.  J.  Law,  38 — in  either  case  an  action  would  lie  in  favor 
of  one  against  the  other.  George  on  Partnership,  304;  Bates  on 
Partnership,  865,  866;  Clarke  v.  Mills,  and  Jacques  v.  Hulit,  supra; 
Musier  v.  Trumpbour,  5  Wend.  (N.  Y.)  274;  Moran  v.  Le  Blanc,  6 
La.  Ann.  113;  Wheeler  v.  Arnold,  30  Mich.  304.  In  Clarke's  Case, 
supra.  Holt,  P.  J.,  for  the  court,  said:  "There  were  no  debts  to  be 
paid,  no  money  to  be  collected,  no  property  to  be  disposed  of,  and  un- 
der the  facts  of  the  case  it  was  purely  a  pecuniary  demand,  involving 
no  complications  that  could  not  properly  be  determined  in  a  justice's 
court.  In  Wheeler  v.  Arnold,  supra,  it  is  held:  "The  remedy  at  law 
for  contribution  between  two  partners  after  dissolution  is  admissible, 
and,  when  tliere  have  been  no  such  dealings  with  assets  and  no  such 
private  relations  with  the  firm  as  to  make  a  settlement  difficult,  there 
would  be  no  occasion,  under  our  statutes  making  discovery  obtainable 
at  law  by  an  examination  of  parties  as  witnesses,  for  an  accounting 
in  equity."  In  Jacques  v.  Hulit,  supra,  it  is  held :  "A  mutual  cove- 
nant to  divide  the  proceeds  of  a  certain  crop,  if  it  be  a  partnership, 
is  so  only  for  a  special  purpose  and  terminates  as  soon  as  the  crop  is 
sold ;  and  an  action  lies  by  one  of  the  parties  against  the  other  for 
any  balance  due  thereon  to  the  plaintiff  from  the  defendant,  without 
resorting  to  the  action  of  account  render." 

This  being  the  correct  doctrine,  and  an  action  at  law  maintainable, 
the  facts  bring  the  claim  within  the  provisions  of  our  statutes  on  arrest 


458  REMEDIES   OF   PARTNERS   INTER  SB.  (Ch.   7 

and  bail,  no  reason  occurs  to  us  why  the  plaintiff  should  be  deprived 
of  this  ancillary  remedy.     *     *     * 

There  was  error  in  allowing  the  defendant's  motion,  and  the  order 
to  that  effect  will  be  set  aside.  / 


CLARKE  V.   MILLS. 

(Supreme  Court  of  Kansas,  1887.    30  Kan.  303,  13  Pac.  5G9.) 

Holt,  C.  The  defendant  in  error,  plaintiff  below,  brought  his  ac- 
tion against  plaintiff  in  error,  defendant  below,  before  a  justice  of 
the  peace.  He  alleged  in  his  bill  of  particulars  that  the  plaintiff  and 
defendant  were  joint  makers  of  a  note  for  $500,  and  that  he  had  paid 
the  same  in  full,  with  interest,  and  prayed  for  contribution.  The  de- 
fendant made  application  for  and  obtained  a  continuance  in  the  jus- 
tice's court,  but  neither  filed  any  pleadings,  nor  appeared  at  the  trial 
therein.  Judgment  was  rendered  for  plaintiff,  and  defendant  ap- 
pealed to  the  district  court.  In  the  district  court  defendant  set  forth 
that  plaintiff  and  defendant  were  partners,  and  that  the  note  sued  on 
was  given  for  money  that  was  used  in  the  partnership  affairs;  that, 
as  such  partners,  they  had  never  had  a  final  settlement,  and  there  had 
never  been  an  accounting  between  them;  that  plaintiff  kept  the  ac- 
counts of  the  firm,  and  had  neglected  and  refused  to  account  with  him ; 
and  also  that  upon  a  proper  and  final  adjustment  the  defendant  did 
not  owe  plaintiff.    *    *     * 

Another  alleged  error  is  that  the  specific  findings  of  fact  did  not  au- 
thorize the  judgment  rendered.  The  court  found  there  had  been  no 
settlement  or  accounting  between  the  partners;  also  there  were  no 
claims  against,  and  no  credits  in  favor  of,  the  firm ;  and  that  all  part- 
nership property  had  been  disposed  of.  The  controversy  was  between 
only  two  parties,  and  concerning  a  limited  number  of  transactions. 
The  question  to  be  decided  was  simply  whether  Mills  had  put  into  the 
partnership  business  more  money  than  Clarke.  There  was  no  receiver 
to  be  appointed,  no  claims  to  be  collected,  no  actions  to  be  brought 
against  debtors  of  the  firm,  no  debts  to  be  paid,  no  property  to  be  dis- 
posed of,  no  relief  was  sought,  except  an  ordinary  money  judgment. 
The  findings  of  fact  were  sufificient  to  authorize  such  a  judgment  in 
favor  of  Mills.  The  plaintiff  in  error  cites  a  large  number  of  cases  to 
support  his  theory  that  no  judgment  could  be  rendered  in  favor  of  one 
partner  against  another,  based  upon  partnership  dealings,  where  there 
had  been  no  accounting  between  them.  The  authorities  cited  fully  sus- 
tain his  theory  that  an  accounting  must  be  first  had  between  partners 
before  an  action  for  the  recovery  of  money  only  can  be  maintained. 
Lawrence  v.  Clark,  9  Dana  (Ky.)  257,  35  Am.  Dec.  133;  Course  v. 
Prince,  1  Mill,  Const.  416;  Graham  v.  Holt,  25  N.  C.  300,  40  Am. 
Dec.  408;    Harris  v.  Harris.  39  N.  H.  45;    Smith  v.  Smith,  33  Mo. 


Sec.  1)  ACTIONS   AT    LAW.  450 

557;  Tolford  v.  Tolford,  44  Wis.  517;  Ivy  v.  Walker,  58  Miss.  253; 
Crossley  v.  Taylor,  83  Ind.  337;  Bowzer  v.  Stoughton,  119  111.  47,  9 
N.  E.  208.  The  practice  in  actions  between  partners  for  the  settle- 
ment of  their  partnership  matters  has  not  been  uniform  in  the  different 
states.  In  fact  the  conflict  of  authorities  appears  to  be  irreconcilable. 
The  courts  in  Massachusetts  early  laid  down  the  rule  that,  in  case  of 
copartners,  neither  a  settlement  of  the  accounts,  nor  an  express  prom- 
ise to  pay,  need  be  proved,  where  the  suit  is  assumpsit  for  the  balance, 
and  they  have  adhered  strictly  to  that  practice.  Williams  v.  Henshaw, 
11  Picl:.  (Mass.)  79,  22  Am.  Dec.  3GG ;  Brigham  v.  Eveleth,  9  Mass. 
538;  Bond  v.  Hays,  12  Mass.  34;  Whfc^lnr  v.  Wheeler,  Ul  Mass. 
2-17;  Wrip,ht  v.  Cumpsty,  41  Pa.  102.  This  court  in  Pettingill  v. 
Jones,  28  Kan.  751,  cited  with  approval  Wheeler  v.  Arnold,  30  Mich. 
304.  We  now  believe  the  rule  there  laid  down  is  reasonable  and  ap- 
plicable to  the  facts  in  this  case,  and  is  in  consonance  with  the  liberal 
provisions  of  our  Code.  In  that  case  the  court  said :  "There  was  no 
occasion  for  an  accounting  in  equity,  unless  there  had  been  such  deal- 
ing with  assets,  as  well  as  such  private  relations  with  the  firm  as  'to 
make  a  settlement  otherwise  difficult ;  and,  there  being  only  two  part- 
ners concerned  (and  discovery  being  now  obtainable  as  well  at  law  as 
in  equity),  there  would  seem  to  be  no  very  good  reason  why  the  reme- 
dy at  law  would  not  be  entirely  adequate." 

It  is  recommended  th^t  the  judgment  of  the  court  below  be  affirmed. 


BURNS  V.  NOTTINGHAM. 

(Supreme  Court  of  Illmois,  1S71.     60  111.  531.) 

Walker,  J.  This  was  an  action  of  assumpsit,  brought  by  defend- 
ant in  error,  in  the  Kankakee  circuit -court,  against  plaintiflf  in  error. 
A  trial  was  had  by  the  court  and  a  jury,  resulting  in  a  verdict  and 
judgment  of  $1,000  against  plaintiff  in  error,  to  reverse  which  the  rec- 
ord is  brought  to  this  court  on  error. 

It  appears  that  the  parties  to  this  suit  were,  for  a  time,  partners  as 
sutlers  for  the  army,  and  afterwards  took  one  Robinson  into  the  firm. 
This  action  was  brought  to  recover  a  balance  claimed  to  be  due  from 
plaintiff  in  error  on  a  settlement  of  the  affairs  of  the  firm ;  but  it  is 
urged  by  plaintiff  in  error  that  the  evidence  fails  to  show  a  final  set- 
tlement, the  ascertainment  of  the  balance  due,  and  a  promise  to  pay  the 
same.  It  is  the  settled  law  of  this  court  that  one  partner  cannot  bring 
an  action  in  assumpsit  against  his  late  partner,  unless  upon  a  dissolu- 
tion of  the  copartnership  the  partners  account  together,  and  a  balance 
is  stated  in  favor  of  one,  and  the  other  agrees  to  make  payment  of 
such  sum.  The  balance  so  found  must  be  a  final  settlement  of  all  the 
partnership  accounts,  but  balances  only  struck  preparatory  to  a  final 
account  are  not  sufficient  to  form  the  subject-matter  of  an  action  at 


460  REMEDIES   OF   PAIITNEIIS   INTEll   SB.  (Cll.   7 

law.  Until  this  is  done,  the  remedy  is  in  equity.  Davenport  v.  Gear, 
2  Scam.  495 ;  Frink  v.  Ryan,  3  Scam.  322 ;  Chadsey  v.  Harrison,  11 
111.  151  ;  Ridgway  v.  Grant,  17  111.  117.  And,  as  a  general  rule,  such 
a  settlement  must  be  accompanied  by  a  promise  to  pay  by  the  partner 
thus  found  indebted,  to  confer  jurisdiction  on  a  court  of  law. 

The  question  is,  then,  presented  whether,  in  this  case,  it  appears  that 
there  was  such  a  settlement  and  promise.  A  written  statement  signed 
by  the  parties  was  produced  and  read  in  evidence,  which  states  that 
it  is  a  settlement  between  the  parties  to  this  suit,  but  is  not  signed  by 
Robinson,  the  other  partner.  It  states  that  it  shows  the  profits  of  the 
concern.  It  fails  to  state  in  whose  hands  the  funds  were,  and  there  is 
no  presumption  that  one  partner  has  them,  rather  than  another,  as 
each  has  an  equal  right  to  retain  them  until  there  is  a  final  settlement. 

This  instrument  does  not  fix  any  amount  that  each  partner  is  en- 
titled to  receive  out  of  these  profits;  nor  does  it  appear  whether  the 
partners  had  each  received  his  share  of  the  capital  stock  put  into  the 
partnership,  or  what  amount,  if  anything,  may  have  been  drawn  out 
by  the  several  partners.  Although  called  a  settlement,  it  is  indefinite 
and  wholly  unsatisfactory  as  to  the  rights  and  liabilities  of  the  several 
partners.  Again,  Robinson  was  not  a  party  to  this  statement,  and, 
if  he  were,  it  fails  to  appear  what  portion  of  these  profits  belong  to 
him.  This  written  statement  is  wholly  insufficient  to  fix  a  liability 
for  any  sum  on  plaintiff  in  error.     *     *     * 

In  considering  all  the  evidence,  we  fail  to  find  that  there  was  a  final 
settlement,  a  balance  struck,  and  a  promise  to  pay  the  balance.  It  is 
not  shown  by  the  written  instrument,  nor  is  any  amount  fixed  upon  by 
defendant  in  errof,  which  was  admitted  by  plaintiff  in  error  as  being 
due  him ;  and  plaintiff  in  error  denies  that  he  agreed  to  any  definite 
amount.  This,  then,  falls  far  short  of  the  evidence  of  such  a  settle- 
ment of  the  partnership  affairs,  and  the  striking  of  a  balance,  as  au- 
thorizes a  recovery  in  an  action  of  assumpsit  for  money  had  and  re- 
ceived. On  the  state  of  facts  disclosed  by  this  record,  the  only  remedy 
is  in  a  court  of  equity. 

The  court  below  erred  in  overruling  the  motion  for  a  new  trial,  and 
the  judgment  of  the  court  below  is  reversed,  and  the  cause  remanded. 

Judgment  reversed.^ 

1  "It  is  contenrltxl  by  counsel  for  appellee  that  one  partner  cannot  sue  an- 
other at  law  for  an  unsettled  account,  and  that  chancery  has  exclusive  juris- 
diction of  unsettled  matter  between  partners.  Upon  this  point  there  is  no 
controversy.  But  it  is  also  claimed  by  appellant  that  the  principle  is  fully 
and  clearly  settled  that  one  partner  can  maintain  an  action  at  law  against 
his  eopai-tner  upon  an  amount  found  to  be  due  him  upon  settlement  and  ac- 
count stated.  We  thuik  the  current  of  authorities  show  this  to  be  the  pi^'oper 
and  settled  rule.  While  in  some  courts  it  has  been  hold  that  upon  a  settle- 
ment of  partnership  accounts  an  express  promise  to  pay  is  essential  to' support 
an  action,  yet  in  most  of  the  states  it  has  been  held  thcit,  where  there  has  been 
a  settlement  and  balance  ascertained,  the  law  itself  will  imply  a  promise  to 
pay.  Collyer  on  Partnership,  §§  278,  279,  280,  and  note;  Storv.  Eq.  .Tur.  $ 
644,  and  note."    Per  Baldwin,  J.,  in  Wycoff  y.  Purnell,  10  Iowa,  332  (1860). 


Sec.  1)  ACTIONS   AT    LAW,  461 


OWEN  V.  MEROXEY. 

(Supreme  Court  of  North  Carolina,  1904.    i:^G  N.  C.  475.  48  S.  E.  821,  103  Am. 

St  i:ep.  952.) 

This  was  a  civil  action  commenced  by  plaintiff  against  defendant  to 
recover  damages  for  defendant's  failure  to  carry  out  and  comply  with 
his  part  of  a  contract  as  a  condition  precedent  to  the  formation  of  a 
partnership.  The  complaint  alleges  that  in  the  year  1900  plaintiff  was 
engaged  in  running  and  operating  a  mill  in  Davidson  county  and  de- 
fendant owned  a  mill  site  in  Rowan  county,  known  as  the  "St,  John 
Mill  Property,"  and  defendant,  realizing  that  plaintiff  was  an  expert 
millman,  went  to  him  and  made  him  a  proposition  that  if  he  would  dis- 
pose of  his  mill  property  in  Davidson  county,  and  go  in  with  him  and 
operate  a  mill  in  Rowan  county,  he  (defendant),  as  a  condition  pre- 
cedent, and  an  inducement  for  him  to  become  his  partner,  would  put 
in  a  dam  and  wire  ferry  across  the  river,  repair  the  road  leading  to  the 
mill,  and  furnish  all  the  necessary  money,  except  $1,500,  to  equip  said 
mill  with  up  to  date  machinery,  and  run  it  to  its  capacity,  and  buy 
and  carry  a  complete  stock  of  flour,  meal,  grain,  etc.  But  that,  after 
defendant  had  gotten  all  of  plaintiff's  money,  he  refused  to  comply 
with  or  carry  out  his  part  of  said  agreement;  that,  after  defendant 
had  failed  and  refused  to  comply  with  his  part  of  said  agreement,  the 
milling  business  they  had  anticipated  doing  and  operating  became  a 
failure,  and  plaintiff's  $1,500  he  invested  therein  became  a  loss,  where- 
as, if  defendant  had  complied  with  his  part  of  said  agreement  as  a 
condition  precedent  to  the  formation  of  the  partnership,  said  milling 
business  would  have  been  a  success,  and  plaintiff  would  not  have  been 
damaged.    Plaintiff  appealed  from  the  judgment  rendered. 

Clark,  C.  J.  The  record  states  that :  "The  defendant  moves  to 
dismiss  the  action  because  he  says  that  this  is  an  action  at  law  by 
one  partner  against  his  copartner,  as  appears  upon  the  face  of  the 
pleadings.  The  court  being  of  opinion  that  the  action  cannot  be  main- 
tained in  this  form,  dismissed  the  action."  The  plaintiff  appealed.  It 
has  been  more  than  a  generation  since  we  abolished  by  constitutional 
provision  (article  4,  §  1)  "the  distinctions  between  actions  at  law  and 
suits  in  equity,  and  the  forms  of  all  such  actions  and  suits,"  and  it  is 
a  recurrence  to  a  procedure  familiar  only  to  the  lawyers  of  a  former 
generation  to  hold  that  an  action  "cannot  be  maintained  in  this  form." 
There  are  but  two  grounds  not  known  to  dismiss  at  this  stage ;  i.  e., 
either  that  the  court  has  no  jurisdiction,  or  that  the  complaint  docs  not 
state  a  cause  of  action.  We  give  the  defendant  the  benefit  of  translat- 
ing the  ground  of  his  motion  into  the  latter  objection,  which  is  one 
"of  substance,  and  not  of  form,"  that  an  action  cannot  be  maintained  by 
one  partner  against  another  for  a  partial  accounting,  but  he  must 
either  sue  for  a  complete  settlement  and  winding  up  of  the  partner- 
ship matters,  or  to  recover  a  balance  struck  and  agreed  upon  between 


462  REMEDIES   OF  PARTNERS  INTER  SE.  (Ch,   7 

them.  Thus  understood,  this  is  a  correct  statement  of  the  general  rule 
(2  Lawson,  Rights  &  Remedies,  §  G81,  cited  by  defendant)  ;  but  it 
has  no  application  to  this  case,  which  comes  within  the  exceptions 
stated  in  that  section.  This  is  not  an  action  for  a  partial  adjustment 
and  statement  of  partnership  dealings,  but  it  is  an  action  to  recover 
damages  because  the  defendant  refused  and  failed  to  comply  with  his 
preliminary  agreement  and  the  terms  upon  which  the  partnership  was 
to  be  formed;  and,  if  said  partnership  was  formed,  then  for  damages 
because  the  defendant  failed  to  do  and  perform  what  he  agreed  to  do 
before  it  was  formed.  An  action  "may  be  maintained  by  one  partner 
against  another  partner  in  the  same  firm  upon  the  expressed  promise 
made  before  the  commencement  of  the  partnership  in  respect  to  ad- 
vances to  be  made  to  constitute  the  capital  of  the  company  for  the  pur- 
pose of  carrying  on  the  partnership."  Currier  v.  Webster,  45  N.  H. 
226;  Hill  v.  Palmer,  56  Wis.  123,  14  N.  W.  20,  43  Am.  Rep.  .703; 
Smith  V.  Kemp,  93  Mich.  357,  52  N.  W.  639;  Bull  v.  Coe,  77  Cal. 
54,  18  Pac.  808,  11  Am.  St.  Rep.  235;  Ellison  v.  Chapman,  7  Blackf. 
(Ind.)  224;  George  on  Partnership,  pp.  320,  321.  "A  suit  by  a  part- 
ner against  his  copartner  upon  a  claim  not  founded  on  the  plaintiff's 
interest  in  the  partnership  assets,  but  arising  from  a  direct  violation 
of  the  articles  of  agreement  of  copartnership,  need  not  be  delayed  for 
the  taking  of  an  account  of  the  partnership."  George,  Partnership, 
p.  322,  and  numerous  cases  cited  in  note  68.  The  general  rule  that 
one  partner  cannot  sue  another  except  to  wind  up  the  business  or  to 
recover  a  balance  due  by  the  settlement,  with  some  of  the  exceptions 
to  that  rule,  is  stated  inNewby  v.  Harrell,  99  N.  C.  149,  5  S.  E.  284, 
6  Am.  St.  Rep.  503. 

This  case  presents  another  exception.  A  cause  of  action  for  the  re- 
covery of  damages  is  stated  in  the  complaint.  *  *  *  The  judg- 
ment dismissing  the  action  is  reversed. 


COOK  V.  CANNY. 

(Supreme  Court  of  Michigan,  1893.    96  Mich.  398,  5.5  N.  W.  987.) 

Action  by  George  W.  Cook  against  Charles  C.  Canny  for  breach  of 
contract.  On  September  5,  1888,  complainant  filed  an  apphcation  for 
letters  patent  of  the  United  States  for  improvements  in  underground 
conduits  for  electrical  conductors.  October  12,  1888,  plaintiff  and  de- 
fendant entered  into  written  articles  of  agreement  for  a  partnership, 
by  which  the  plaintiff  agreed  to  assign  to  defendant  an  undivided  one- 
third  interest  in  the  invention  and  the  patent  which  might  be  obtained 
therefor  in  consideration  of  $1,000,  which  the  defendant  agreed  to 
pay  as  follows :  $300  in  cash  as  soon  as  notice  was  received  of  the 
allowance  of  the  patent ;  a  monthly  payment  of  $30  per  month  for 
eight  months  from  the  date  of  allowance,  and  $460  on  the  1st  day 


Sec.  1)  ACTIONS   AT    LAW.  4r.3 

of  September,  IfiSO,  if  said  conduit  should  be  a  practical  success,  and 
should  perform  the  duiies  specified  and  required  for  such  work.  The 
agreement  further  provided  for  carrying  on  the  business  after  the  al- 
lowance of  the  letters  patent,  and  defined  the  duties  of  each  partner. 
These  provisions  are  not  necessary  to  a  determination  of  the  case.  The 
letters  were  issued,  and  the  assignment  duly  made  to  the  defendant. 
Plaint>ifT"  admitted  payments  of  $oU3.75.  The  defendant  claimed  to 
have  paid  $4G 4.  Plaintiff  gave  evidence  tending  to  show  that  the  con- 
duit was  a  practical  success.  Defendant  gave  evidence  tending  to  show 
the  contrary,  and  that  the  contract  was  abandoned  by  mutual  consent. 
The  court  instructed  the  jury  that,  if  the  conduit  was  not  a  practical 
success,  or  if  the  contract  was  abandoned  by  mutual  consent,  the  plain- 
tiff could  not  recover.  At  the  request  of  the  defendant  the  following 
special  question  was  presented  to  the  jury,  viz.:  Do  you  find  that 
the  conduit  was  a  practical  success?  which  question  the  jury  answer- 
ed in  the  affirmative.  Verdict  and  judgment  for  the  plaintiff  for  $840.- 
9.5.    Defendant  brings  error. 

Grant,  J.  It  is  first  insisted  by  defendant  that  a  suit  at  law  cannot 
be  maintained  on  account  of  the  partnership  relations.  The  sum  sued 
for  does  not  grow  out  of  their  partnership  transactions  subsequent  to 
the  formation  of  the  partnership.  It  is  an  independent  consideration/ 
which  defendant  agreed  to  pay  the  plaintiff  for  an  interest  in  the  let- 
ters patent  which  were  to  form  the  basis  of  their  subsequent  partner- 
ship relations  and  dealings.  The  sum  which  the  defendant  agreed  to 
pay  was  to  launch  the  enterprise  in  its  very  inception.  This  case, 
therefore,  forms  one  of  the  exceptions  to  the  rule  that  one  partner  can- 
not maintain  an  action  at  law  against  his  copartner  for  work  done  or 
^  money  expended  in  the  partnership.  An  agreement  to  pay  money  or 
to  furnish  stock  for  the  purpose  of  launching  the  partnership  is  an  in- 
dividual engagement  of  each  partner  to  the  other,  and  the  defaulting 
partner  may  be  sued  in  an  action  at  law  upon  his  agreement.  It  is 
entirely  separate  and  distinct  from  the  partnership  accounts,  and  this 
forms  the  true  test  in  determining  whether  an  action  at  law  will  lie 
by  one  partner  against  his  copartner.  1  Story,  Eq.  Jur.  §  665 ;  Brown 
V.  Tapscott,  6  Mees.  &  W.  119  ;  Van 'Ness  v.  Forrest,  8  Cranch  (U.  S.) 
30,  3  L.  Ed.  478;  Currier  v.  Rowe,  46  N.  H.  72;  Neil  v.  Greenleaf, 
26  Ohio  St.  570;  Howard  v.  France,  43  N.  Y.  593;  Crater  v.  Bining- 
er,  45  N.  Y.  5-\5:  TJndley,  Partn.  1024.     *     *     * 

Judgment  affirmed. 


4:64  REMEDIES   OF   PARTNERS   INTER  SB.  (Cll.   7 

CROCKXTT  V.  BURLESON. 

(Supreme  Court  of  Appeals  of  West  Virginia,  1906.    60  W.  Va.  252,  54  S.  E. 
341,  6  Ij.  E.  a.  ^N.  S.)  263.) 

Cox,  J.  W.  S.  Crockett  complains  of  a  judgment  of  the  circuit 
court  of  Mercer  county,  dismissing  an  action  at  law  originally  institut- 
ed by  him  against  T.  H.  Burleson  before  a  justice,  and  tried  in  said 
circuit  court  upon  appeal.  The  plaintiff,  Crockett,  claims  that  he  and 
the  defendant,  Burleson,  were  partners  in  the  livery  business  in  the 
city  of  Bluefield;  that  the  defendant  was  the  active  member  of  the  firm, 
and, conducted  its  business  and  kept  its  books;  that  on  the  16th  day  of 
January,  1904,  a  contract  was  entered  into  between  them  finally  set- 
tling and  dissolving  the  partnership,  whereby  tl\e  plaintiff  took  over 
for  value  as  his  individual  property  certain  items  of  charge  against 
others  as  debts  owing  to  the  firm;  that  previous  to  the  making  of 
the  contract  the  books  were  turned  over  to  plaintiff;  that  he  made 
therefrom  a  list  of  said  charges  apparently  owing  to  the  firm;  that 
the  list  was  then  turned  over  to  defendant  for  correction;  that  after 
he  corrected  the  list  he  returned  it  to  plaintiff,  and  represented  to  him 
that  it  was  correct;  that  plaintiff  believed  such  representations  and 
was  induced  by  them  to  enter  into  the  contract ;  that  but  for  such  rep- 
resentations he  would  not  have  entered  into  the  contract;  that  it  aft- 
erwards turned  out  that  some  of  the  charges  contained  in  said  list 
were  false  charges,  and  that  others  had  been  collected  by  the  defend- 
ant at  the  time  such  representations  were  made;  and  that,  after  dis- 
covering the  fraud  and  without  rescinding  the  contract,  the  plaintiff 
instituted  this  action,  claiming  $295.95  as  damages  for  the  deceit.^ 
Plaintiff  claims  other  matters  not  necessary  to  be  mentioned  here. 
Upon  the  trial  in  the  circuit  court  the  plaintiff  offered  evidence  tend- 
ing to  prove  the  essential  elements  of  his  claim  above  stated ;  but  up- 
on objection  and  motion  the  court  excluded  the  plaintiff's  evidence, 
directed  a  verdict  for  defendant,  and  entered  the  judgment  of  dis- 
missal. 

The  single  question  presented  here  is,  Can  this  action  at  law  for 
the  alleged  deceit  be  maintained  by  the  plaintiff  against  the  defendant, 
his  former  pajrtner?     *     *     * 

It  is  contended  that  this  action  for  alleged  deceit  is  not  cognizable 
at  law,  because  the  partnership  relation  existed  between  plaintiff  and 
defendant  when  the  alleged  deceit  was  practiced,  and  because  the  al- 
leged deceit  related  to  the  state  of  the  indebtedness  owing  to  the  firm, 
and  because  this  action  necessarily  involves  a  reopening  and  resettle- 
ment of  the  partnership  accounts  and  business.  A  partnership  is 
founded  in  contract.  The  contract,  from  its  very  nature,  creates  a 
relation  of  mutual  trust  and  confidence.  Parsons  on  Part.  (4th  Ed., 
1893)  §  191,  says:  "Whenever  there  has  been  any  breach  of  an  ex- 
press stipulation  between   persons   who  are  partners,  an   action   for 


^ec.  1)  ACTIONS   AT    LAW.  405 

damages  will  be  sustained,  unless  the  breach,  or  the  stipulation  itself, 
or  both,  are  such  that  they  involve  the  whole  partnership  business  and 
accounts,  and  the  damages  can  be  determined  only  by  first  settling 
those  accounts."  See,  also,  Barton's  Law  Prac.  §  G9 ;  Story  on  Part. 
§  218.  In  Freeman's  note  to  the  case  of  Course  v.  Prince,  12  Am. 
Dec.  650,  it  is  said:  "If  the  demand,  even  though  it  relates  in  some 
measure  to  partnership  matters,  is  yet  so  specific  and  distinct  that  the 
right  to  recover  cannot  in  any  event  be  afifected  by  the  state  of  the 
partnership  accounts,  it  is  suable  at  law.  Thus  an  action  of  damages 
will  lie  when  it  does  not  involve  any  inquiry  into  the  affairs  of  the  firm. 
Wills  V.  Simmonds,  8  Hun  (N.  Y.)  189.  So  an  action  lies  for  an 
agreed  price  of  certain  partnership  stock,  Edens  v.  Williams,  36  111. 
252.  So  upon  an  express  promise  to  furnish  a  given  amount  of  cap- 
ital or  to  pay  for  particular  articles.  Collamer  v.  Foster,  26  Vt.  757. 
And  on  an  express  promise  to  pay  half  of  a  specific  sum  required  for 
a  certain  joint  adventure.  Morgan  v.  Nunes,  54  Miss.  308.  So  on  a 
promissory  note  executed  by  one  or  more  of  the  partners  to  a  copart- 
ner (Bonnaffc  v.  Fenner,  6  Smedes  &  M.  [Miss.]  212,  45  Am.  Dec. 
278;  Wright  v.  Jacobs,  61  Mo.  19),  although  the  note  is  given  in  pay- 
ment for  partnership  stock  (Scott  v.  Campbell,  30  Ala.  729),  or  is  giv- 
en for  the  use  of  the  firm  (Anderson  v.  Robertson,  32  iMiss.  241),  and 
one  item  may  be  separated  from  the  rest  of  the  partnership  transac- 
tions and  adjusted  independently  so  as  to  support  an  action.  Bvrd  v. 
Fox,  8  Mo.  574;  Gibson  v.  Moore,  6  N.  H.  547;  Holyoke  v.  Mayo, 
50  Me.  385;  Neil  v.  Greenleaf,  26  Ohio  St.  567.  So  an  action  will 
lie  on  a  note  given  on  a  partnership  settlement.  Sturges  v.  Swift,  32 
Miss.  239."  In  the  case  of  Newman  v.  Ruby,  54  W.  Va.  381,  46  S.  E. 
172,  an  action  at  law  was  allowed  by  one  partner  against  another  for 
money  advanced  by  the  former  in  payment  of  the  share  of  the  latter 
to  the  capital  of  the  firm.  Judge  Poffenbarger,  delivering  the  opinion, 
quotes  approvingly  from  Dr.  Minor  (3  Inst.  700)  in  part  as  follows: 
"But,  where  no  such  adjustment  of  the  partnership  is  requisite  to 
reach  the  merits  of  the  case,  a  partner  may  as  readily  sue  a  copart- 
ner, in  a  court  of  law,  as  a  stranger." 

Thus  we  see  that  one  partner  is  not  always  precluded  from  an  action 
at  law  against  another  partner  upon  contract,  but  that  under  certain 
circumstances  such  an  action  at  law  may  be  maintained  when  it  does 
not  involve  an  adjustment  or  settlement  of  the  partnership  business 
or  accounts,  or  where  the  subject-matter  has  been  so  separated  from 
the  partnership  business  as  not  to  be  a  part  of  it.  It  will  be  observed 
that  the  authorities  last  cited  relate-  to  actions  ex  contractu  between 
partners.  In  the  case  at  bar  the  partnership  has  been  finally  settled 
and  dissolved.  The  partnership  relation  no  longer  exists.  The  wrong 
complained  of  does  not  involve  in  this  action  the  reopening  or  read- 
justinent  of  the  partnership  business  or  accounts.  The  contract  of 
settlement  and  dissolution  stands  without  rescission.  The  ground  of 
action  is  in  no  way  connected  with  the  state  of  the  partnership  ac- 
Gil.Part.— 30 


iG6  REMEDIES  OF  PARTNERS  INTER  SB.  (Ch.   7 

count'^  or  business,  except  that  the  deceit  is  alleged  to  have  been  prac- 
ticed in  relation  to  the  state  of  the  indebtedness  owing  to  the  firm 
before  the  dissolution.  In  this  action  at  law  the  alleged  deceit  is"  not, 
and  cannot  be  made,  the  ground  for  setting  aside  the  contract  of  set- 
tlement or  for  reopening  the  accounts.  Plaintiff  has  elected  to  sue 
at  law  for  the  alleged  deceit.  This  he  may  do.  8  Am.  &  Eng.  PI.  & 
Pr.  887;  Webb's  Pollock  on  Torts,  348; '2  Kent,  Comm.  490,  note; 
Schuchardt  v.  Aliens,  supra;  Eaves  v.  Plenderson,  17  Wend.  (N.  Y.) 
191.  "If  a  vendor,  by  fraud  practiced  on  a  vendee,  has  sold  what  he 
at  the  same  time  warranted,  a  case  of  simultaneous  contract  and  tort, 
the  vendee  may  have  his  remedy  either  upon  the  practiced  deceit  or 
upon  the  warranty,  as  he  chooses."  Bishop  on  Noncontract  Law,  § 
77.  The  gravamen  of  the  action  in  this  case  is  the  alleged  tort — the 
alleged  personal  wrong  done  to  one  partner  by  another,  as  to  which 
there  can  be  no  partnership  relation.  The  late  partnership  is  in  no 
way  concerned.  It  cannot  be  conceived  that  there  is  anything  in  the 
former  partnership  relation  which  prevents  the  maintenance  of  this 
action,  brought  for  damages  for  the  alleged  deceit.  The  case  of 
Farnsworth  V.  Whitney,  74  Me.  370,  illustrates  the  principle  involved. 
A  sufficient  statement  of  the  case  appears  from  the  syllabus,  which  is 
as  follows:  "Where  two  members  of  which  a  firm  is  composed  settle 
their  partnership  affairs  and  dissolve,  and  one  of  them  takes  the  as- 
signment of  the  other's  interest  in  the  partnership  property,  paying 
therefor  a  sum  agreed  upon  by  them,  and  assumes  the  payment  of  the 
partnership  debts,  the  effect  of  the  arrangement  is  to  extinguish  the  as- 
signor's indebtedness  to  the  firm  and  interest  in  it.  If  one  of  the  par- 
ties is  defrauded  in  the  settlement,  he  may  rescind  the  settlement,  or 
bring  an  action  on  the  case  for  the  deceit,  but  he  cannot  adhere-  to 
the  settlement  and  resort  to  an  action  of  assumpsit  to  recover  any  sum 
which  the  settlement  purported  to  adjust."  In  the  case  of  McAuley  v. 
Cooley,  45  Neb.  582,  63  N.  W.  871,  it  was  held:  "Where  a  partner- 
ship business  has  been  fully  settled  upon  an  agreed  basis  furnished 
by  the  books  kept  by  one  partner,  and  all  of  its  assets  by  agreement 
have  been  turned^  over  to  the  other  partner,  and  afterwards  it  tran- 
spires that,  by  reason  of  the  failure  of  the  partner  who  kept  the  afore- 
said .books  to  enter  therein  items  showing  his  own  receipt  of  money 
of  the  firm,  his  partner  has  suffered  damage  to  the  extent  of  such 
items,  an  action  at  law  may  be  maintained  for  such  damage  against 
the  partner  who  caused  such  injury,  and  against  such  sureties  as 
have  agreed  to  be  responsible  for  damages  of  the  character  described." 
It  follows  from  what  we  have  said  that  the  action  of  the  lower 
court  in  excluding  the  plaintiff's  evidence,  directing  a  verdict  for  de- 
fendant and  dismissing  this  action,  was  erroneous.  *  *  *  por 
the  reasons  stated,  the  judgment  complained  of  is  reversed,  the  verdict 
of  the  jury  set  aside,  a  new  trial  awarded,  and  the  case  remanded  for 
further  proceedings  according  to  law. 


Sec.  1)  ACTIONS   AT   LAW.  467 


.     CARPENTER  v.  GREENOP  et  al. 

(Suprome  Court  of  Michigan,  1SS9.     74  Mich.  GG4.  42  N.  W.  270.  4  L.  R.  A. 
241,  10  Am.  St.  Kep.  GG2.) 

Caaipbhll,  J.     Plaintiff  purchased  in  good  faith,  but  after  maturity, 

a  note  of  John  Greenop  &  Co.,  payable  to  the  order  of  Robert  A.  Lav- 

ery,  and  indorsed  by  Lavery.     Lavery  was  a  member  of  the  firm  of 

John  Greenop  &  Co.,  and  made  the  note,  with  Grcenop's  consent,  for 

money  lent  by  Lavery  to  the  firm.     The  note  was  dated  January  21, 

1883,  payable  in  six  months.     It  was  transferred  to  plaintiff  in  1884 

while  the  firm  was  still  in  business,  and  about  a  year  before  it  ceased 

doing  business.     There  was  no  evidence  of  the  state  of  accounts,  or 

that  Lavery  was  in  any  way  a  debtor  to  the  firm  when  the  transfer 

was  made,  or  that  there  were  any  equities  existing  against  him  which 

did  not  exist  when  the  note  was  made.     The  court  below  held  that 

plaintiff  could  no^  recover.     The  reason  assigned  was  that  the  note 

could  not  be  transferred  after  maturity,  so  as  to  enable  the  indorsee 

to  sue  upon  it,  if  suit  could  not  have  been  brought  by  the  assigix)r, 

and  that  Lavery  could  have  brought  no  suit  on  it.    The  decision  also 

seems  to  have  been  based  partially  on  the  idea  that  a  partner  can  have 

no  dealings  with  his  firm  which  are  not  subject  to  the  final  accounting, 

and  that  the  equities  of  such  an  accounting  attach  to  such  claims  as 

he  may  hold  against  the  firm.     I  do  not  think  this  doctrine  is  tenable. 
4i      *      * 

While  there  is  a  difficulty  in  a  suit  at  law  in  the  name  of  a  party 
against  himself,  yet,  if  this  is  the  only  difficulty,  it  goes  only  to  the 
form  of  the  remedy,  and  not  to  its  existence.  There  never  was  any  le- 
gal or  equitable  reason  why  a  partner  should  not  have  .specific  deal- 
ings with  his  firm  as  well  as  any  other  person ;  and  unless  those  deal- 
ings, from  their  nature,  are  intended  to  go  into  the  general  account- 
ing, and  wait  for  their  adjustment  till  dissolution,  they  give  a  right 
to  have  a  remedy  according  to  their  exigency,  and  can  be  dealt  with 
like  any  other  claims.  The  only  reason  why  they  must,  under  the  old 
practice,  be  prosecuted  at  equity  instead  of  at  law,  arose  from  the  ne- 
cessity at  law  of  having  plaintiffs  capable  of  suing  the  defendants.  In 
such  a  case  the  failure  of  a  remedy  at  law  justified  a  resort  to  equity. 
But  equity  could  grant  relief  in  such  cases,  and  under  our  present 
rules  there  can  be  no  difficulty  at  law.  Where  partners  have  seen  fit 
to  deal  with  each  other  without  reference  to  the  final  accounting,  the 
transaction  is  not  subject  to  the  necessity  or  delay  of  such  an  account- 
ing. 

This  note  was  by  its  terms  negotiable.  It  is  elementary  doctrine 
that  negotiability  does  not  cease  when  paper  matures.  It  is  only  sub- 
ject to  such  equities  as  exist  against  the  paper  at  the  date  when  it  is 
negotiated.     And  the  equities  which  affect  the  indorsee  are  only  such 


4 OS  REMEDIES  OF  PARTNERS  INTER  SE.  (Ch.   7 

as  attach  directly  to  the  note  itself,  and  do  not  include  collateral  mat- 
ters. This  is  very  old  doctrine,  and  is  laid  down  without  qualification. 
*     *     * 

It  was  not  shown,  and  cannot  be  claimed  on  this  record,  that  there 
was  any  unfairness  or  want  of  consideration,  or  payment,  or  any 
other  matter  bearing  on  the  note  in  this  case,  when  it  was  transferred, 
and  in  such  case  can  make  no  difference  when  it  was  transferred.  It 
continued  to  be  a  valid  note,  and  capable  of  transfer  by  indorsement. 
That  a  partner  himself  may  have  a  remedy  of  some  kind,  where  the 
transaction  is  such  as  to  be  separated  from  the  general  partnership 
accounting,  does  not  seem  to  be  questioned.  Mr.  Collyer  refers  to 
several  illustrations,  in  book  3,  c.  3  (2d  Ed.)  Partn.  Judge  Stor}^  in 
his  work  on  Partnership,  §  222  et  seq.,  indicates  very  clearly  the  right 
of  a  partner  to  relief  in  the  case  of  contracts  as  a  creditor  or  other- 
wise with  his  firm;  and  the  fact  which  is  referred  to  in  all  the  books, 
that  an  accounting  can  only  be  had  at  the  close  of  the  business,  in- 
dicates as  clearly  as  anything  can  that  either  a  partner  can  make  no 
separate  contract  with  his  firm  at  all,  or  else  there  must  be  some 
means  of  enforcing  it.  A  contract  which  cannot  be  enforced  is  nuga- 
tory. Partnerships  are  often  made  for  long  terms  of  years.  Members 
become  managers  on  salaries  which  are  payable  at  regular  intervals, 
and  they  frequently  furnish  articles  for  which  they  are  entitled  to  pay. 
No  one  doubts  their  rights  to  pay  themselves  out  of  moneys  in  their 
charge ;  but  all  do  not  have  this  opportunity,  and  to  hold  that  a  person 
must,  if  his  copartners  will  not  advance  him  what  is  due,  wait  the 
whole  term  of  business  for  payment,  is  not  reasonable  or  maintainable. 
A  very  thorough  discussion  of  the  various  questions  is  found  in  the 
early  case  of  Smith  v.  Lusher,  5  Cow.  (N.  Y.)  688,  where  the  judges 
of  the  Supreme  Court,  and  the  chancellor  and  other  members  of  the 
court  for  the  correction  of  errors,  dealt  with  the  subject  in  a  very 
exhaustive  way,  with  entire  unanimity.  The  cases  of  Nevins  v.  Town- 
send,  6  Conn,  o,  and  Gray  v.  Bank,  3  Mass.  3G4,  3  Am.  Dec.  156,  are 
also  somewhat  pertinent.  I  have  found  no  authority  which  sanctions 
the  doctrine  that  plaintiff  was  precluded  by  the  fact  that  the  note  was 
past  due  from  taking  the  title  by  indorsement,  and  none  that  allows 
a  note  to  be  affected  by  collateral  equities.  When  this  note  was  in- 
dorsed there  could  be  no  accounting,  because  the  firm  continued  its 
ordinary  business.  The  debt  was  for  a  loan,  and  not  for  investments 
in  the  capital.  It  was  distinct  from  the  mutual  relations  among  the 
partners,  and  stood  as  a  separate  contract.  I  think  there  was  nothing 
to  bar  recovery,  and  that  the  judgment  to  the  contrary  should  be  re- 
versed.^ 

1  The  dissenting  opinion  of  Sherwood,  C.  J.,  is  omitted. 


Sec.  1)  ACTIONS   AT    LAW.  4G9 

CROSBY  V.  TIMOLAT  et  al. 
(Supreme  Court  of  Minnesota,  1892.    50  Minn.  171,  52  N.  W.  526.) 

Action  by  George  H.  Crosby,  as  receiver  of  the  partnership  prop- 
erty of  Miller  &  Timolat,  against  Harry  W.  Timolat  and  George  W. 
Stevens,  to  recover  for  services  rendered  by  Miller.  From  an  order 
overruling  defendant  Stevens'  demurrer  to  the  complaint  he  appeals. 

Dickinson,  J.  This  is  an  appeal  by  the  defendant  Stevens  alone 
from  an  order  overruling  his  demurrer  to  the  complaint.  It  appears 
that  Miller  and  Timolat  were  engaged  as  copartners  in  the  business 
of  buying  and  selling  real  estate.'  At  the  same  time  Stevens  and  the 
same  Timolat  were  copartners  in  the  enterprise  of  buying,  holding, 
and  selling  certain  specified  tracts  of  land.  That  Miller  and  Timolat, 
as  such  copartners,  and  at  the  request  of  the  defendants,  Stevens  and 
Timolat,  as  copartners,  performed  services  in  selling  the  land  which 
was  the  subject  of  the  partnership  enterprise  of  the  latter.  After 
that,  in  an  action  prosecuted  by  Miller  against  Timolat,  this  plaintiff 
was  appointed  receiver  of  the  partnership  property  of  the  firm  of  Mil- 
ler &  Timolat.  with  power  to  sue  for  and  collect  all  debts  due  to  that 
partnership.  He  prosecutes  this  action  to  recover  the  value  of  such 
services  rendered  for  the  defendants.  The  appellant  relies  upon  the 
technical  rules  of  the  common  law.  It  is  true  that  an  action  at  law  for 
such  a  cause  as  that  stated  in  the  complaint  could  not  have  been 
maintained  by  a  partnership  against  another  partnership  having  a 
common  member  with  the  former  firm.  It  was  not  permitted  that 
one  of  the  parties  should  thus  appear  both  as  a  plaintiflF  and  defend- 
ant, in  eflfect  prosecuting  an  action  against  himself,  in  which,  if  a 
recovery  were  to  be  allowed,  it  would  be  in  his  favor,  and  at  the  same 
time  against  himself.  Nor,  at  law,  would  the  contract  or  agreement 
between  the  two  firms  having  a  common  member  be  recognized  as 
creating  a  legal  obligation  or  cause  of  action.  The  transaction  would 
be  treated  as  an  attempt  by  a  party  to  enter  into  a  contract  with  him- 
self. Bosanquet  v.  Wray,  6  Taunt.  597;  De  Tastet  v.  Shaw,  1  Earn. 
&  Aid.  664,  669;  Leake,  Cont.  439,  440;  McFadden  v.  Hunt.  5 
Watts  &  S.  (Pa.)  468;  Price  v.  Spencer,  7  Phila.  (Pa.)  179.  The 
remedial  system  of  the  common  law  was  too  inflexible  and  restricted 
to  enable  it  to  adjust  the  complex  rights  and  obligations  of  the  par- 
ties under  such  circumstances.  But  in  equity  the  agreements  of  the 
members  of  firms  so  related  to  each  other  were  treated  as  obligatory, 
and  the  fact  that  one  of  the  parties  to  the  joint  contract  stood  in  the 
position  of  both  an  obligor  and  obligee  did  not  stand  in  the  way  of 
affording  such  relief  or  remedy  as  might  be  found  to  be  appropriate 
and  necessary  to  the  ends  of  justice.  1  Story,  Eq.  Jur.  §§  G79,  680; 
Haven  v.  Wakefield,  "39  111.  509 ;  Chapman  v.  Evans,  44  Miss.  113 ; 
Calvit's  Ex'rs  v.  Markham.  3  How.  (Miss.)  343;  Hayes  v.  Bcment, 
3  Sandf.  (N.  Y.)  394.     With  the  statement  of  these  propositions  tlie 


470  REMEDIES  OF  PARTNERS  INTER  SE.  (Ch.    7 

objections  to  the  sufficiency  of  the  complaint  upon  the  grounds  stated 
in  the  demurrer  are  overcome.  There  is  a  cause  of  action  stated  of  an 
equitable  nature,  if  not  legal — and  if  it  is  either  the  demurrer  can- 
not be  sustained — and  the  plaintiff  has  legal  capacity  to  sue.  The 
very  objections  which  the  appellant  urges  to  the  sufficiency  of  the 
complaint  as  setting  forth  a  legal  cause  of  action  go  to  show  that  re- 
lief should  be  afforded  in  equity  at  least.  If  the  fact  that  Timolat 
is  one  of  the  obligors  in  the  contract  as  well  as  an  obligee  renders 
necessary  any  apportionment  of  the  amount  to  be  recovered,  or  any 
equitable  adjustment  of  the  rights  of  the  parties,  the  court  is  compe- 
tent to  do  what  is-  necessary.  At  present  the  question  is  not  how  the 
matter  is  to  be  adjusted,  or  what  recovery  shall  be  allowed,  but  only 
as  to  whether  !he  action  can  be  maintained  at  all.  As  bearing  upon 
this  question  may  be  cited,  in  addition  to  the  authorities  above  refer- 
red to  Cole  V.  Revnolds,  18  N  .Y.  74 ;  Schnair  v.  Schmidt,  59  Hun, 
635,  13  N.  Y.  Supp.  725;  Lathrop  v.  Knapp,  37  Wis.  307;  In  re 
Buckhause  (Ex  parte  Flynn)  2  Lowell  (U.  S.)  331,  Fed.  Cas.  No. 
2,086.  It  is  unnecessary  to  consider  w^hether  this  plaintiff,  as  the  re- 
ceiver of  the  creditor  partnership,  could  maintain  a  merely  legal  ac- 
tion against  the  members  of  the  other  firm.    Order  affirmed. 


SECTION  2.— REMEDIES  IN  EQUITY. 


BRACKEN  V.  KENNEDY  et  al. 

(Supreme  Court  of  Illinois,  l&i2.    4  111.  558.) 

Caton,  J.-  This  was  a  bill  in  chancery,  filed  in  the  La  Salle  circuit 
court  by  the  complainant  against  the  defendants,  for  an  account  among 
partners.  The  bill  states  that  in  July,  1837,  the  complainant  and  de- 
fendants entered  into  partnership  as  canal  contractors,  and  as  such 
partners  contracted  with  a  canal  company  in  Virginia  for  the  con- 
struction of  section  120  of  their  canal,  and  that  they  completed  said 
section  120  in  August,  1838 ;  that  during  the  progress  of  the  work 
the  complainant  and  Brady  had  the  principal  management  of  its  con- 
struction, while  most  of  the  time  Kennedy  was  absent;  that  at  the 
same  time  Kennedy  had  an  individual  contract  for  the  construction 
of  sections  118  and  119  of  the  same  canal,  and  Kennedy  employed  the 
complainant  to  superintend  the  completion  of  these  sections;  that  this 
individual  contract  of  Kennedy  was  unprofitable,  and  in  the  course  of 
its  progress  he  became  indebted  to  the  copartnership  section,  120,  to 
about  $8,000  for  work  and  labor  expended  on  sections  118  and  119 ; 
that  the  whole  estimate  for  the  company  section,  120,  was  $32,320.90, 
including  the  work  done  on  Kennedy's  individual  sections,  and  that 


Sec.  2)  REMEDIES    IN    EQUITY.  471 

the  costs  of  the  same  were  $23,738.82,  leaving  a  balance  of  profits 
to  be  divided  among-  the  partners  of  $8,437.08 ;  that  the  complainant 
has  accounted  with  and  paid  over  to  Brady  his  third  of  the  said  prof- 
its; and  that  there  is  now  due  from  Kennedy  to  the  complainant 
the  sum  of  $3, 95!). 03,  arising  from  said  partnership  transactions  ;  that 
Kennedy  has  drawn  estimates  on  the  works,  and  has  drawn  his  last 
on  his  individual  contracts ;  that  no  account  has  been  taken  or  render- 
ed between  the  said  partners;  and  that  Kennedy  refuses  to  account. 
The  bill  prays  that  an  account  may  be  taken,  etc. 

To  this  bill  a  demurrer  was  filed,  which  was  sustained,  and  the  bill 
dismissed. 

The  first  assignment  of  error  is  upon  the  decision  of  the  court  in 
sustaining  the  demurrer,  and  this  is  the  principal  question  in  the  case. 

In  matters  of  controversy  or  difficulty  between  partners,  it  is  now 
most  usual,  and  by  far  the  most  convenient,  to  resort  to  a  court  of 
equity  for  their  final  adjudication  and  settlement.  The  practice  of 
this  court  is  much  better  adapted  to  unravel  and  definitely  settle  such 
complicated  questions  as  frequently  arise  among  partners  than  a  court 
of  law ;  and  it  is  now  one  of  the  most  usual  proceedings  to  be  met 
with  in  courts  of  equity.  It  is  not  unusual  that  almost  the  entire  proof 
of  the  merits  of  a  case  between  partners  is  locked  up  in  the  bosoms 
of  the  parties  themselves,  or  is  contained  in  books  and  papers  in  the 
possession  of  one  or  the  other  party,  and  this  court  can  aflford  the 
only  key  to  the  disclosure  of  the  one  or  the  production  of  the  other. 
Here  either  party  may  compel  the  other  to  purge  his  conscience  on 
oath  and  declare  the  truth ;  and  the  court  will  compel  the  production 
of  all  such  papers  and  books  as  may  be  necessary  to  elucidate  the 
rights  and  liabilities  of  the  parties.  It  is  for  this  reason  that  courts 
of  equity  have  frequently  exercised  a  concurrent  jurisdiction  with 
courts  of  law  in  long  and  intricate  accounts,  running  on  both  sides, 
between  parties  who  are  not  partners  and  have  no  interests  in  common. 

It  is  true  that  courts  of  law  still  pretend  to  afford  a  remedy,  in  case 
of  difficulty  between  partners,  by  the  action  of  account ;'  but  it  is  so 
incomplete  and  unsatisfactory  that  it  is  now  nearly  obsolete,  and  the 
complaining  partner  almost  universally  lays  his  complaint  before  a 
court  of  chancery,  where  he  finds  a  prompt  and  efficient  remedy,  from 
the  superior  facilities  which  it  possesses  of  doing  complete  justice  be- 
tween the  parties. 

In  a  bill  of  this  character  the  existence  of  the  partnership,  the  trans- 
action of  business  by  the  firm,  and  no  account  among  its  members,  are 
prominent  features,  and  where  they  all  appear  I  am  not  prepared  to 
say  that  the  bill  ought  not  in  all  cases  to  be  retained.  In  this  case  the 
bill  shows  that  there  was  a  special  and  limited  partnership,  the  par- 
ticular object  of  which  is  stated  in  it,  as  well  as  the  nature  and  amount 
of  the  business  transacted  by  the  firm,  and  that  no  account  has  been 
had  between  the  complainant  and  the  defendant  Kennedy,  who  refuses 
to  account.    Here,  then,  is  such  a  case  as  requires  the  interposition  of 


472  REMEDIES   OF   PAUTNEUS   INTER   SE.  (Cll.   7 

a  court  of  chancery  to  settle  and  adjust  the  rights  and  claims  of  the 
several  partners.  It  is  true  that  the  bill  states  that  the  complainant  and 
Brady  have  settled  as  between  themselves,  and  tliat  the  complainant 
has  succeeded  to  all  of  the  rights  and  interests  of  Brady  in  the  part- 
nership business ;  but  this  does  not  make  it  the  less  necessary  that  an 
account  should  be  had  between  the  complainant  and  Kennedy,  to  settle 
their  respective  rights;  and  to  accomplish  this  it  was  necessary  to 
make  Brady  a  party  to  the  bill.  The  bill  also  states  that  the  partner- 
ship advanced  to  Kennedy,  one  of  its  members,  in  work  and  labor,  etc., 
to  the  amount  of  some  $8,000,  which  is  nearly  the  extent  of  the  part- 
nership profits,  thus  showing  substantially  that  Kennedy  had  received 
nearly  all  of  the  profits  of  the  work  on  section  120.  In  what  way 
could  this  be  recovered  back  by  the  other  members  of  the  firm,  or  in 
what  way  could  he  be  compelled  to  account  for  these  advances,  unless 
by  the  mode  here  adopted  ?  One  member  of  a  partnership  cannot  sue 
the  firm  at  law  for  advances  made  by  him  to  the  joint  concern;  nor 
can  the  firm  sue  an  individual  partner  for  anything  that  he  may  have 
drawn  out  of  the  joint  stock  or  proceeds,  no  matter  how  much  more 
dian  his  share  it  might  have  been ;  and  the  reason  is  that  one  man  can- 
not occupy  the  double  position  of  plaintiff  and  defendant  at  the  same 
time.  1  Story's  Eq.  616.  The  aid  of  this  court  is  just  as  necessary 
to  settle  the  account  of  these  advances  as  it  is  to  settle  the  accounts 
arising  out  of  the  immediate  transactions  of  the  special  business  of  the 
partnership. 

The  bill,  then,  being  sufficient  in  substance,  although  not  so  par- 
ticular as  might  be  desirable,  the  demurrer  should  have  been  overruled. 
The  decision  of  the  court  below  is  reversed,  and  the  cause  remanded, 
with  directions  that  the  complainant  be  permitted  to  amend  his  bill, 
if  he  thinks  proper,  and  with  leave  for  the  defendant  to  answer. 

Decree  reversed. 


LORD  et  al.  v.  HULL. 

(Court  of  Appeals  of  New  York,  3 004.     178  N.  Y.  9,  70  N.  E.  60,  102  Am,  St 

Rep.  481.) 

Action  by  Austin  W.  Lord  and  others  against  Washington  Hull  and 
Kenneth  M.  Murchison,  Jr.  From  a  judgment  of  the  Appellate  Di- 
vision (80  App.  Div.  194,  80  N.  Y.  Supp.  321),  affirming  a  judgment 
for  plaintiffs  and  Murchison  (37  Misc.  Rep.  83,  74  N.  Y.  Supp.  711), 
defendant  Hull  appeals. 

It  is  alleged  in  the  complaint  that  in  September,  1894,  the  plaintiffs 
and  the  defendant  Hull  formed  a  copartnership  to  carry  on  business 
as  architects  in  the  city  of  New  York,  at  first  for  a  definite  period,  but 
finally  until  certain  work  was  finished,  and  that  the  time  for  the  ter- 
mination thereof  was  uncertain,  owing  to  the  large  number  of  unfinish- 
ed contracts  on  hand.     The  powers,  rights,  and  obligations  of  the  co- 


Sec.  2)  BEMEDIES   IN    EQUITY.  473 

partners  were  in  all  respects  equal.  On  the  18th  of  February,  1896, 
a  written  agreement  was  made  in  the  name  of  the  firm  with  Kenneth 
M.  Murchison,  Jr.,  containing  a  promise  "to  pay  him  ten  per  cent,  of 
the  gross  commissions  for  the  work  on  the  residence  of  William  A. 
Clark,"  not  yet  completed.  The  rest  of  the  complaint  (Murchison 
not  having  been  a  party  when  it  was  drawn)  is  as  follows:  "That  a 
disagreement  has  arisen  between  the  plaintiffs  and  defendant  as  to  the 
payments  which  have  been  and  are  still  to  be  made  to  the  said  Kenneth 
M.  Murchison,  Jr.,  and  as  to  the  obligations  of  the  copartnership  to 
the  said  Murchison,  Jr.,  under  the  contract  entered  into  by  said  co- 
partners and  said  Murchison,  being  the  agreement  of  February  18. 
1896  (Schedule  B,  hereto  annexed),  hereinbefore  set  forth;  that  the 
defendant  has  withdrawn  from  the  funds  of  the  copartnership  and 
has  appropriated  to  his  own  use  the  sum  of  $945,  which  was  a  sum 
largely  in  excess  of  any  and  all  sums  to  which  he  was  entitled  at  the 
time  of  such  withdrawal,  and  threatens  to  withdraw  from  the  funds 
of  the  said  copartnership  from  time  to  time  hereafter  such  sum  or  sums 
as  he  may  deem  himself  entitled  to,  irrespective  of  the  rights  of  the 
plaintiffs;  that  the  plaintiffs  do  not  desire  to  dissolve  the  copartnership 
existing  between  them  and  the  defendant,  for  the  reason  that  the 
plaintiffs  believe  that  the  contracts  entered  into  between  such  copart- 
nership and  William  A.  Clark,  the  owner  of  one  of  the  works  set  forth 
in  Schedule  C,  hereto  annexed,  and  yet  incomplete,  require  the  exercise 
of  the  professional  skill  and  ability  of  all  the  members  of  the  said  firm, 
which  could  not  be  secured  upon  a  dissolution  of  the  said  copartner- 
ship, and  that  loss  and  damage  would  be  sustained  by  the  plaintiffs 
if  such  contracts  were  broken  by  the  dissolution  of  said  copartnership; 
that  the  plaintiffs  are  without  an  adequate  remedy  at  law."  There 
was  no  allegation  that  Hull  was  insolvent,  or  that  there  was  any  oc- 
casion for  an  accounting,  except  with  reference  to  the  Murchison  com- 
tract.  The  relief  demanded  was  an  accounting  as  to  all  copartnership 
affairs  to  date,  and  an  adjudication  of  the  rights  and  obligations  of  the 
parties  under  their  copartnership  agreement  and  under  the  contract 
with  Murchison.  There  was  also  a  prayer  for  general  relief,  but  none 
for  an  injunction,  either  temporary  or  permanent.  The  defendant  Hull 
alleged  in  his  answer  that  the  agreement  with  Murchison  was  made 
without  authority,  and  was  not  binding  on  the  firm ;  that  the  plain- 
tiffs had  unlawfully  paid  him  thereon  large  sums  of  money  out  of  the 
funds  of  the  firm ;  and  that  they  threaten  to  continue  such  pa\'ments. 
A  few  days  before  the  action  was  tried,  Murchison  moved  at  Special 
Term,  on  notice  to  the  parties,  to  be  made  a  party  defendant,  with 
leave  to  serve  an  answer  upon  both  the  plaintiff's  and  the  defendant. 
The  motion,  although  opposed,  was  granted,  and  no  one  appealed  from 
the  order.  The  answer  of  Murchison,  served  on  all  the  parties,  after 
certain  denials,  set  forth,  "by  way  of  an  equitable  counterclaim,"  the 
agreement  between  himself  and  the  firm,  and  alleged  that  the  firm 
owed  him  the  sum  of  $2,100  and  upwards  thereon.     He  asked  for  an 


474:  REMPDIES  OF  PARTNERS  INTER  SE.  (Cll.   7 

accounting  to  ascertain  the  amount  received  by  the  firm  as  commissions 
from  said  Clark,  and  for  judgment  against  the  plaintiffs  and  the  de- 
fendant PIuU  for  the  amount  found  due  him,  with  other  relief.  Th'e 
last  set  of  copartnership  articles  provided  "that  upon  completion  of 
the  works  above  mentioned  a  true  and  final  accounting  shall  be  made 
by  the  parties  to  this  agreement  each  to  the  others,  and  all  the  property 
of  the  firm  *  *  *  shall  be  equally  divided  between  them."  Upon 
the  trial  it  appeared  from  the  testimony  of  the  plaintiffs  that  there  was 
"nothing  to  have  an  accounting  about,  except  Mr.  Murchison's  share 
of  those  commissions."  The  trial  judge  found  the  facts  as  alleged 
by  the  plaintiffs  and  the  defendant  Murchison,  and  the  decree  entered 
held  the  Murchison  agreement  valid  and  binding  upon  the  firm,  inter- 
preted its  meaning  in  accordance  with  their  contention,  and  awarded 
judgment  in  favor  of  the, plaintiffs  and  against  the  defendant  Hull  for 
$1,415.27,  with  costs,  and  in  favor  of  the  defendant  Murchison  against 
the  plaintiffs  and  the  defendant  Hull  for  the  sum  of  $3,000,  besides 
costs.  Upon  appeal  by  Hull  to  the  Appellate  Division,  the  judgment 
was  in  all  things  affirmed — two  of  the  justices  dissenting — and  he 
now  comes  to  this  court. 

Vann,  J.  This  action  was  brought  by  two  copartners  against  the 
third  for  an  accounting,  without  a  dissolution,  and  it  is  not  surprising 
that  a  challenge  is  interposed  to  the  jurisdiction  of  the  court.  The 
contract  of  copartnership  has  existed  as  long  as  the  common  law,  and 
a  vast  amount  of  business  has  been  transacted  by  persons  working  to- 
gether under  this  relation.  The  law  upon  the  subject  is  founded  on  the 
custom  of  merchants,  who  have  thus,  in  effect,  made  their  own  law,  yet 
we  find  no  well-considered  case  which  approves  of  such  an  action  as  the 
one  now  before  us.  While  the  novelty  of  an  action  is  by  no  means  con- 
clusive against  it,  still  it  is  suggestive,  when  the  history  of  the  law 
relating  to  the  subject  shows  many  occasions  and  few  efforts. 

The  general  rule  is  that  a  court  of  equity,  in  a  suit  by  one  partner 
against  another,  will  not  interfere  in  miatters  of  internal  regulation, 
or  except  with  a  view  to  dissolv-e  the  partnership,  and  by  a  final  decree 
to  adjust  all  its  affairs.  Story  on  Partnership,  §  229;  Lindley,  567; 
Gow,  114;  Parsons,  §  206;  Bates,  §  910;  Collier,  §  236.  It  is  not 
its  ofifice  "to  enter  into  a  consideration  of  mere  partnership  squabbles" 
(Wray  v.  Hutchinson,  2  Mylne  &  Keen,  235,  238),  or  "on  every  occa- 
sion to  take  the  management  of  every  playhouse  and  brewhouse"  (Car- 
lin  V.  Drury,  Vesey  &  B.  153,  158).  If  the  members  of  a  firm  cannot 
agree  as  to  the  method  of  conducting  their  business,  the  courts  will  not 
attempt  to  conduct  it  for  them.  Aside  from  the  inconvenience  of  con- 
stant interference,  as  litigation  is  apt  to  breed  hard  feelings,  easy  ap- 
peals to  the  courts  to  settle  the  differences  of  a  going  concern  would 
tend  to  do  away  with  mutual  forbearance,  foment  discord,  and  lead 
to  dissolution.  It  is  to  the  interest  of  the  law  of  partnership  that  fre- 
quent resort  to  the  courts  by  copartners  should  not  be  encouraged,  and 
they  should  realize  that,  as  a  rule,  they  must  settle  their  own  differ- 


Sec.  2)  REMEDIES    IN    EQUIXr.  475 

cnccs,  or  go  out  of  business.  As  a  learned  writer  has  said:  "A  part- 
ner who  is  driven  to  a  court  of  equity,  as  the  only  means  by  which  he 
can  get  an  accounting  from  his  copartners,  may  be  supposed  to  be 
in  a  position  which  will  be  benefited  by  a  dissolution;  in  other  words, 
such  a  partnership  as  that  ought  to  be  dissolved."  Parsons  on  Part- 
nership (4th  Ed.)  §  20G.  "If  a  continuance  of  the  partnership  is  con- 
templated," as  another  commentator  has  said,  "or  if  an  accounting 
of  only  part  of  the  partnership  concerns  is  allowed,  no  complete  justice 
can  be  done  between  the  partners,  and  the  fluctuations  of  a  continuing 
business  will  render  the  accounting  which  is  correct  to-day  incorrect 
to-morrow;  and  to  entertain  such  bills  on  behalf  of  a  partner  would 
involve  the  court  in  incessant  litigation,  foment  disputes,  and  need- 
lessly drag  partners  not  in  fault  before  the  pubhc  tribunals."  2  Bates 
on  Partnership,  §  910.  Judge  Story  declared  that  "a  mere  fugitive, 
temporary  breach,  involving  no  serious  evils  or  mischief,  and  not  en- 
dangering the  future  success  and  operations  of  the  partnership,  will 
therefore  not  constitute  aijy  case  for  equitable  relief.  *  *  *  It  is 
very  certain  that,  pending  the  partnership,  courts  of  equity  will  not 
interfere  to  settle  accounts  and  set  right  the  balance  between  the  part- 
ners, but  await  the  regular  winding  up  of  the  concern."  Story  on 
Partnership,  §§  225,  229. 

While  a  forced  accounting  without  a  dissolution  is  not  impossible, 
it  is  by  no  means  a  matter  of  course,  for  facts  must  be  alleged  and 
proved  showing  that  it  is  essential  to  the  continuance  of  the  business, 
or  that  some  special  and  unusual  reason  exists  to  make  it  necessary. 
Thus,  Mr.  Lindley,  upon  whom  reliance  was  placed  by  the  courts  be- 
low, mentions  three  classes  of  cases  as  exceptions  to  the  general  rule : 
"(1)  Where  one  partner  has  sought  to  withhold  from  his  copartner 
the  profits  arising  from  some  secret  transaction;  (2)  where  the  part- 
nership is  for  a  term  of  years  still  unexpired,  and  one  partner  has 
sought  to  exclude  or  expel  his  copartner,  or  drive  him  to  a  dissolution ; 
(3)  where  the  partnership  has  proved  a  failure,  and  the  partners  are 
ytoo  numerous  to  be  made  parties  to  the  action,  and  a  limited  account 
will  result  in  justice  to  them  all."  The  plaintiffs  claim  that  this  case 
belongs  to  the  second  class,  and  the  courts  below  have  so  held ;  but, 
as  we  think,  it  does  not  come  under  any  head  of  ]\Ir.  Lindley's  class- 
ification, which  is  correct  as  far  as  it  goes,  and  it  goes  as  far  in  the 
direction  of  the  plaintiffs'  theory  as  any  just  classification  that  can 
be  made. 

There  is  neither  allegation  nor  evidence  that  Hull  tried  to  exclude 
or  expel  the  plaintiffs,  or  to  drive  them  to  a  dissolution,  or  that  he  did 
anything  in  bad  faith  or  with  an  ulterior  purpose.  The  controversy 
was  confined  to  one  point  of  difference — the  Murchison  contract — 
which  was  a  matter  of  internal  regulation.  There  was  no  dispute 
about  anything  else.  The  plaintiffs  claimed  that  the  contract  bound 
the  firm,  and  that  it  included  all  work  done  or  to  be  done  for  Mr. 
Clark,  while  Hull  claimed  that  it  did  not  bind  the  firm,  and  that,  if  it 


476  REMEDIES   OF   PARTNERS   INTER   SB.  (Ch.   7 

did,  it  embraced  only  a  part  of  that  work.  There  was  no  difference 
in  the  computation  of  balances,  or  claim  that  the  articles  had  been 
violated  by  either  side,  except  with  reference  to  that  contract.  The 
plaintiffs  insisted  that  Hull  had  drawn  out  more  than  his  share  of  the 
profits,  because  he  drew  one-third  of  the  income  without  leaving  one- 
third  of  the  part  going  to  Murchison,  and  that  thus  there  was  a  bal- 
ance against  him.  Hull  claimed  that  the  plaintiffs,  in  paying  anything 
to  Murchison,  wasted  the  assets  of  the  firm,  and  thus  there  was  a  bal- 
ance against  them.  When  the  interlocutory  judgment  was  made,  the 
parties  at  once  stipulated  the  respective  balances  on  the  basis  of  that 
decree,  and  thus  obviated  a  reference,  so  that  final  judgment  was  enter- 
ed without  delay.  Neither  party  desired  an  accounting,  except  as  an 
excuse  to  sustain  or  defeat  the  Aiurchison  contract.  Exclusion  from  a 
small  portion  of  the  profits,  paid  or  withheld  in  good  faith  on  account 
of  that  contract,  was  not  exclusion  from  the  affairs  of  the  firm,  yet  an 
accounting  was  sought  only  as  a  means  of  settling  the  dispute  over 
that  particular  subject,  which  related  simply  to  a  detail  in  the  manage- 
ment of  the  business.  No  discovery  was  asked  for.  There  was  no 
"claim  that  Hull  was  insolvent,  or  that  he  had  suppressed  any  fact,  or 
had  made  secret  profits,  or  had  been  guilty  of  bad  conduct,  or  that  the 
books  had  not  been  properly  kept,  or  that  the  plaintiffs  had  been  denied 
access  to  the  books.  There  was  no  evidence  that  any  partner  had  re- 
fused to  give  an  account  of  all  moneys  received  by  him,  or  that  there 
was  error  or  omission  of  any  kind  in  the  accounts  of  the  firm,  except 
as  limited  to  the  Murchison  agreement.  It  was  easy  to  test  the  valid-  • 
ity  of  that  contract  by  simply  withholding  payment,  forcing  Murchison 
to  sue,  and  raising  the  question  by  answer.  That  was  not  an  equitable, 
but  a  legal  question.  Murchison's  claim  did  not  differ  from  that  of 
any  firm  creditor,  except  that  the  partners  were  at  odds  over  its  va- 
lidity. "No  action  can  be  maintained  by  one  partner  against  the  other 
in  respect  to  particular  items  of  account  pertaining  to  the  partnership 
business."    Thompson  v.  Lowe,  111  Ind.  274,  12  N.  E.  477. 

An  accounting  without  a  dissolution  has  never  been  allowed,  under 
the  circumstances  of  this  case,  by  any  court  in  this  country  or  in  Eng- 
land, so  far  as  we  can  learn  from  the  authorities  cited  by  counsel  or 
discovered  by  ourselves.  A  brief  review  of  the  leading  cases  will 
show  that  the  principle  upon  which  they  rest  has  no  application  to  the 
facts  of  the  case  before  us.  In  Fairthorne  v.  Weston,  3  Hare's  Ch. 
R.  387,  the  plaintiff  bought  into  the  business  of  an  attorney,  paying 
£700  down,  and  agreeing  to  pay  700  more  at  the  end  of  five  years, 
when  the  defendant  was  to  retire,  and  the  business  was  to  belong  to 
the  plaintiff.  During  the  five  years  the  parties  were  to  be  copartners, 
sharing  the  profits  and  expenses  equally.  After  a  while  the  defend- 
ant, for  the  fraudulent  purpose  of  getting  rid  of  his  contract,  received 
money,  and  refused  to  recount  for  it,  excluded  the  plaintiff  from  all 
knowledge  and  control  over  the  business,  used  insulting  language  to- 
ward him,  and  violated  the  copartnership  agreement  in  other  ways, 


Sec.  2)  REMEDIES    IN    EQUlTr.  477 

and  all  in  order  to  bring  about  a  dissolution.  A  bill  filed  for  an  ac- 
counting, without  a  dissolution,  was  sustained  upon  the  ground  that 
the  defendant  was  violating  the  contract  in  order  to  compel  the  plain- 
tiff to  submit  to  a  dissolution  upon  very  injurious  terms,  and  that  the 
court  had  power  to  support  as  well  as  dissolve  a  partnership.  In 
Richards  v.  Davis,  2  Russell  &  M.  317,  a  copartnership  for  a  long  term 
had  not  expired,  and  the  acting  partner  excluded  the  others  "from 
the  means  of  ascertaining  the  state  of  the  partnership  affairs."  A  bill 
for  an  accounting,  and  to  permit  the  plaintiffs  "to  have  access  to  all 
the  books  of  the  partnership,"  was  sustained ;  but  the  court  refused 
to  make  an  order  "for  carrying  on  the  partnership  concerns,  unless 
with  a  view  to  dissolution."  It  is  claimed  that  this  case  was  overruled 
by  Knebell  v.  White,  2  Younge  &  C.  Exch.  15,  where  it  was  hicld  that 
a  bill  for  an  account  of  partnership  transactions  must  pray  for  a  dis- 
solution, or  the  court  could  not  take  jurisdiction.  From  the  fragmen- 
tary report  of  Harrison  v.  Armitage,  4  Mad.  143,  it  appears  that  the 
defendant  denied  that  there  was  any  partnership;  and  the  court  so 
held,  but  remarked  orally  that  one  partner  might  file  a  bill  against  an- 
other for  an  account  without  aslcing  for  a  dissolution,  although  not  in 
a  case  of  interim  management.  The  remark  was  obiter,  and  so  limited 
as  not  to  include  the  case  we  are  considering,  yet  it  is  one  of  the  few 
authorities  relied  upon  by  those  who  claim  that  courts  of  equity  should 
open  their  doors  to  admit  quarreling  copartners.  In  Knowles  v. 
Houghton,  11  Vesey,  Jr.,  Ch.  R.  168,  the  existence  of  the  partnership 
was  denied  by  the  defendant,  who  claimed  that  the  plaintiff  "was  mere- 
ly employed  as  a  clerk."  An  accounting  was  granted  without  a  dis- 
solution, the  object  being  to  establish  the  partnership.  In  Lascomb  v. 
Russell,  4  Simons,  8,  there  was  a  partnership  for  seven  years,  "and 
so  from  seven  years  to  seven  years,  till  determined  by  notice."  After 
the  first  period  had  expired,  and  one  year  of  the  second,  a  bill  was 
filed  for  an  account  of  the  profits,  upon  the  allegation  that  no  settle- 
ment had  been  made  for  the  last  three  years.  In  dismissing  the  bill, 
the  court  said :  "With  respect  to  the  law  of  this  court  upon  this  sub- 
ject, there  is  no  instance  of  an  account  being  decreed  of  the  profits  of 
a  partnership  on  a  bill  which  does  not  pray  a  dissolution,  but  contem- 
plates the  subsistence  of  the  partnership.  *  *  *  With  respect  to 
occasional  breaches  of  agreement  between  partners,  when  they  are  not 
of  so  grevious  a  nature  as  to  make  it  impossible  that  the  partnership 
should  continue,  the  court  stands  neuter;  but  when  it  finds  that  the 
acts  complained  of  are  of  such  a  character  as  to  show  that  the  part- 
ners cannot  continue  partners,  and  that  relief  cannot  be  given  but  by 
a  dissolution,  the  court  will  decree  it,  although  it  is  not  specifically 
asked.  Here  a  dissolution  is  not  prayed  for,  and,  if  the  court  were 
to  do  what  is  asked,  it  would  not  be  final."  Under  similar  circumstan- 
ces, Lord  Eldon  dismissed  the  bill  ih  Forman  v.  Plum  fray,  2  Ves.  & 
B.  328;  observing  "that,  if  a  partner  can  come  here  merely  for  an 
account  pending  the  partnership,  there  seems  nothing  to  prevent  his 


478  REMEDIES   OF   PARTNERS   INTER  SE.  (Ch.   7 

coming  annually."  In  Taylor  v.  Davis,  4  Law  J.  (N.  S.)  IS,  an  in- 
junction was  granted,  restraining  the  defendant  from  retaining  in  his 
sole  possession,  and  excluding  the  plaintiff  from  access  to,  a  book  kept 
by  the  firm,  and  indispensable  to  the  business.  The  book  had  been 
abstracted  by  the  defendant,  and  he  had  threatened  to  burn  it.  In 
Marshall  v.  Colman,  2  Jacob  &  W.  26G,  the  court  declined  to  restrain 
the  defendant  from  violating  the  articles  of  partnership,  in  refusing 
to  use  the  name  of  the  plaintiff  as  a  par^  of  the  firm  name  in  the  trans- 
action of  firm  business.  The  lord  chancellor  said :  "It  would  be  quite 
a  new  head  of  equity  for  the  court  to  interfere  where  one  party  violates 
a  particular  covenant,  and  the  other  party  does  not  choose  to  put  an 
end  to  the  partnership.  In  that  way  there  may  be  a  separate  suit  and 
a  perpetual  injunction  in  respect  of  each  covenant,  and  that  is  a  juris- 
diction that  we  have  never  decidedly  entertained."  In  Knebell  v. 
White,  2  Younge  &  C.  15,  previous  conflicting  decisions  were  con- 
sidered, and  the  court  said:  "It  may  now,  therefore,  be  considered  as 
settled  that,  in  the  case  of  ordinary  trading  partnerships,  an  account  of 
partnership  transactions  must  be  consequent  upon  a  dissolution  of 
the  partnership."  These  cases  illustrate, '  if  they  do  not  exhaust,  the 
instances  where  the  courts  of  England  have  interfered,  or  refused  to 
interfere,  when  a  dissolution  of  the  firm  was  not  asked.  In  this  coun- 
try the  question  does  not  appear  to  have  been  directly  decided,  at  least 
not  in  this  state.  It  was  not  involved  in  Sanger  v.  French,  157  N.  Y. 
213,  51  N.  E.  979,  nor  in  Traphagen  v.  Burt, -67  N.  Y.  30,  as  will  ap- 
pear from  an  examination  of  the  facts.  The  primary  object  of  those 
actions  was  to  establish  a  partnership  with  reference  to  a  particular 
adventure,  and  they  turned  mainly  on  the  existence  and  effect  of  an 
oral  agreement  between  the  parties.  Our  courts,  and  especially  those 
having  jurisdiction  under  the  laws  of  Congress,  have  sometimes  in- 
terfered by  injunction  in  a  flagrant  case  of  danger  and  injustice,  al- 
though no  dissolution  of  the  firm  was  contemplated.  Rutland  Marble 
Co.  V.  Ripley,  10  Wall.  (U.  S.)  339,  19  L.  Ed.  955;  Leavitt  v.  Land 
Co.,  54  Fed.  439,  4  C.  C.  A.  425.  This  is  quite  different  from  an  action 
for  an  accounting  without  a  dissolution,  where  no  especial  reason  is 
alleged  or  proved  to  show  that  one  is  necessary,  or  to  authorize  a  de- 
parture from  the  general  rule. 

'  A  court  of  equity  will  not  take  cognizance  of  an  action  for  an  ac- 
counting as  a  mere  incident  to  the  settlement  of  a  solitary  matter  in 
dispute  between  partners,  when  it  is  not  vital  to  either  party  or  to  the 
business,  and  dissolution  is  not  sought.  Actions  to  establish  a  part- 
nership, the  existence  of  which  was  denied  by  the  partner  in  control 
to  give  a  partner  access  to  the  books  after  persistent  refusal,  or  to  per- 
mit him  to  take  part  in  the  business  from  which  he  had  been  excluded, 
are  founded  on  intentional  and  continuous  wrongdoing,  which,  unless 
arrested,  might  subvert  the  partnership.  When  one  party  seizes  or 
absorbs  the  entire  business,  or  usurps  rights  of  his  copartner  which  are 
essential  to  his  safety  or  the  safety  of  the  firm,  or  persists  in  miscon- 


Sec.  2)  REMEDIES   IN    EQCIIT.  479 

duct  so  gross  as  to  threaten  destruction  to  the  interests  of  all,  the  court 
may  intervene  to  restore  the  rights  of  the  innocent  pafty,  or  to  rescue 
a  paying  business  from  ruin.  Extreme  necessity  only,  however,  will 
justify  interference  without  a  dissolution.  There  was  no  sufficient 
reason  for  an  appeal  to  a  court  of  equity  in  the  case  under  considera- 
tion. There  was  no  equity  in  the  bill  as  filed  by  the  plaintiffs,  and 
none  in  the  case  made  for  them  by  the  evidence.  The  defendant  Mur- 
chison  had  an  adequate  remedy  at  law,  and  he  can  take  nothing  from 
his  intrusion  into  the  litigation,  under  the  circumstances,  for  the  ques- 
tionable order  admitting  him  as  a  defendant  did  not  create  a  cause  of 
action,  nor  add  to  the  jurisdiction  of  the  court.  All  the  parlies  should 
be  put  back  where  they  were  before  the  action  was  commenced,  and 
hence  it  is  our  duty  to  reverse  the  judgments  below  and  dismiss  the 
complaint,  with  costs  to  the  defendant  Hull  against  the  plaintiffs  and 
the  defendant  Alurchison. 


GRAVES.  C.  J.,  IN  BUCK  v.  SMITH. 

(Supreine  Court  of  Michigan,  1874.     2t)  iNIich.  IGG,  18  Am.  Rep.  84.) 

Now,  what  is  the  real  essence  of  the  case  made  by  this  bill?  What 
is  the  arrangement  the  court  is  asked  to  carry  out?  It  is  an  agree- 
ment, according  to  the  representation  of  complainant,  between  himself 
and  the  defendant,  by  which  the  latter  agreed  to  convey  an  undivided 
interest  in  real  and  personal  property  held  by  defendant  in  common 
with  third  persons,  and  that  the  complainant  should,  for  an  indefinite 
time,  become  a  partner  with  the  defendant  and  such  third  persons  in 
operating  the  property ;  that  the  defendant  should  advance  from  time 
to  time  the  complainant's  quota  of  the  funds  necessary  for  the  busi- 
ness and  the  improvement  of  the  property ;  tliat  the  corriplainant  should 
have  the  right  to  manage  and  direct  the  business  and  the  improve- 
ments; and  that  he  would  employ  his  time,  skill,  judgment,  and  ex- 
perience in  the  direction  and  supervision  of  the  property  and  business;' 
and  that  the  purchase  price  of  his  proprietary  share  and  the  amount 
advanced  for  his  benefit  in  carrying  on  the  business  should  be  paid^bv 
his  skill  and  services  in  the  concern  and  the  gains  obtained  in  the  en- 
terprise.    *     *     * 

It  is  extremely  plain  that  the  court  cannot  assume  to  enforce  the 
performance  of  daily  prospective  duties,  or  supervise  or  direct  in  ad- 
vance the  course  or  conduct  of  one  who  is  to  control  and  manage  in  the 
interest  of  a  firm  in  which  he  is  to  stand  as  a  member,  and  where,  too, 
the  stipulated  arrangement  as  plainly  set  forth  contemplates  that  his 
personal  skill  and  judgment  shall  be  applied  and  govern  according  to 
to  the  shifting  needs  of  property  and  business.  No  court  is  competent 
to  execute  such  an  arrangement. 


480  REMEDIES   OF   PARTNERS  INTER  SB.  (Ch.   7 

PIRTLE  V.  PENN. 

(CJourt  of  Appeals  of  Keutucky,  1835.    3  Dana,  247,  28  Am.  Dec.  70.) 

Robertson,  J.  Henry  Pirtle  filed  a  bill  in  chancery  against  Shad- 
rack  Penn,  alleging  that  they  were  partners  in  the  publication  of 
Pirtle's  Digest ;  that  Pirtle,  as  author,  was  to  furnish  the  manuscript, 
and  Penn,  as  mechanic,  was  to  execute  the  printing  and  binding,  and 
each  to  be  entitled  to  half  of  the  proceeds  to  be  derived  from  the  sale 
of  the  books ;  that  Penn  was  not  bound  to  commence  the  printing  un- 
less he  should  be  satisfied  that  the  public  patronage  would  be  satis- 
factory and  sufficient;  that  the  state  subscribed  for  500  copies,  and 
that  afterwards  Penn  had  printed  2,000  copies  and  bound  about  half  of 
them,  but  that,  after  dividing  equally  the  gross  sum  paid  by  the  state 
for  500  copies,  he  had  refused  to  permit  Pirtle  to  have  any  control  over 
the  books,  or  any  participation  in  the  sale  of  them — alleging  for  the 
first  time,  that  he  was  entitled  only  to  half  of  the  net  profits,  after  de- 
ducting thexcost  of  tlie  printing  and  binding,  which  had  not  yet  been 
wholly  reimbursed ;  and,  lastly,  that  Penn  was  insolvent,  and  therefore 
praying  for  an  account  of  sales  which  had  been  made,  and  for  an  in- 
junction restraining  further  sales,  and  for  the  appointment  of  a  re- 
ceiver. 

Penn,  in  his  answers  to  the  bill  and  amended  bill,  admitted  the 
partnership  as  alleged, '  with  only  one  material  qualification,  and  that 
is  that  his  personal  supervision  and  interest  on  his  capital  expended 
in  the  publication  were,  by  the  agreement,  to  be  set  off  against  Pirtle's 
skill  and  labor  in  preparing  the  manuscript,  and  that  the  net  profits 
only  were  to  the  divided,  after  reimbursing  the  amount  -expended  in 
the  printing  and  binding  and  in  the  purchase  of  materials.  He  denied 
that  he  was  insolvent,  and,  after  exhibiting  a  general  account,  insisted 
that  Pirtle  had  received  about  as  much  as  he  had  himself  received. 

The  circuit  court  having,  on  final  decree,  dismissed  the  bill,  this 
appeal  is  prosecuted  to  reverse  the  decree. 

As  there  was  no  prayer  for  a  dissolution  of  the  partnership,  interim 
management,  by  a  receiver  or  otherwise,  under  the  control  or  direction 
of  the  court,  was  not  authorized  by  the  established  rules  and  ussiges 
of  courts  of  equity.  Gow  on  Part,  120,  139 ;  Gary,-  32.  And  it  has 
been  said  that  without  a  prayer  for  dissolution  a  court  of  equity  will 
not  entertain  a  bill  for  an  account,  because  such  bills  might  be  annual, 
or  of  indefinite  recurrence.  But  both  principle  and  authority  tend  to 
the  conclusion  that  a  bill  for  an  account  between  copartners  may  be 
maintained  without  a  prayer  for  a  dissolution  of  the  partnership,  if 
there  be  any  good  reason  for  compelling  an  account  and  settlement. 
Gary,  34;  Gow,  120-13G.  A  court  of  equity  may,  moreover,  compel 
a  specific  execution  of  a  partnership  contract,  and  may  som.etimes  en- 
join a  partner  from  persisting  in  improper  conduct,  jeopardingi  the 
rights  or  derogating  from  the  power  or  authority  of  his  copartner, 


Sec.  2)  REMEDIES   IN    EQUnT.         "  4S1 

and  when  the  latter,  if  he  can  be  protected  and  secured  by  injunction, 
does  not  desire  a  dissolution,  but  prefers  a  continuation  of  tlie  part- 
nership according  to  the  spirit  and  end  of  the  association.  In  this  case, 
though  there  is  no  prayer  for  dissolution,  yet,  as  Penn  has  been  selling 
the  books  and  does  not  deny  that  he  refuses  to  permit  Pirtle  to  con- 
trol or  participate  in  the  sale  of  the  residue,  we  think  the  circuit  court 
had  power  to  decree,  and  ought  to  have  decreed,  some  relief,  if  the 
allegations  of  the  bill  as  to  the  terms  of  the  partnership  be  true.  [Ait- 
er  construing  the  partnership  agreement:]  From  this  view  of  the  case, 
it  would  seem  that,  under  the  circumstances  of  this  case,  Pirtle  is 
entitled  to  a  decree  for  an  account,  and  for  securing  to  him  his  equal 
control  over  the  books,  and  correspondent  participation  in  the  sale  or 
disposition  of  them,  by  a  partial  injunction  or  otherwise,  so  as  to  effect 
that  end  most  securely  and  appropriately;  and  consequently  the  abso- 
lute dismission  of  the  bill  was  improvident.  Wherefore  it  is  decreed 
and  ordered  that  the  decree  of  the  circuit  court  be  reversed,  and  the 
cause  remanded. 


SHANNON  et  al.  v.  WRIGHT. 
(Court  of  Appeals  of  Maryland,  1SS3.     GO  Md.  .j21.) 

The  appellee,  together  with  the  appellants,  were  copartners  in  the 
business  of  manufacturing  and  dealing  in  metals  in  the  city  of  Balti- 
more, under  the  firm  name  of  Shannon,  Wright  &  Co.  A  bill  was 
filed  by  the  appellee  against  the  appellants,  asking  for  an  injunction 
and  the  appointment  of  a  receiver.  The  case  is  further  stated  in  the 
opinion  of  the  court. 

Ritchie,  J.  This  is  an  appeal  from  an  order  of  the  circuit  court 
of  Baltimore  City  appointing  a  receiver  and  granting  an  injunction. 
Our  duty,  therefore,  is  simply  to  determine  whether  the  case  stated 
by  the  complainant  was  one  which  justified  the  passage  of  the  order 
appealed  from.  Without  pausing  to  dwell  upon  those  averments  of 
the  complainant  which  impute  fraudulent  misrepresentations  to  the 
defendants  as  to  the  value  of  the  firm's  assets  and  its  business,  by  which 
he  was  induced  to  enter  into  a  partnership  with  them,  which  has  dis- 
proportionately engulfed  his  means  and  exposed  him  to  great  loss,  we 
find  in  the  specific  allegations  of  clause  10  of  the  bill  ample  ground  for 
the  equitable  interposition  he  has  invoked.    That  clause  is  as  follows: 

"And  now  your  orator  charges  that  debts  are  due  by,  and  suits 
are  pending  against,  the  firm,  and  that  the  defendants,  having  the 
money  of  the  firm  in  their  possession,  refuse  to  apply  it  toward  the 
pavment  of  said  debts ;  that  they  refuse  to  give  any  money  to  your 
orator;  that  they  refuse  to  permit  your  orator's  counsel  to  examine 
the  books  of  the  firm ;  that  they  refuse  to  allow  a  competent  book- 
keeper, selected  by  your  orator,  to  examine  the  books  of  the  firm ;  that 
Gir.P.^RT.— 31 


4S2  REMEDIES   OF   PARTNERS   INTER   SE.  (Ch.    7 

in  order  to  anticipate  debts  owing  to  the  firm,  and  thus  get  the  firm's 
money  in  their  pockets,  they  have  drawn  drafts  in  the  name  of  the 
firm  upon  their  customers,  and  procured  the  same  to  be  discounted  by 
their  lawyer  and  others  at  exorbitant  rates  of  interest;  that  without 
the  knowledge  or  consent  of  your  orator  they  have  given  notes  of  the 
firm  in  settlement  of  debts  not  owing  by  the  firm,  one  of  said  debts 
being  for  clothing  purchased  by  D.  R.  Shannon  and  John  T.  Shannon 
individually;  that  without  the  knowledge  or  consent  of  your  orator 
the  said  D.  R.  and  John  T.  Shannon  have  offset  their  own  debts 
bv  sales  of  merchandise  of  the  firm  of  Shannon,  Wright  &  Co.  \,  that 
thev  have  no  tangible  property  outside  of  their  interest  in  said  firm ; 
that  they  represent  themselves  to  be  three  stubborn  brothers,  and  ex- 
press their  intention  of  litigating  the  matters  in  controversy  by  means 
of  the  firm's  money  until  they  have  ruined  your  orator;  that  the  said 
D.  R.  Shannon  and  John  T.  Shannon  refuse  to  return  the  money  which 
has  been  advanced  to  pay  their  debts;  that  defendants  declare  them- 
selves to  be  unwilling  to  continue  said  partnership,  even  if  your  orator 
was  willing,  and  yet  they  utterly  refuse  to  dissolve  the  partnership ; 
that  they  threaten  to  make  contracts  in  the  name  of  the  firm,  knowing 
they  cannot  be  carried  out,  which  contracts,  if.  made,  will  render  your 
orator  liable  in  damages ;  that  judgments  will  shortly  be  entered  against 
the  firm,  and  your  orator  damaged,  unless  the  money  in  the  hands  of 
the  defendants  be  applied  to  the  payment  of  the  notes  sued  on,  as  above 
stated ;  and  your  orator  charges  that  unless  immediate  relief  be  given 
by  way  of  an  injunction  and  receiver,  which  he  is  advised  is  the  prop- 
er remedy,  he  will  be  reduced  from  a  reasonable  competence  to  pov- 
erty." 

There  is  evidently  here  set  out  such  a  case  of  alleged  fraud  and  im- 
minent danger  to  the  complainant's  interest  in  the  partnership  prop- 
erty as  justifies  a  receiver  and  an  injunction — proceedings  which  do 
not  determine  the  rights  of  the  parties,  but  simply  protect  the  prop- 
erty from  injury  or  destruction  until  those  rights  can  be  further  in- 
quired into  or  adjudicated.    The  order  appealed  from  must  be  affirmed. 

Order  affirmed,  and  cause  remanded. 


KATZ  v.  BREWINGTON. 

(71   Md.  79,  21  Atl.  139.) 
See  ante,  p.  433,  for  a  report  ot  tlie  ease. 


Sec,  2)  '      EEMEIJIES   IN    ICQLITY.  483 

SUTRO  V.  WAGNER. 

(Court  of  Chancery  of  New  Jersey,  187o.    23  N.  J.  Eq.  riSS.) 

There  was  notice  on  part  of  defendant  of  a  motion  to  dissolve  an  in- 
junction heretofore  granted  in  this  suit,  and  a  notice  on  part  of  com- 
plainant for  the  appointment  of  a  receiver.  By  consent,  both  motions 
were  argued  together. 

Zabriskie,  Ch.  This  suit  is  by  one  partner  against  the  other  for  a 
dissolution,  an  account,  and  a  receiver.  The  grounds  of  complaint  are: 
A  failure  by  the  defendant  to  fulfill  his  partnership  obligations,  his 
neglect  and  refusal  to  proceed  with  any  efficiency  in  the  business,  his 
fraudulent  appropriation  of  the  funds,  and  his  fraudulent  voluntary 
conveyance  of  his  separate  property  to  his  son,  for  the  purpose  of 
placing  it  beyond  the  reach  of  creditors  of  the  firm,  so  as  to  leave  the 
complainant's  separate  property  liable  for  the  debts  of  the  firm  beyond 
its  assets,  and  giving  notice  of  such  transfer  to  the  mercantile  agency, 
for  the  purpose  of  ruining  the  credit  of  the  firm. 

The  answer  of  the  defendant  denies  some  of  these  charges,  but  not 
all.  The  voluntary  transfer  of  his  separate  property,  and  the  notice 
of  it  to  the  mercantile  agency,  are  not  denied.  These,  in  connection 
with  some  other  matters  not  denied,  are  sufficient  to  show  that  the 
defendant  had  deliberately  resolved  to  break  up  and  ruin  the  business 
of  the  firm ;  and  the  personal  relations  of  the  two  partners  are  such 
that  they  can  never  carry  on  the  business  together  to  advantage.  The 
injunction  must  be  retained,  and  a  receiver  appointed. 

The  motion  to  dissolve  is  denied,  with  costs.^ 

1  In  Mcravey  v.  T^ewis,  7G  N.  Y.  373  ("IS70),  in  an  action  for  the  dissolution  of 
a  partnei-ship  and  the  appointment  of  a  receiver,  it  was  said:  "In  the  absence 
of  any  provision  in  the  partnership  agreement  as  to  the  division  of  property 
or  manner  of  closinj;  its  affairs,  It  was  projjer  to  appoint  a  receiver.  Law  v. 
Ford,  2  Paige  (N.  Y.)  310;  Martin  v.  Van  Schaiclv,  4  Id.  479.  And  Lord  Eldoa 
in  Goodman  v.  ■\Vlntcomb,  1  Jac.  &  W.  509,  says:  'If  tlie  court  can  see  that 
a  dissolution  must  be  declared,  it  follows  very  much  of  course  that  a  receivei- 
must  be  appointed.'  This  is  the  general  rule,  and  no  sulTicient  reason  is  sug- 
gested for  making  this  case  an  exception.  It  is  doubtless  true,  as  the  appel- 
lant argues,  that  a  receiver  will  not  be  appointed  for  the  mere  reason  that 
the  partners  quarrel;  but  that  is  because  this  will  not  of  itself  be  a  suificient 
ground  for  severing  the  connection  between  them.  Collyer  on  Partnership,  197 
In  the  case  before  us  the  partnership  has  been  dissolved,  and  the  defendant's 
answer  shows  that  there  is  property  concerning  the  division  of  which  the  par- 
ties have  not  agreed,  and  other  property,  the  lease  and  good  will.  In  regard  to 
which  there  is  a  difference ;  the  defendant  claiming  the  whole  Interest  in  both 
to  the  exclusion  of  the  plaiutifiC." 


4S-i  REMEDIES   OF   PAUTXEIiS   IMEU   SE.  (Cll.   7 

SECTION  3.— ACCOUNTING  AND  DISTRIBUTION. 


GROTH  et  al.  v.  KERSTING  et  al. 
(Supreme  Court  of  Colorado,  189G.    23  Colo.  213,  47  Pac.  303.) 

Hayt,  C.  J.  The  defendants  in  error,  Fritz  Kersting  and  August 
Wilmsmeier,  commenced  suit  against  plaintiffs  in  error,  Louis  Groth 
and  Ferdinand  B.  Becker.  This  action  was  numbered  13,115  in  the 
district  court.  The  complaint  in  the  suit,  as  originally  instituted,  con- 
tained two  causes  of  action.  The  first,  which  was  directed  against  the 
defendant  Groth  alone,  is  an  action  by  two  partners  against  the  third 
member  of  the  firm  for  an  accounting.  The  second  cause  of  action 
was  against  both  of  the  defendants,  upon  an  account  stated.  At  the 
time  of  the  institution  of  this  suit,  an  attachment  was  issued  in  aid 
thereof,  and  sustained  upon  final  hearing.  To  the  original  complaint 
a  demurrer  was  interposed,  and  sustained.  Thereafter  the  complaint 
was  amended,  and  the  first  cause  dropped  therefrom.  This  first  cause 
of  action  was  subsequently  made  the  basis  of  an  independent  suit, 
desigrfated  in  the  district  court  as  No.  13,900,  After  the  issues  were 
joined  in  the  two  causes,  they  were  consolidated,  and  referred  to  I. 
E.  Barnum,  asireferfee,  to  take  testimony,  and  report  findings.  As  a 
result  of  the  proceedings  had  before  the  referee,  the  plaintiffs  in  both 
cases  were  successful.  Exceptions  to  the  report  were  in  due  time  filed, 
and  overruled  by  the  court.  In  accordance  with  the  findings  of  the 
referee,  the  district  court  rendered  judgment  for  the  plaintiffs  for  the 
sum  of  $8,751.54,  against  both  defendants,  and  an  individual  judgment 
against  Groth  alone  for  the  sum  of  $1,936.70.  From  this  judgment 
a  writ  of  error  was  sued  out  from  the  Court  of  Appeals,  in  which  court 
the  judgment  of  the  district  court  was  in  all  things  affirmed.  See 
Groth  V.  Kersting,  4  Colo.  App.  395,  36  Pac.  156.  From  this  latter 
judgment  the  cause  is  brought  here  by  error. 

It  is  claimed  that  the  referee's  report,  which  formed  the  basis  of  the 
decree  in  the  district  court,  as  well  as  that  of  the  Court  of  Appeals, 
is  manifestly  erroneous,  in  that  it  fails  to  provide  for  the  repayment 
to  each  partner  of  his  contribution  to  the  business.  Undoubtedly, 
the  usual  order  of  distribution  of  the  assets  of  a  copartnership  upon 
dissolution  is  as  stated  by  counsel,  to  wit:  (1)  Payment  of  the  debts 
or  liabilities  due  third  persons;  (2)  repaying  to  each  partner  his  ad- 
vances; (3)  repaying  to  each  partner  his  capital;  (4)  division  of 
the  balance  as  profits.  While  this  is  the  usual  order,  it  may  be  altered 
by  agreement  of  the  parties,  and  in  this  case  we  think,  from  the  evidence 
and  the  conditions  under  which  the  copartnership  was  formed  and  the 


Sec.  3)  ACCOUNTING    AND    DISTRIBUTION.  485 

firm  business  transacted,  the  referee  correctly  determined  that  the 
amount  contributed  by  the  several  partners  was  to  be  considered  as 
assets  of  the  firm,  and  to  be  distributed  accordingly.  In  accordance 
with  the  terms  of  the  agreement,  Kersting  and  Wilmsmeier  were  to 
devote  their  time  and  attention  to  the  joint  enterprise,  and  contribute 
only  $3,050.50,  while  Groth  contributed  $8,000^  although  he  had  but  ' 
a  one-third  interest  in  the  business.  This  disproportionate  amount 
was,  we  think,  put  in  by  Groth  against  the  lease  theretofore  secured 
by  Kersting  &  Co.,  and  as  an  offset  to  their  labor  and  services  in  the 
management  of  the  business,  with  the  further  benefit  to  Groth  result- 
ing from  an  agreement  to  furnish  brick  for  his  building  contracts  at 
a  lower  price  than  they  could  be  purchased  for  in  the  market.  So, 
we  conclude  that  it  was  not  error  for  the  referee  to  treat  these  several 
items  as  assets  of  the  copartnership,  to  be  divided  between  the  part- 
ners according  to  their  interest  in  the  copartnership,  without  regard 
to  the  ratio  of  the  original  contributions. 

Among  the  credits  allowed  Kersting  &  Co.  is  one  for  hauling  brick. 
It  is  claimed  that  in  this  there  is  error,  because  the  bricks  were  hauled 
by  teams  belonging  to  the  copartnership.  We  do  not  so  understand  the 
evidence.  On  the  contrary,  the  referee  gave  credit  only  for  the  money 
paid  to  others  for  hauling.  Mr.  Kersting  says :  "Brick  hauling.  $1.2 12.- 
40 ;  that  is,  teams  which  hauled  bricks,  and  we  paid  them  for  hauling." 
In  the  complaint  it  is  alleged  that  the  profits  of  the  brick  business 
were  $9,731.68,  for  which  the  firm  of  Kersting  &  Co.  is  accountable, 
while  the  net  profits  of  the  business,  as  found  by  the  referee,  were 
only  $7,828.60.  It  is  urged  that  this  is  in  violation  of  the  rule  binding 
parties  by  the  allegations  of  their  pleadings.  This  is  not  so,  for  the 
reason  that  this  allegation  of  the  complaint  is  denied  by  the  answer, 
and  evidence  was  taken  upon  the  issue  thus  made.  The  referee  found 
that  the  price  charged  for  brick  by  Kersting  &  Co.  was  too  high,  and 
reduced  the  amount,  thereby  reducing  the  firm  profits  correspondingly. 
There  was  no  error  in  this,  but  Kersting  &  Co.  were  improperly  allow- 
ed, as  part  of  the  expenses  of  the  business  paid  by  them,  the  sum  of 
$3,650.50,  this  being  the  value  of  the  lease,  horses,  wagon?,  tools, 
brick,  etc.,  contributed  to  the  firm  by  Kersting  and  Wilmsmeier  at  the 
inception  of  the  jcnterprise.  The  contribution  to  the  firm,  under  the 
findings  of  the  referee,  became  joint  property  or  finn  assets ;  and 
neither  party  should  have  been  given  credit  for  either  of  the  amounts 
in  the  final  settlement,  except  as  the  same  may  result  from  a  division 
of  the  firm  assets.  The  referee  acted  upon  this  rule  so  far  as  Groth 
is  concerned,  but  adopted  a  different  rule  as  to  Kersting  and  Wilms- 
meier. This  was  not  called  to  the  attention  of  the  court  in  any  of 
the  briefs  filed  or  oral  arguments  heard  prior  to  writing  the  first  opin- 
ion, but  was  first  mentioned  in  the  petition  for  rehearing;  but  the 
error  is  manifest,  and  the  correction  will  now  be  made.  With  this 
change  the  account  may  be  stated  as  follows; 


486 


REMEDIES   OF   PARTNERS   INTER  SB.  (Ch. 


Kersting  &  Wilmsiueier  in  Account  .with  Kersting  &,  Co. 

To  collections  for  firm ^^'^-^Sl  ^ 

By  expenses  paid  for  the  firm bo.ab  m 

Balance   due $  5,089  27 

Firm  Assets. 

Due  from  Groth  &  Becker 5  ?'J^J  ^ 

Due  from  Kersting  &  Wilmsmeier.  as  above ^>,u^J  -^ 

Dtie  from  Louis  Groth b,uuu  uu 

Total    $21^840^1 

Of  this  amount  Kersting  &  Wilmsmeier  are  entitled  to  two-thirds  $14,.560  54 
Less  their  indebtedness  to  the  firm,  as  above u.OS'J  Jl 

Balance  due  Kersting  &  Wilmsmeier $  9,4"1  27 

Kersting  and  Wilmsmeier  are  entitled  to  judgment  for  the  amount 
due  them,  viz.  $9,471.27.  It  is  now  conceded  that  Groth  &  Becker 
and  Louis  Groth  may  properly  be  considered  as  one  and  the  same 
party  so  far  as  the  settlement  of  this  business  is  concerned.  We  will 
therefore  not  interfere  with  the  judgment  rendered  against  Groth  & 
Becker  for  $8,751.54,  but  will  correct  the  error  by  reducing  the  judg- 
ment against  Groth  from  $1,936.70  to  $719.73.  The  judgment  of  the 
Court  of  Appeals  against  Groth  &  Becker  will  therefore  be  affirmed, 
and  the  judgment  against  Groth  reduced  to  $719.73 ;  the  costs  iii  this 
court  to  be  equally  divided  between  the  parties.  The  cause  will  be 
remanded  to  the  Court  of  Appeals  for  further  proceedings  in  accord- 
ance with  this  opinion.    Judgment  modified. 


FOLSOM  V.  MARLETTE. 

(Supreme  Court  of  Nevada,  1897.    23  Nev.  459,  49  Pac.  39.) 

Belknap,  C.  J.  This  is  a  suit  for  an  accounting  between  partners, 
in  which  each  demands  a  balance  due  from  the  other.  The  partnership 
was  formed  on  the  29th  day  of  September,  1880,  and  continued  until 
the  27th  day  of  May,  1890,  when  it  was  dissolved.  Its  business  was 
that  of  contracting  for  the  cutting  of  cord  wood  and  logs,  and  the 
sawing  of  timber,  to  which  the  business  of  merchandising  was  sub- 
sequently added.  They  were  equal  partners.  The  district  court  or- 
dered judgment  in  favor  of  respondent  for  the  sum  of  $6,540.49. 
From  the  judgment  and  an  order  refusing  a  new  trial,  defendant 
has  appealed.  The  assignment  of  errors  will  be  considered  seri- 
atim.    *     *     * 

4.  Respondent  paid  to  the  creditors  of  the  firm,  after  jt  had  dis- 
continued business,  a  short  time  prior  to  its  dissolution,  the  sum  of 
$16,747.72.  The  district  court  allowed  interest  upon  this  sum  amount- 
ing to  the  sum  of  $7,224.06.  The  money  thus  paid  is  properly  treated 
as  an  advancement  for  the  benefit  of  the  firm.     Lindley,  in  his  work 


Sec.  3)  ACCOUNTING    AND    DISTRIBUTION.  4S7 

Upon  Partnership,  says:  "An  advance  by  a  partner  to  a  firm  is  not 
treated  as  an  increase  of  his  capital,  but  rather  as  a  loan,  on  which  in- 
terest ought  to  be  paid ;  and,  by  usage,  interest  is  payable  on  money 
bona  fide  advanced  by  one  partner  for  partnership  purposes,  at  least 
when  the  advance  is  made  with  the  knowledge  of  the  other  partners." 
Volume  1,  p.  300.  The  propriety  of  this  charge  admits  of  no  question. 
The  firm  had  no  capital.  It  had  been  in  the  habit  of  paying  interest 
at  its  banker's  upon  overdrafts  for  a  long  time.  Appellant  has  not 
suggested  in  his  testimony  that  this  money  was  not  advanced  with  his 
knowledge  and  acquiescence.  Under  these  circumstances,  the  charge 
of  interest  is  equitable.  Baker  v.  Mayo,  129  Mass.  517;  ^^orris  v. 
Allen,  14  N.  J.  Eq.  44;  Berry  v.  Folkes,  GO  Miss.  oTG ;  Collender  v. 
Phelan,  79  N.  Y.  3Gq. 

5.  On  or  about  the  29th  day  of  July,  1SS9,  respondent,  with  con- 
sent of  appellant,  appropriated  certain  personal  property  belonging  to 
the  firm  to  his  own  use,  charging  himself  therefor  with  the  sum  of 
$7,717.17  upon  the  books  of  the  firm.  There  had  been  no  agreement 
touching  the  valuation  to  be  fixed  on  the  property,  and  upon  the  trial, 
under  the  terms  of  a  stipulation  filed  in  the  case  by  counsel,  appellant 
objected  to  the  price  so  fixed  by  respondent.  This  stipulation,  among 
other  things,  provided  "that  a  transcription  of  the  firm  books  that  had 
been  introduced  in  evidence  should  be  treated  as  a  correct  transcrip- 
tion, and  as  to  all  items  and  all  balances  appearing  in  said  transcrip- 
tion, opposite  to  which  is  a  red  cross,  such  items  and  balances  are  dis- 
puted by  defendant,  S.  H.  JMarlette."  Accordingly,  appellant,  Mar- 
lette,  did  cause  an  "X"  in  red  ink  to  be  set  opposite  this  item;  thus 
indicating  that  he  contested  the  valuation  placed  upon  the  property 
bv  the  respondent,  Folsom.  Evidence  was  introduced  touching  the 
value  of  the  property,  and  the  fact  was  also  shown  that  respondent 
had  charged  himself  with  $7,717.17  for  it.  Upon  all  of  the  testimony 
introduced,  the  court  found  as  a  fact  that  the  value  of  the  property 
was  $5,000,  and  charged  the  respondent  with  that  sum  in  the  adjust- 
ment of  the  accounts.  Appellant  claims  that  respondent  should  be 
concluded  bv  the  value  fixed  by  himself  upon  the  books  of  the  firm, 
and  therefore  respondent  should  have  been  charged  with  $2,717.17 
more  than  the  value  fixed  by  the  finding.  It  must  be  stated,  as  a 
matter  of  fact,  that  there  was  no  objection  to  the  introduction  of  tes- 
timony tending  .to  establish  a  lower  valuation  than  the  charge  made 
by  the  respondent.  Appellant  must  have  expected  that  the  district 
court  would  have  placed  a  greater  valuation  than  that  with  which  the 
respondent  had  charged  himself,  otherwise  there  was  no  reason  for 
the  objection  being  taken.  When  the  contest  upon  the  charge  was 
inaugurated  by  the  appellant,  under  the  peculiar  circumstances  of  the 
case,  the  question  of  the  value  of  the  property  was  reopened,  and  re- 
spondent had  the  right  to  establish  a  lesser  value,  as  the  appellant  to 
establish  a  greater  value.  He  took  the  risk,  and  must  abide  the  result. 
As  the  respondent  has  been  allowed  interest  upon  the  advance  he  madr 


488  REMEDIES   OF  PARTNERS   INTER   SB.  (Cll.   7 

for  the  benefit  of  the  firm,  it  is  only  equitable  that  the  appellant  should 
be  allowed  interest  upon  the  value  of  this  property,  fixed  at  $5,000, 
from  the  date  of  its  appropriation  by  respondent. 

6.  Wages.  Appellant  absented  himself  from  the  locality  where 
the  firm  operated  a  considerable  portion  of  the  time.  Respondent 
charged  him  for  his  services  for  a  portion  of  the  time.  The  first  item 
of  this  nature  was  charged  during  the  winter  of  1882-83,  and  amount- 
ed to  the  sum  of  $300.  No  contention  is  made  touching  this  charge. 
During  the  year  1885,  $1,050  was  charged.  The  court  allowed  this 
charge  after  having  deducted  the  charge  for  wages  during  the  month 
of  July  of  that  year.  The  general  rule  undoubtedly  is  that  one  part- 
ner is  not  entitled  to  charge  the  other  compensation  for  his  services 
without  special  agreement.  There  was  no  special  agreement  in  this 
case,  and  the  majority  of  the  court  are  in  favor  of  the  enforcement  of 
this  rule.  One  member  of  the  court,  however,  dissents  from  this 
view;  holding  that  as  these  charges  were  made  during  the  course  of 
business,  as  the  books  were  accessible  to  appellant,  and  a  statement 
containing  these  charges  was  delivered  to  him  upwards  of  two  years 
prior,  to  the  dissolution  of  the  firm,  and  no  objection  having  been  made 
then  or  afterwards  until  this  proceeding  was  commenced,  he  should 
be  deemed  to  have  acquiesced  in  the  charge.  The  charge  will  be 
stricken  out.  The  case  will  be  remanded  to  the  district  court,  with 
instructions  to  modify  its  judgment  by  disallowing  respondent  the 
$1,050  allowed  as  wages,  and  to  allow  him  simple  interest  at  the  rate 
of  7  per  cent,  per  annum,  instead  of  10  per  cent,  per  annum,  upon  the 
advances  made  by  him  after  they  had  ceased  to  do  business  together, 
and  also  allow  appellant  the  same  interest  on  the  $5,000,  the  value  of 
the!  property,  from  July  29,  1889.  Under  the  circumstances  of  the 
case,  the  costs  in  the  district  court  should  not  be  allowed  respondent; 
and  that  court  will  also  correct  its  judgment  by  ordering  each  party 
to  pay  his  own  costs;  the  judgment,  as  corrected,  to  bear  legal  in- 
terest from  date  of  original  entry.  The  judgment  thus  modified  and 
corrected  is  affirmed;  each  party  to  pay  his  own  costs  upon  this  ap- 
peal. 


WHITCOMB  V.  CONVERSE. 

(Supreme  Judicial  Court  of  Massachusetts,  1875.    119  Mass.  38,  20  Am.  Rep. 

311.) 

Bill  in  equity  by  a  partner  in  the  late  firm  of  Converse,  Whitcomb 
&  Co.,  against  the  other  partners,  James  C.  Converse,  Walter  Stanton, 
and  Edward  Blagden,  to  compel  contribution  to  the  losses  incurred 
by  the  partnership.  The  partnership  agreement  provided  for  carry- 
ing on  of  a  dry  goods  commission  business  on  the  following  terms: 
Whitcomb  was  to  contribute  $50,000  to  the  capital,  receive  7  per  cent, 
on  the  same  and  25  per  cent,  of  the  net  profits.    Converse  was  to  con- 


Sec.  3)  ACCOUNTING    AND    DISTUIBUTION.  489 

tribute  $25,000,  receive  7  pei  cent,  interest  on  the  same,  and  25  per 
cent,  of  the  net  profits.  Blagden  and  Stanton  were  "each  to  contribute 
all  their  time  to  the  business  and  each  to  receive  25  per  cent,  of  the 
net  profits.  Whitcomb  put  in  $25,000  of  the  $50,000  which  he  was  to 
contribute.  The  partnership  having  been  dissolved  by  mutual  con- 
sent, a  settlement  of  its  affairs  showed  a  loss  of  about  $25,000.  Blag- 
den, at  the  time  of  the  dissolution,  was,  ever  since  has  been,  and  now 
is,  insolvent  and  unable  to  pay  any  part  of  said  loss.  Stanton  con- 
tended that  he  was  not  liable  to  make  good  any  of  the  losses,  and, 
if  liable,  he  was  not  liable  to  make  good  any  part  of  the  share  which 
Elagdcn  ought  to  have  contributed.  The  cause  was  reserved  for  the 
opinion  of  the  court. 

Gr.w,  C.  J.  In  the  absence  of  controlling  agreement,  partners  must 
bear  the  losses  in  the  same  proportion  as  the  profits  of  the  partnership, 
even  if  one  contributes  the  whole  capital,  and  the  other  nothing  but 
his  labor  or  services.  3  Kent,  Com.  28,  29.  Whether  a  loss  of  capital 
is  a  partnership  loss,  to  be  borne  by  all  the  partners,  depends  upon 
the  nature  and  extent  of  the  contract  of  partnership. 

If,  as  is  not  unfrequently  the  case  in  a  partnership  for  a  single  ad- 
venture, the  mere  use  of  the  capital  is  contributed  by  one  partner, 
and  the  partnership  is  in  the  profits  and  losses  only,  the  capital  re- 
mains the  property  of  the  individual  partner  to  whom  it  originally 
belonged,  any  loss  or  destruction  of  it  falls  upon  him  as  the  owner, 
and,  as  it  never  becomes  the  property  of  the  partnership,  the  partner- 
ship owes  him  nothing  in  consideration  thereof.  Story,  Part.  §§  27, 
29;    Heran  v.  Hall,  1  B.  Mon.  (Ky.)   159,  35  Am.  Dec.  178. 

But  where,  as  is  usual  in  an  ordinary  mercantile  partnership,  a 
partnership  is  created  not  merely  in  profits  and  losses,  but  in  the  prop- 
erty itself,  the  property  is  transferred  from  the  original  owners  to 
the  partnership,  and  becomes  the  joint  property  of  the  latter.  A 
corresponding  obligation  arises  on  the  part  of  the  partnership  to  pav 
the  value  thereof  to  the  individuals  who  originally  contributed  it. 
Such  payment  cannot,  indeed,  be  demanded  during  the  continuance 
of  the  partnership,  nor  are  the  contributors,  in  the  absence  of  agree- 
ment or  usage,  entitled  to  interest;  but  if  the  assets  of  the  partner- 
ship, upon  a  final  settlement,  are  insufficient  to  satisfv  this  obligation, 
all  the  partners  must  bear  it  in  the  same  proportion  as  other  debts  of 
the  partnership.  Julio  v.  Ingalls,  1  Allen,  41 ;  Bradbury  v.  Smith,  21 
Me.  117 ;  Barfield  v.  Loughborough,  L.  R.  8  Ch.  1 ;  In  re  Anglesea 
Colliery  Co.,  L.  R.  2  Eq.  379,  387,  L.  R.  1  Ch.  555 ;  Nowell  v.  Nowell, 
L.  R.  7  Eq.  538;  In  re  Hodges'  Distillery  Co.,  L.  R.  6  Ch.  51.  56; 
1  Lindl.  Part.  (3d  Ed.,)  696,  827,  828.  Only  two  cases  were  cited  in 
the  learned  argument  for  the  defendant  Stanton  in  which  opinions  in- 
consistent with  this  view  have  been  expressed.  The  one  is  Everly  v. 
Durborow,  1  Leg.  Gaz.  Rep.  127,  a  nisi  prius  decision,  with  no  refer- 
ence to  authorities,  except  an  early  edition  of  Lindley  on  Partner- 
ship, which  has  been  corrected  by  the  learned  author,  ubi  supra,  con- 


490  REMEDIES   OF   PAUTNERS   INTER  SE.  (Ch.   7 

formably  to  the  adjudged  cases.  The  other  is  Cameron  v.  Watson, 
10  Rich.  Eq.  (S.'C.)  6-i.  That  was  a  bill  in  equity  to  settle  the  af- 
fairs of  a  partnership,  to  which  Cameron  had  contributed  labor  and 
Watson  capital.  The  master,  to  whom  the  case  was  referred,  allowed 
tlie  claim  of  Watson  for  so  much  of  the  capital  as  he  had  not  with- 
drawn during  the  continuance  of  the  partnership,  but  disallowed  his 
claim  for  interest  thereon.  Pages  68,  73.  Cameron  excepted  to  the 
allowance  of  Watson's  claim  for  capital,  and  Watson  excepted  to  the 
disallowance  of  interest.  The  chancellor,  before  whom  the  excep- 
tions were  heard  in  the  first  instance,  overruled  the  exceptions  of 
Cameron,  and  also  that  of  Watson  as  regarded  interest  before  the  dis- 
solution of  the  partnership,  but  sustained  it  so  far  as  to  allow  him 
interest  after  the  dissolution.  Pages  88-90,  95,  96.  The  Court  of 
Appeals,  although  in  one  part  of  its  opinion  appearing  to  discounte- 
nance Watson's  clairn  for  capital,  ended  by  confirming  the  master's 
report  in  every  particular.  Pages  103,  107,  108.  So  that  the  final 
judgment,  while  it  disallowed  Watson's  claim  for  interest,  established 
his  claim  for  capital,  and  was  in  exact  accordance  with  our  conclusion. 

In  tlie  case  at  bar  the  partnership  was  not  for  a  single  enterprise, 
but  for  the  transaction  of  a  commission  business  in  New  York  and 
Boston  for  a  year.  Converse  and  Whitcomb  contributed  the  whole 
capital,  in  unequal  proportions.  Converse  was  to  contribute  "such 
time  as  he  may  be  able  to  give,"  and  Whitcomb  and  the  other  two 
partners,  Blagden  and  Stanton,  were  each  "to  contribute  all  his  time 
to  the  business."  Those  partners  who  contributed  the  capital  did  not 
contribute  merely  the  use  thereof,  but  the  capital  itself,  and  were  by 
express  agreement  to  receive  interest  thereon  at  rates  specified  in  the 
articles  of  copartnership.  The  partners  were  by  agreement  to  re- 
ceive each  one-fourth  of  the  net  profits,  and  by  implication  of  law 
must  share  the  losses  in  the  same  proportion.  The  capital  contributed 
became  the  property  of  the  partnership;  and  the  partnership,  con- 
sisting of  all  the  partners,  became  liable  to  Whitcomb  and  Converse, 
respectively,  for  the  amount  of  capital  paid  in  by  them. 

Blagden,  one  of  the  partners,  being  insolvent  and  unable  to  discharge 
any  part  of  the  obligation,  it  must  rest  in  equity  upon  the  three  solvent 
partners  in  equal  proportions.  Whitman  v.  Porter,  107  Mass.  522; 
1  Lindl.  Part.  789,  790. 

Decree  for  the  plaintifl  accordingly. 


RAYMOND  V.  PUTNAM  et  al. 

(Supreme  Judicial  Oourt  of  New  Hampstiire,  18G2.    44  N.  H.  100.) 

Bill  in  equity  for  the  dissolution  and  an  account  of  a  partnership 
existing  between  complainant,  Raymond,  and  the  firm  of  Putnam  & 
Chase,  and  the  firm  of  Came  &  Palmer.     The  case  was  heard  upon 


Sec.  3)  ACCOUNTING    AND    DISTRIBUTION.  491 

the   bill,   answer,   and    proofs.      Sufficient    facts    appear   in    the   opin- 
ion.    *     *     * 

Sargent,  J.  Article  2  X)f  the  partnership  agrcenKiit  provides  that 
the  capital  stock  of  the  Mil  ford  Plow  Company  shall  be  formed  in 
the  following  manner:  Each  was  to  put  in  certain  property  therein 
specified  which  w^as  agreed  to  be  an  equivalent  for  cash,  to  a  cer- 
tain amount  for  each  member,  as  follows:  Putnam  &  Chase,  $l,87o; 
J.  G.  Raymond,  $1,G25;  Came  &  Palmer,  $1,200;  making  a  total 
capital  of  $7,700. 

Article  3  provides  that  each  member  of  the  partnership  may  in- 
crease the  amount  he  has  in  the  capital  stock  at  pleasure,  and  may 
diminish  it,  but  not  so  that  it  shall  be  less  than  $1,200. 

By  article  4  each  member  of  the  partnership  shall  be  entitled  to 
interest  upon  the  sum  by  which  his  share  in  the  capital  stock  shall 
exceed  the  smallest  share  owned  in  said  stock  by  any  of  said  partners, 
and  the  other  members  shall  be  jointly  liable  for  such  interest. 

It  is  provided  in  article  5  that  the  losses  shall  be  borne  equally 
and  the  profits  equally  divided  between  said  partners,  namely,  one- 
third  to  Putnam  &  Chase,  one-third  to  Came  &  Palmer,  and  one-third 
'to  Raymond. 

Article  11  provides  that  at  the  close  of  the  partnership  an  account 
shall  be  taken  and  stated,  and  the  stock  and  property  and  the  debts 
shall  be  divided  among  the  partners  in  proportion  to  the  share  which 
each  has  in  the  capital  stock,  after  paying  the  liabilities  of  the  firm. 

Article  12  explains  that  it  is  the  intention  of  the  parties  to  form  a 
copartnership  of  only  three  members;  the  two  firms  constituting  each 
but  a  single  member  of  the  new  firm. 

In  regard  to  the  formation  of  the  partnership,  its  members  origin- 
ally, the  adoption  of  the  articles  of  agreement,  and  the  terms  of  those 
articles   there   is   no  dispute.      It   also   appears   that   the   partnership 

was  dissolved,  by  mutual  consent,  on  the  Sth  day  of  October,  1853. 
*     *     * 

It  is  admitted  that  Putnam  &  Chase  were  to  collect  the  debts  due 
the  firm  after  its  dissolution,  were  to  take  the  plows  returned  at  a 
fixed  date,  and  close  up  the  affairs  of  the  company,  which  it  appears 
they  have  done;  and  there  is  nothing  to  show  that  this  has  not  been 
done  properly  and  in  good  faith,  nor  are  any  of  the  charges  of  fraud 
or  misconduct  or  mismanagement  on  the  part  of  the  defendants  sus- 
tained by  the  evidence.  It  appears  from  the  schedule  annexed  to  the 
answer,  and  from  the  other  evidence,  that  the  defendants  bought  cer- 
tain property  of  the  firm  at  the  time  of  the  dissolution,  for  themselves 
alone  and  for  themselves  and  Came,  amounting  to  $3,IG8.02;  that 
since  the  dissolution  they  have  collected  debts,  as  per  schedule  A, 
$2,206;  debts  collected  of  factors,  as  per  schedule  B,  $1,220.41; 
doubtful  debts  collected,  as  per  schedule  F,  $188.20 ;  plows  returned, 
as  per  schedule  K,  $434.84;  making  a  total  received  by  the  defend- 
ants of  $7,523.53.     Deduct  debts   paid   to  third  persons  by  the  de- 


492  REMEDIES   OF   PARTNERS   INTER   SE.  (Ch.   7 

fendants,  including  J.  Raymond's  execution,  $3,888.67,  and  it  leaves 
in  the  defendants''  hands  $3,G3-I:.86.  But  it  appears  that  Chase  has 
since  his  answer  collected  $13.30  and  paid  out  $5.84,  so  that  there 
should  be  added  to  the  above  the  balance  of  $7.46,  making  the  whole 
balance  now  in  the  defendants'  hands  $3,642.32.  For  this  amount 
there  should  be  deducted  a  reasonable  commission  for  collecting 
the  debts  (but  nothing  upon  the  property  bought  of  the  firm,  or 
on  the  plows  which  the  defendants  were  to  take  at  an  agreed  price) 
in  schedule  A,  B,  and  F,  and  the  $13.30  collected  since  the  answer, 
amounting  in  all  to  $3,633.97;  and  upon  this  sum  Sy^  per  cent,  would 
be  a  reasonable  commission,  amounting  to  $90.85,  which  would  leave 
a  balance  in  the  defendants'  hands  of  $3,551.47.  Came  has  also  re- 
ceived since  the  dissolution  $103.20,  and  Raymond  has  received  since 
the  dissolution  $281.52,  making  the  total  assets  now  in  the  hands  of 
the  partners  $3,936.19. 

Let  us  next  find  the  amount  of  capital  stock  of  each  partner  at  the 
time  of  the  dissolution,  calling  all  that  each  member  had  in  the  con- 
cern capital  stock;  the  members  remaining  substantially  the  same 
from  its  commencement  to  its  close.  This  capital  stock  will  be  found 
by  adding  to  the  amounts  invested  by  each,  at  the  commencement, 
the  interest  on  the  amount  invested  by  him  above  the  amount  of  $1,- 
200 ;  also  by  adding  the  amount  added  to  this  capital  by  the  services 
rendered  by  each  and  amounts  paid,  and  deducting  therefrom  the 
amount  of  the  indebtedness  of  each  to  the  firm  for  such  articles  as 
they  had  received  during  the  same  time.  It  appears  that  the  account 
of  each  partner  was  kept  in  that  way  each  year,  and  that  nothing  was 
divided  during  the  existence  of  the  company,  and  nothing  was  paid 
as  interest  on  stock,  or  paid  by  the  members  of  the  copartnership  for 
what  they  received  from  the  firm.  It  appears  that  the  accounts  kept 
in  this  way  up  to  August  1,  1852,  showed  that  the  capital  stock  of 
each,  including  the  whole  original  investment,  was  as  follows:  Put- 
nam &  Chase  (including  Obed  Chase),  $6,476.77;  J.  G.  Raymond, 
$2,468.22;   Came  &  Palmer  (represented  by  Came),  $1,387.56. 

But  Chase,  in  his  deposition  (cross-interrogatory  No.  16),  states 
the  amount  due  each  partner,  October  8,  1863,  the  day  of  the  disso- 
lution, and  including  the  whole  of  the  original  investment  of  each,  but 
exclusive '  of  interest  from  August  1,  1863,  as  follows :  Putnam  & 
Chase  (including  Obed  Chase),  $6,424.17;  then  taking  the  average 
amount  between  August  1  and  October  8,  1863,  and  casting  interest 
upon  the  excess  above  $1,200  for  two  months  and  seven  days,  and  it 
gives  as  interest,  $58.63,  making  their  whole  investment,  October  8, 
1863,  $6,482.80.  He  also  states  in  the  same  way  the  investment  of 
Raymond,  October  8,  1863,  at  $2,550.72;  casting  interest  as  before 
on  average  capital'Over  $1,200  for  two  months  and  seven  days,  $14.62; 
Raymond's  whole  investment,  October  8,  1863,  $2,565.34.  He  also 
states  in  the  same  way  the  investment  of  Came,  October  8,  1863,  at 
$1,433.56;    casting  interest   as   above  on   his  average  capital   above 


Sec.  3)  ACCOUNTING    AND    DISTKIBUTION.  493 

$1,200  for  two  months  and  seven  days,  $2.35;  Came  &  Palmer's 
whole  investment,  October  8,  1863,  $1,43J.[)1.  Adding  these  three 
total  amounts  of  investment  together,  we  have,  as  the  total  invest- 
ments of  all  the  partners,  October  8,  1863,  $10,!S4.05. 

This  is  as  near  an  approximation  to  accuracy  as  I  am  able  to  inake 
from  data  given  in  the  evidence ;  but  it  can  only  be  an  approximation, 
of  course.  We  thus  find  this  company  commencing  with  an  aggre- 
gate capital  stock  of  $7,700,  and  after  continuing  business  about  two 
years  and  five  months  this  aggregate  capital  stock  has  increased  to 
$10,48-1.05,  and  then,  upon  closing  up  of  the  aflfairs  of  the  copartner- 
ship, collecting  debts,  disposing  of  property,  and  paying  debts,  there 
remains  of  the  assets  in  all  only  $3,930.19.  Deducting  total  assets 
from  total  investments,  it  shows  a  loss  of  $6,547.86.    *    *    * 

The  next  question  that  arises  is  in  relation  to  the  distribution  of 
the  assets.  What  proportion  is  each  to  have?  Why,  clearly,  by 
the  eleventh  article,  these  assets  are  to  be  divided  among  the  part- 
ners in  proportion  to  the  share  which  each  has  in  the  capital  stock, 
after  paying  the  debts  of  the  firm.  The  plaintiff,  relying  upon  this 
article,  claims  that  Raymond  is  entitled  to  share  the  property  in 
the  defendants'  hands  with  them,  in  the  same  proportion  that  his 
stock  bears  to  theirs,  which  would  give  him  something  over  one-third 
as  much  of  these  assets  «s  the  defendants  receive,  and  that:  Came  is 
to  share  in  the  same  according  to  the  amount  of  his  stock.  This  would 
have  been  so  under  this  article,  had  the  fifth  article  been  omitted  al- 
together, or  had  the  provision  of  that  article  been  that  the  profit  or 
loss  should  have  been  shared,  not  equally,  but  in  proportion  to  the 
capital  stock  of  each  at  the  close  of  the  copartnership. 

But  the  fifth  article  provides  that  the  losses  and  profits  shall  be 
'shared  equally,  one-third  by  each  member  of  the  new  firm;  and  be- 
fore it  can  be  ascertained  what  the  assets  are  that  are  to  be  divided, 
the  profits  are  first  to  be  divided  equally,  and  the  balance  will  be  the 
assets  to  be  divided,  according  to  the  amount  of  capital  stock,  or,  if 
there  have  been  losses,  they  must  first  be  borne  equally  by  the  several 
members,  one-third  by  each,  and  the  balance,  after  sharing  the  losses 
in  that  way,  is  to  be  divided  by  article  11. 

Thus,  although  Putnam  &  Chase  had  at  first  three  times  the  amount 
of  stock  that  Raymond  had,  and  four  times  the  amount  that  Came  & 
Palmer  had,  yet  they  were  to  receive  interest  on  all  above  $1,200,  and 
were  only  to  have  an  equal  share  of  the  profits  with  each  of  the 
others,  and  were  only  to  bear  an  equal  proportion  of  the  loss.  Now, 
we  have  seen  that  the  whole  loss  during  the  continuance  of  the  com- 
pany was  $6,547.86.  Dividing  this  by  three,  it  gives  the  loss  to  each, 
$2,183.62 ;  so  that  each  is  to  first  share  his  proportion  of  the  loss  be- 
fore the  dividend  of  assets  can  be  made.  Properly,  if  a  profit  had 
been  made,  this  would  first  be  divided  equally,  which  would  leave 
just  the  capital  stock  to  be  divided,  or,  if  a  loss  is  made,  each  should 


494  REMEDIES   OF   PARTNERS   INTER  SE.  (Ch.   7 

first  pay  his  proportion  of  the  loss,  and,  if  this  were  done,  then  the 
stock  would  remain,  for  each  one  to  take  just  what  he  put  in. 

Suppose  in  this  case  the  company  had  gained  $6,000,  instead  of 
losing  that  amount:  then  each  would  have  been  entitled  to  an  equal 
third  of  the  profits,  $2,000,  and  this  would  have  been  first  divided, 
and  that  would  have  left  just  the  same  amount  of  capital  stock  for 
each  to  take  out  that  he  had  put  in.  But  now  the  tables  are  turned, 
and  if  each  partner  were  to  pay  in  his  amount  of  the  loss,  $2,000, 
and  more,  that  would  make  the  amount  of  stock  good,  so  that  each 
could  receive  just  what  he  had  invested  in  stock.  It  will  be  seen  at 
a  glance  that,  if  each  partner  paid  in  his  proportion  of  the  loss,  that 
would  make  the  whole  loss,  which,  with  the  assets  on  hand,  would 
equal  the  whole  amount  of  capital  stock  invested;  and  then,  each  hav- 
ing shared  his  proportion  of  the  loss,  according  to  the  fifth  article, 
the  assets  could  be  divided  according  to  the  eleventh  article,  and  each 
would  have  just  the  amount  he  put  in.  But  if,  instead  of  paying  in 
each  his  proportion  of  the  loss,  and  then  receiving  his  share  of  the 
investment,  we  offset  the  amount  of  loss  to  the  share  he  is  to  receive 
as  capital  stock,  the  result  will  be  the  same. 

Putnam  &  Chase  have  invested  in  all  $6,482.80.  Deduct  their  pro- 
portion of  the  loss,  $2,182.62,  and  it  leaves  for  them  to  come  from  the 
assets  $4;300.18.  But  they  have  received  in  all  only  $3,551.47,  leav- 
ing still  due  to  them,  above  all  they  have  received,  $748.71. 

Raymond  had  invested  in  all  $2,565.34.  Deduct  his  proportion  of 
loss,  $2,182.62,  and  it  leaves  for  him  to  come  from  the  assets  $382.72. 
But  he  has  already  received  from  the  assets  $281.52,  which  leaves  due 
to  him  only  $101.20. 

Game's  share  of  the  loss  is  $2,182.62,  while  he  has  invested  in  all 
only  $1,435.91.  Deducting  his  whole  investment  from  his  share  of 
the  loss,  and  it  leaves  him  in  debt  to  the  company,  $746.71.  Came 
has  also  received  of  assets,  since  dissolution,  $103.20.  This  added  to 
the  other  indebtedness,  he  owes  the  company  $849.91. 

Now,  if  Came  should  pay  in  this  amount,  which  he  is  bound  to  do 
by  the  fifth  article,  in  order  to  bear  his  equal  proportion  of  the  loss, 
it  would  just  meet  the  amounts  due  to  Putnam  &  Chase  and  to  Ray- 
mond. $748.71+$101.20=$849.91.  Thus  we  see  that  Came,  or  Came 
&  Palmer,  owe  the  company  just  enough  to  pay  the  amounts  due  to 
Putnam  &  Chase  and  to  Raymond,  and  leave  each  thus  to  share  an 
equal  proportion  of  the  loss,  and  then  to  divide  the  assets  according 
to  the  amounts  invested  by  each. 

The  present  bill  must  necessarily  be  dismissed  in  its  present  form: 
First,  for  want  of  proper  parties.  All  who  are  to  be  directly  affected 
by  the  decree  must  be  made  parties  to  the  bill.  Obed  Chase  should 
be  joined  as  one  of  the  Putnam  &  Chase.  Came  should  also  be  joined, 
or  Came  &  Palmer;  and,  as  it  is  not  certain  how  that  share  does 
stand,  the  only  safe  way  will  be  to  make  both  Came  and  Came  & 
Palmer  parties  to  the  bill.     And,  second,  because  Raymond  has  evi- 


I 


Sec.  3)  ACCOUNTING    AND    DISTRIBUTION.  495 

dcntly  no  claim  upon  the  defendants.  But,  leaving  Came  out  of  the 
question,  the  defendants  have  a  claim  against  the  plaintiff  for  some- 
thing, because,  if  nothing  can  be  got  of  Came,  then  the  loss  by  him  is 
to  be  borne  equally  by  the  other  two,  probably ;  so  that  the  defend- 
ants would  have  a  right  to  call  on  the  plaintiff  to  pay  them  such  a  sum 
as  would  equalize  their  losses  by  Came.  But  if  Came  is  made  a  party, 
and  is  responsible,  then,  when  he  pays  in  what  he  owes,  the  plaintiff 
can  recover  his  balance  of  $101.20,  while  the  defendants  would  be 
getting  the  balance  of  $7-18.71  which  remains  due  to  them.  Even  if 
the  loss  by  Came  were  to  be  borne  by  the  other  two  partners,  not 
equally,  but  in  proportion  to  the  sum  invested  by  each,  then  it  will 
be  seen  that  there  would  be  a  balance  due  from  the  plaintiff  to  the  de- 
fendants, provided  they  must  lose  the  amount  due  from  Came. 

Assuming  that  the  written  articles  of  agreement  do  not  include  and 
regulate  such  losses  as  this,  still,  how  should  the  partners  who  are  as- 
sociated together,  and  are  to  share  the  profits  and  losses  equally,  ad- 
just a  loss  by  the  failure  of  one  of  their  own  number  to  pay  or  share 
his  proportion  of  the  general  loss,  otherwise  than  by  sharing  such  loss 
equally  between  them?  Raymond  was  as  much  the  surety  of  Came 
to  the  company  as  Putnam  &  Chase  were;  and,  if  this  is  a  joint  debt 
to  the  other  members  of  the  firm,  then  in  case  of  loss  they  would  all 
share  the  loss  equally.  But  we  do  not  need  to  decide  this  question 
here,  as  in  any  event  this  plaintiff  can  recover  nothing  of  these  de- 
fendants. If  not  amended,  the  bill  must  be  dismissed,  with  costs; 
and,  if  amended,  the  defendants  will  be  entitled  to  their  costs  to  this 
time. 

In  this  way  it  will  be  observed  that  the  same  result  is  reached  that 
the  defendants  contend  for  in  their  answer,  though  in  a  different  way; 
not  by  contradicting  the  written  articles  of  agreement,  but  by  apply- 
ing and  enforcing  them. 

Let  us  illustrate  the  principle  involved  in  this  case  by  a  simple  ex- 
ample, which  we  will  suppose :  Three  partners  go  into  company. 
A.  puts  in  $2,000,  and  B.  and  C.  $1,000  each.  A.  is  to  draw  interest 
on  $1,000  of  his  capital,  and  they  are  to  divide  the  profits  and  share 
the  losses  equally ;  and  at  the  close  each  is  to  share  in  the  assets  in 
proportion  to  the  amount  of  his  investment  or  share  of  the  capital 
stock. ,  Suppose  at  the  end  of  two  years  they  close  up,  and  find  they 
have  made  a  profit  of  $3,000.  They  divide  the  profit  equally,  and  take 
$1,000  each.  This  leaves  the  capital  stock  so  that  each  has  what  he 
invested. 

But  suppose,  at  the  end  of  two  years,  on  closing  up,  they  have 
lost  $3,000.  This  is  to  be  borne  equally.  The  share  of  each  to  lose 
is  $1,000.  Now,  it  will  be  seen  at  a  glance  that  it  makes  no  difference 
'whether  each  pays  in  his  share  of  the  loss  in  cash,  and  then  divides 
the  assets  in  proportion  to  the  amounts  invested,  or  offsets  the  loss 
against  his  capital  stock  before  he  receives  his  share  of  the  assets. 
They  have  lost  $3,000  out  of  $1,000  of  capital,  which  leaves  the  as- 


496  REMEDIES   OF   PARTNERS   INTER   SE.  (Cll.    7 

sets  only  $1,000.  The  result-  will  be  precisely  the  same  if  A.  takes 
the  whole  of  the  $1,000  that  is  left,  and  the  others  take  nothing,  that 
it  would  be  for  each  to  pay  in  $1,000  (his  share  of  the  loss)  and  then 
to  divide,  and  A.  take  $2,000  and  B.  and  C.  $1,000  each.  The  share 
of  loss  for  B.  and  C.  is  just  equal  to  the  capital  stock,  and  A.'s  loss 
is  just  half  his  capital  stock. 

But  suppose  the  loss  to  be  $6,000,  which  would  be  $2,000  more  than 
all  the  capital  stock;  then,  as  between  themselves,  B.  and  C.  must 
pay  each  $1,000  more,  beside  losing  all  their  capital  stock,  while  A. 
loses  nothing  but  his  capital  stock,  because  his  stock  is  double  theirs, 
and  his  share  of  the  loss  is  only  the  same  as  theirs.  In  all  these  cases 
we  are  considering  the  liability  of  the  partners  as  among  themselves, 
and  not  as  to  third  persons. 

But  again :  Suppose  A.  has  $2,200  of  the  stock,  B.  $1,100,  and  C. 
$700,  making  $i,000  capital,  as  before,  with  the  same  conditions  as 
before,  and  at  closing  they  find  a  loss  of  $3,000.  If  each  pays  in  his 
share  of  the  loss  ($1,000),  that  restores  the  capital  stock,  so  that  each 
can  have  just  what  he  invested.  But  if,  instead  of  paying  in  the 
loss,  they  offset  that  against  their  investment,  then  A.  would  be  en- 
titled to  receive  of  the  assets  $1,200,  that  being  his  share  of  capital 
above  his  share  of  loss;  B.  would  be  entitled  to  receive  $100,  that 
being  the  amount  of  his  stock  above  his  share  of  the  loss;  C.  would 
owe  $300,  that  being  the  amount  that  his  capital  stock  falls  short  of 
making  his  proportion  of  the  loss.  Now,  if  C.  pays  his  $300,  and 
thereby  shares  his  proportion  of  the  loss,  then  A.  and  B.  can  get  what 
belongs  -to  them ;  the  $1,000  of  assets  and  the  $300  paid  by  C.  making 
$1,300,  which  will  give  A.  his  $1,200  and  B.  his  $100.  But  suppose 
A.  has  the  $1,000— all  the  assets  except  the  $300  due  from  C. — in  his 
hands,  and  C.  becomes  bankrupt  and  fails  to  pay  his  $300 ;  how  does 
the  case  stand  between  A.  and  B.?  A.  has  got  all  the  assets.  B.  has 
got  nothing.  B.  calls  on  A.  to  divide  with  him  in  proportion  to  their 
capital  stock.  But  the  company  still  owes  A.  $200,  and  it  owes  B. 
but  $100.  If  this  loss  by  C.  is  to  be  borne  by  A.  and  B.  in  proportion 
to  their  several  amounts  of  capital  stock,  then  neither  could  claim 
anything  of  the  other,  because,  although  B.  has  received  nothing,  while 
A.  has  received  $1,000,  yet  the  amounts  they  have  lost  over  and  above 
their  $1,000  each  is  now  just  in  proportion  to  their  capital  stock, 
namely,  two  to  A.  to  one  to  B.  But  if  this  loss  by  C.  is  to  be  borne 
equally  between  A.  and  B.,  then  A.  could  rightfully  call  on  B.  for 
$50,  in  order  to  equahze  their  loss  by  C,  after  having  shared  equally 
in  the  general  loss  by  the  company.  That  would  be  very  much  like 
the  case  before  us,  though  here  the  defendants  would  have  some  claim 
upon  the  plaintiff  in  any  event,  if  Came  should  not  pay  in  the  amount 
he  owes  the  company;  but,  if  he  does  pay,  then  all  parties  will  get 
their  dues. 

The  bill  to  be  dismissed,  unless  amended.  '  >■ 


Sec.  3)  ACCOUNTING    AND    DISTKIBUTION.  ^''^  * 

LAMB   V.    ROWAN. 
(Sapreme  Court  of  Mississippi,  1003.    81  Miss.  45,  35  South.  427.) 

Johnston,  Special  Judge.  This  case  is  here  on  Lamb's  appeal  and 
Rowan's  cross-appeal  from  the  final  decree  of  the  chancery  court  of 
Copiah  county  settling  a  partnership  accounting  between  Lamb  & 
Rowan  and  providing  for  the  sale  of  the  partnership  property.  On 
April  3,  1889,  E.  A.  Rowan  began  the  suit  in  the  chancery  court  of 
Copiah  county  for  a  partnership  accounting  and  for  the  sale  of  the 
property  belonging  to  ihe  firm  of  Lamb  &  Rowan.  It  is  stated  in  the 
bill  that  Rowan  and  Lamb  formed  a  partnership  in  October,  1883, 
for  the  purpose  of  carrying  on  a  sawmill  business  in  Copiah  county 
near  the  town  of  Beauregard,  on  the  Illinois  Central  Railroad,  and 
that  they  afterwards  built  another  sawmill  and  a  planing  mill  near 
Wesson.  The  business  was  discontinued  in  the  year  189-1,  though 
there  was  no  formal  dissolution  of  the  partnership.  It  is  averred  in 
the  bill  that  large  profits  were  made  in  the  business,  which  was  con- 
ducted directly  and  indirectly  by  Lamb,  and  that  on,  accounting  Lamb 
would  owe  the  firm  not  less  than  $20,000,  and  that  the  firm  would  be 
largely  indebted  to  Rowan.  Lamb  denied  in  his  answer  that  there 
was  any  partnership  between  himself  and  Rowan.  Pending  this  pro- 
ceeding the  partnership  property  was  placed  in  the  hands  of  a  re- 
ceiver.    *     *     * 

It  is  insisted  for  Rowan  in  a  suggestion-  of  error  that  interest  should 
be  allowed  to  Rowan  on  the  decree  in  his  favor  against  Lamb  ren- 
dered by  the  chancery  court  and  corrected  by  this  court  on  a  former 
suggestion  of  error  submitted  by  the  appellant.  The  general  rule,  sus- 
tained by  all  of  the  authorities  that  have  been  cited  by  counsel  and  by 
many  others  which  we  have  consulted,  is  that  ordinarily  interest  is 
not  allowed  on  a  partnership  accounting.  To  this  there  are  some  ex- 
ceptions, where,  in  the  discretion  of  the  court,  interest  may  be  allow- 
ed. *  *  *  We  are  of  the  opinion  that  no  interest  should  be  allowed 
at  any  time  during  the  period  of  this  accounting.  There  is  no  point 
during  this  whole  period  that  can  be  fixed  equitably  as  the  time  when 
interest  should  be  charged.  The  accounting  in  the  chancery  court 
shifted  from  one  set  of  balances  to  another.  The  first  report  of  the 
master  was  set  aside  by  the  chancellor.  The  second  report  of  the 
master  was  materially  modified  by  the  chancellor  on  both  sides  of  the 
accounts.  And.  finally,  the  balances  found  by  the  chancellor  in  the 
decree  appealed  from  have  been  changed  by  this  court,  and  different 
balances  directed  to  be  struck,  which  has  not  yet -been  done.  During 
this  whole  period  of  time  the  accounting  has  been  in  progress.  The 
accounts  in  the  case  show  that  the  total  sales  of  lumber  amounted  to 
over  $180,000  ^during  the  existence  of  the  partnership.  And  the  ac- 
counts of  each  partner  with  the  firm  were  in  many  instances  com- 
Gil.Part.— 32 


498  REMEDIES   OF   PARTNERS  INTER  SB.  (Ch.   7 

plicated  and  obscure,  and  so  many  items  were  controverted  it  was 
impossible  to  state  the  accounts  with  exactness. 

We  will  notice  other  leading  authorities  on  this  subject.  Judge 
Story  said  that  interest  is  not  allowable  in  partnership  accountings  un- 
til a  balance  has  been  struck  on  a  settlement  between  the  partners. 
Dexter  v.  Arnold,  3  Alason  (U.  S.)  2Si,  Fed.  Cas.  No.  3,855.  Vice 
Chancellor  Sand  ford  of  New  York,  in  Beacham's  Assignees  v.  Eck- 
ford's  Ex'rs,  2  Sandf.  Ch.  116,  after  a  review  of  all  the  authorities, 
came  to  the  conclusion  that  there  is  no  general  rule  established,  but 
that  the  allowance  or  refusal  of  interest  depends  upon  the  circumstan- 
ces of  each  particular  case.  Judge  Sharswood,  in  Gyger's  Appeal, 
62  Pa.  79,  1  Am.  Rep.  382,  approved  this  rule,  saying:  "This  seems 
much  the  safest  principle  to  adopt  in  view  of  the  confidential  relation 
of  the  parties  and  the  variety  and  complication  of  such  accounts." 
Lindley  says  that  the  general  rule  is  that  interest  is  not  allowed  in 
partnership  accountings.  Lindley  on  Parln.  (4th  Ed.)  786.  It  is  gaid 
in  various  cases  that  there  is  no  fixed  rule  on  the  subject  as  to  what 
circumstances  may  call  for  the  allowance  of  interest.  And  it  may  be 
said  that  Judge  Sharswood  stated  the  rule  correctly  to  be  that  each 
depends  upon  its  own  peculiar  facts  and  circumstances.  This  was 
held  in  Buckingham  v.  Ludlum,  29  N.  J.  Eq.  350 ;  Johnson  v.  Harts- 
horne,  52  N.  Y.  173;  Gyger's  Appeal,  62  Pa.  73,  1  Am.  Rep.  382. 
The  following  cases  also  hold  this  doctrine:  Moss  v.  McCall,  75  111. 
190;  Tirrell  v.  Jones,  39  Cal.  655;  Whitcomb  v.  Converse,  119  Mass. 
38,  20  Am.  Rep.  311;  Tutt  v.  Land,  50  Ga.  339.  It  has  also  been 
held  that  a  partner  is  not  entitled  to  interest  on  money  advanced  to 
or  deposited  with  the  firm  for  its  use,  unless  there  be  a  special  agree- 
m.ent  to  that  effect.  Lee  v.  Lashbrooke,  8  Dana  (Ky.)  214;  Day  v. 
Lockwood,  24  Conn.  185;  Desha  v.  Smith,  20  Ala.  747.  We  an- 
nounce as  our  conclusion  on  this  subject  that  the  general  doctrine  is 
well  settled  that  interest  in  an  accounting  between  partners  is  not  al- 
lowed. The  exception  is  that  a  court  of  equity  may  allow  interest 
where,  in  view  of  the  particular  facts  of  a  case,  it  is  just  and  equitable 
to  make  the  allowance.  All  of  the  cases  that  we  have  examined  hold 
in  the  broadest  terms  that  in  the  exceptional  cases  the  allowance  or 
disallowance  of  interest  in  an  accounting  between  partners  is  within 
the"  discretion  of  the  court.  Exercising  this  discretion  according  to 
our  views  and  convictions  of  the  circumstances  of  this  particular  case, 
we  adhere  to  our  former  ruling  on  this  question.    *    *    * 


Sec.  1)  EIGDTS  AND   REMEDIES  OF   CREDITORS.  499 

CHAPTER  VIII. 
RIGHTS  AND  REMEDIES  OF  CREDITORS. 


SECTION  1.— AT  LAW. 
I.  Creditors  of  the  Partnership, 


MEECH  et  al.  v.  ALLEN. 

(Court  of  Appeals  of  New  York,  1858.     17  N.  Y.  300,  72  Am.  Dec.  405.) 

Appeal  from  the  Supreme  Court.  The  complaint  averred  these 
facts:  In  May,  IS-iT,  the  plaintiffs  recovered  a  judgment  against  one 
Taylor,  upon  his  sole  and  individual  indebtedness,  for  $S,C50.G5,  which 
was  duly  docketed  and  became  a  lien  upon  his  real  estate.  In  1848 
Taylor  died,  seised  of  real  estate  in  his  own  individual  right,  upon 
which  said  judgment  was  a  lien.  Taylor  and  one  Hiram  Pratt,  who 
died  in  May,  1840,  were  in  their  lifetime  partners  in  the  business  of 
common  carriers  upon  the  Erie  Canal  and  the  Great  Lakes.  A  demand 
arose  against  them  as  such  partners,  which  was  in  litigation  when 
Pratt  died,  and  upon  which  a  judgment  was  recovered  in  the  Supreme 
Court,  and  duly  docketed  on  the  13th  of  May,  1842,  against  Taylor, 
as  survivor  of  himself  and  Pratt,  for  $9,990.05,  which  judgment  was 
assigned  to  and  became  the  property  of  the  defendant  Allen  after 
the  death  of  Taylor  and  the  recovery  of  the  plaintiffs'  judgment.  In 
April,  1850,  executions  were  issued  upon  both  of  the  above-described 
judgments  to  the  sheriff  of  Erie,  who  in  virtue  thereof,  on  the  4th  of 
June,  ISoO,  sold  certain  parcels  of  the  real  estate  in  the  city  of  Buf- 
falo, whereof  Taylor  died  seised  in  his  own  right. 

The  plaintiffs  attended  at  the  sale,  and  gave  notice  to  the  defendant 
of  the  facts  stated,  claiming  that  their  judgment  was  entitled  to 
priority  and  that  the  money  raised  by  the  sale  should  be  applied  first 
to  its  satisfaction.  The  defendant  became  the  purchaser  at  the  sale. 
There  is  no  other  individual  property  of  Taylor  out  of  which  the 
plaintiffs  can  obtain  satisfaction  of  their  judgment  except  the  land 
thus  sold,  and  there  is  sufficient  estate  of  Hiram  Pratt,  deceased,  to 
satisfy  the  judgment  of  the  defendant. 

The  complaint  prayed  that  the  land  might  be  resold  and  the  pro- 
ceeds first  applied  to  the  payment  of  the  plaintiffs'  judgment,  or  that 
the  defendant  pay  to  them  so  much  of  the  proceeds  of  the  sale  al- 
readv  had  as  would  extinguish  their  judgment,  with  the  costs  of  this 


500  EIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.   8 

action.  The  defendant  demurred,  and  had  judgment  in  his  favor, 
which  was,  on  appeal,  affirmed  by  the  Supreme  Court  at  General  Term 
in  the  Eighth  District,  whereupon  the  plaintiffs  appeal  to  this  court. 

Selden,  J.  It  is  a  settled  rule  of  equity  that,  as  between  the  joint 
and  separate  creditors  of  partners,  the  partnership  property  is  to  be 
first  applied  to  the  payment  of  the  partnership  debts  and  the  separate 
property  of  the  individual  partners  to  the  payment  of  their  separate 
debts,  and  that  neither  class  of  creditors  can  claim  anything  from  the 
fund  which  belongs  primarily  to  the  opposite  class  until  all  the  claims 
of  the  latter  are  satisfied.  This,  however,  is  a  rule  which  prevails  in 
courts  of  equity  in  the  distribution  of  equitable  assets  only.  Those 
courts  have  never  assumed  to  exercise  the  power  of  setting  aside  or 
in  any  way  interfering  with  an  absolute  right  of  priority  obtained  at 
law.  -  In  regard  to  all  such  cases  the  rule  is  equitas  sequitur  legem. 
1  Story,  Eq.  Jur.  §  553. 

In  Wilder"  v.  Keeler,  3  Paige,  171,  23  Am.  Dec.  781,  Chancellor 
Walworth  says:  "Equitable  rules  are  adopted  by  this  court  in  the 
administration  of  legal  assets,  except  so  far  as  the  law  has  given  an 
absolute  preference  to  one  class  of  creditors  over  another."  So,  in 
the  case  of  Averill  v.  Loucks,  6  Barb.  470,  Paige;  P.  J.,  says :  "Courts 
of  equity,  in  the  administration  of  assets,  follow  the  rules  of  law  in 
regard  to  legal  assets,  and  recogni;:e  and  enforce  all  antecedent  hens, 
claims,  and  charges  existing  upon  the  property,  according  to  their 
priorities."  This  is  also  conceded  in  the  case  of  J^IcCulloh  v.  Dashiell, 
1  Har.  &  G.  (Md.)  96,  18  Am.  Dec.  271,  where  the  whole  doctrine 
of  the  distribution  in  equity  of  the  joint  and  separate  property  of 
partners  is  very  elaborately  examined.  Archer,  J.,  by  whom  the 
opinion  of  the  court  was  delivered,  there  says:  "At  law  the  joint 
creditors  may  pursue  both  the  joint  and  separate  estate,  to  the  extent 
of  each,  for  the  satisfaction  of  their  joint  demands,  which  are  at  law 
considered  joint  and  several,  without  the  possibility  of  the  interposi- 
tion of  any  restraining  pov/er  of  a  court  of  equity."  But  especially 
must  it  be  beyond  the  power  of  such  courts  to  interfere  where  an 
absolute  right  of  legal  priority  is  given  by  force  of  a  positive  statute, 
as  in  case  of  a  judgment.  Chancellor  Walworth,  in  Mower  v.  Kip, 
6  Paige,  88,  29  Am.  Dec.  748,  says:  "The  rule  of  this  court  is  to 
give  effect  to  the  lien  of  a  judgment  upon  a  legal  title,  so  far  as  it 
can  be  enforced  by  execution  at  law." 

As  there  is  no  doubt  that  at  law  the  judgment  for  a  partnership  debt 
attaches  and  becomes  a  lien  upon  the  real  estate  of  each  of  the  part- 
ners, with  the  same  effect  as  if  such  judgment  were  for  the  separate 
debt  of  such  partner,  it  is  obvious,  from  the  preceding  authorities, 
that  the  theory  upon  which  the  complaint  in  this  case  was  drawn  is 
erroneous.  The  principle  that  the  separate  property  of  an  individual 
partner  is  to  be  first  applied  to  the  payment  of  his  separate  debts  has, 
as  we  have  seen,  never  been  held  to  give  priority  as  to  such  prop- 
erty to  a  subsequent  judgment  for  an  individual  over  a  prior  judg- 


Sec.  1)  AT   LAW.  501 

ment  for  a  partnership  debt.  It  is  true  that  courts  of  equity  will 
sometimes  give  to  a  mere  equitable  lien,  which  is  prior  in  point  of  lime, 
a  preference  over  a  subsequent  judgment;  but  this  will  be  done  only 
where  such  prior  lien  is  specific  in  its  character,  as  in  the  case  of  White 
V.  Carpenter,  2  Paige,  219.  The  mere  general  equity  of  the  separate 
creditors  to  have  their  debts  first  paid  out  of  the  individual  property  of 
the  partners  does  not  amount  to  a  lien  at  all,  much  less  a  lien  of  the 
kind  necessary  to  give  it  a  preference  over  a  judgment  for  a  partner- 
ship debt. 

The  plaintiffs  cannot,  under  the  averments  in  the  complaint,  avail 
themselves  of  that  principle  of  equity  which  enaljles  a  creditor  hav- 
ing a  lien  upon  one  fund  only  to  compel  a  creditor  who  has  a  lien, 
not  merely  on  the  same  fund,  but  also  upon  another,  to  resort  first  to 
the  latter,  to  the  end  that  both  may  be  paid.  If  the  complaint  had 
averred  that  there  was  sufficient  partnership  property,  upon  which  the 
defendant's  judgment  was  a  lien,  to  satisfy  such  judgment,  it  is  pos- 
sible that,  under  the  principle  referred  to,  the  plaintiffs  might  have 
been  entitled  to  some  relief ;  and  in  that  event  it  would  not  have  been 
a  valid  objection  to  the  complaint  that  it  did  not  ask  for  relief  appro- 
priate to  the  case.  But  the  averment  in  the  complaint  is  simply  that 
there  is  sufficient  estate  of  the  deceased  partner,  Hiram  Pratt,  to 
satisfy  the  defendant's  judgment. 

This  averment  brings  the  case  directly  within  the  doctrine  laid  down 
by  Lord  Eldon  in  Ex  parte  Kendall,  17  Ves.  520.  He  says:  "If  A. 
has  a  right  to  go  upon  two  funds,  and  B.  upon  one,  having  both  the 
same  debtor,  A.  shall  take  payment  from  that  fund  to  which  he  can 
resort  exclusively,  that  by  those  means  of  distribution  both  may  be 
paid.  That  takes  place  where  both  are  creditors  of  the  same  person 
and  have  demands  against  funds  the  property  of  the  same  person. 
But  it  was  never  said  that  if  I  have  a  demand  against  A.  and  B.,  a 
creditor  of  B.  shall  compel  me  to  go  against  A.,  without  more,  as  if 
B.  himself  could  insist  that  A.  ought  to  pay  in  the  first  instance,  as  in 
the  ordinary  case  of  drawer  and  acceptor,  or  principal  and  surety,  to 
the  intent  that  all  obligations  arising  out  of  these  complicated  rela- 
tions may  be  satisfied.  But  if  I  have  a  demand  against  both,  the 
creditors  of  B.  have  no  right  to  conipel  me  to  seek  payment  from  A., 
if  not  founded  in  some  equity  giving  B.  the  right,  for  his  own  sake, 
to  compel  me  to  seek  payment  from  A. 

The  point  has  also  been  expressly  decided  in  this  state  in  the  case 
of  Dorr  v.  Shaw,  4  Johns.  Ch.  17.  The  only  difference  in  principle 
between  that  case  and  this  is  that  there  it  did  not  appear  that  the  joint 
debtors  were  partners.  This,  however,  is  a  difference  which  operates 
against  the  claim  of  the  plaintiffs  here.  Where  two  individuals,  not 
partners,  are  jointly  indebted,  it  might  seem  to  be  just  to  presume 
that  each  owed  one-half,  and  to  that  extent,  therefore,  there  might 
be  an  equity  in  favor  of  the  one  owing  an  individual  debt  to  have  so 
much  of  the  joint  debt  paid  by  his  co-debtor.     But  in  regard  to  part- 


502  RIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

ners  it  is  now  well  settled,  upon  an  analogous  question,  that  no  such 
presumption  can  be  indulged.  Formerly  a  judgment  creditor  of  one 
of  two  partners  might  levy  his  execution  upon  property  belonging  to 
the  firm,  and,  upon  the  presumption  that  the  interests  of  the  partners 
were  equal,  might  proceed  to  sell  and  appropriate  one-half  the  avails 
to  the  satisfaction  of  his  debt.  This,  however,  was  long  since  over- 
ruled. 

In  the  case  of  Button  v.  Morrison,  Lord  Eldon,  in  discussing  this 
question  says:  "It  may  be  represented  that  the  world  cannot  know 
what  is  the  distinct  interest  of  each  (i.  e.,  each  partner),  and  there- 
fore it  is  better  that  the  apparent  interest  of  each  should  be  considered 
as  his  actual  interest.  But  courts  of  equity  have  long  held  other- 
wise." He  then  lays  down  the  rule,  ever  since  acted  upon,  that  the 
creditor  in  such  a  case  must  wait  until  the  partnership  accounts  are 
settled  before  he  can  claim  anything  from  the  partnership  property. 

The  principle  here  asserted  by  Lord  Eldon  is  directly  applicable  to 
the  present  case.  It  is  that  no  inference  can  be  safely  drawn,  from 
the  mere  external  relations  of  partners  to  the  world,  as  to  the  situa- 
tion of  their  affairs  inter  se,  and  that,  in  all  judicial  proceedings  in- 
volving the  latter,  an  investigation  is  first  to  be  made;  and  such  is 
tlie  variety  and  frequent  complexity  of  partnership  dealings  that  any 
other  rule  would  obviously  lead  to  g^oss  injustice.  It  is  impossible, 
therefore,  in  this  case  to  assume,  without  any  averments  on  the  sub- 
ject in  the  complaint,  that  the  estate  of  the  deceased  partner,  Pratt, 
ought,  in  equity,  to  pay  any  portion  of  the  defendant's  judgment. 
Hence,  upon  the  principles  laid  doAvn  by  Lord  Eldon,  and  universally 
acted  upon  by  courts  of  equity,  the  complaint  is  clearly  insufficient. 

The  judgment  of  the  Supreme  Court,  therefore,  should  be  affirmed, 
with  costs. 

Judgment  affi.rmed.^ 

1  In  Stevens  v.  Perry,  113  Mass.  380  (1873),  In  holding  that  a  firm  creditor 
may,  by  trustee  or  garnishment  proceedings,  reach  the  goods  or  effects  of  a 
partner  in  the  hands  of  a  third  person,  the  court  said:  "It  is  well  settled  as 
matter  of  law  in  this  commonwealth  that  in  a  suit  against  two  or  more  co- 
partners upon  their  joint  debt,  the  separate  property  of  any  one  of  the  part- 
ners jnay  be  attached,  and  the  lien  so  acquired  is  not  discharged  or  impaired 
by  a  subsequent  attachment  of  the  same  property  upon  a  suit  in  favor  of  a 
separate  creditor  of  the  same  partner.  Allen  v.  Wells,  22  Pick.  (Mass.)  450,  33 
Am.  Dec.  757;  Newman  v.  Bagley,  16  Pick.  (Mass.)  570.  The  Supreme  Court 
of  New  Hampshire  has  in  several  cases  held  otherwise.  Jarvis  v.  Brooks,  23 
N.  H.  136;  Bowker  v.  Smith,  48  N.  H.  Ill,  2  Am.  Rep.  189.  But  we  must  con- 
sider ourselves  bound  by  our  own  decisions.  As  the  debt  due  from  the  part- 
ners jointly  is  also  due  from  each,  it  may  be  enforced  against  the  separate 
property  of  each.  It  is  immaterial  whether  this  separate  property  is  in  the 
form  of  goods  and  movable  chattels,  or  goods,  effects,  and  cTcdits  intrusted 
and  deposited  in  such  a  manner  that  they  can  only  be  attached  upon  a  trustee 
process.  It  is  not  necessary  that  the  principal  debtors  should  have  made  a 
joint  deposit,  or  that  the  fund  should  belong  to  theiri  jointly.  It  is  enough  if 
funds  attacliable  upon  a  trustee  process  are  due  from  the  alleged  trustee  to 
either  one  of  the  principal  defendants." 


Sec.  1)  AT    LAW.  503 


JAFFR  \Y  et  al.  v.  JENNINGS  et  al. 
(SHprempi  Court  of  Michigan.   IS'M.     101  Mich,  nin,  tJO  N.  W.  52,  2o  L.  R.  A- 

HooKKR,  J.  Plaintiffs  were  copartners,  residing  in  Xew  York,  and 
were  jobbers,  of  whom  the  defendants  (father  and  son,  and  also  part- 
ners) purchased  goods.  The  son,  Ward  L.  Jennings,  having  pur- 
chased a  quantity  of  goods  for  his  firm  from  the  plaintiffs,  the  latter 
commenced  proceedings  by  attachment  upon  an  affidavit  which  al- 
leged that  the  defendants  fraudulently  contracted  the  debt  upon  which 
the  action  was  brought,  viz.,  that  arising  from  the  purchase  mentioned. 
The  writ  was  levied  upon  property  belonging  to  the  father,  and  upon 
his  application  the  attachment  was  dissolved  by  the  circuit  judge.  It 
was  admitted  that  at  the  time  of  the  levy  the  firm  had  sufficient  per-, 
sonal  property  out  of  which  the  claim  could  have  been  satisfied.  De- 
fendants' contention  is  that  the  individual  property  of  the  innocent 
defendant  was  not  subject  to  seizure  by  attachment.  Counsel  for  the 
plaintiffs  buiJd  a  strong  argument  upon  the  doctrine  that  each  part- 
ner is  an  agent  of  his  fellows,  citing  May  v.  Newman,  95  Mich.  501, 
55  N.  W.  364,  to  the  proposition  that  an  attachment  lies  against  a 
debtor  whose  agent  fraudulently  contracted  the  debt.  But  the  stat- 
ute upon  which  the  remedy  by  attachment  depends  has  relieved  the 
innocent  partner  from  the  application  of  this  rule.  An  examination 
of  the  statutes  may  aid  in  solving  this  question.  We  start  with  the 
proposition  that  "attachment  is  a  harsh  and  extraordinary  remedy,  un- 
known to  the  common  law ;  and  the  statutory  provisions  upon  which 
the  right  depends,  being  in  derogation  of  the  common  law,  must  be 
strictly  construed,  and  cannot  be  extended  beyond  their  terms."  See 
cases  cited  in  1  Jac.  &  C.  Dig.  p.  iHj,  §  1;  Estlow  v.  Hanna,  75  Mich. 
219,  42  N.  W.  812.  An  action  against  joint  debtors  is  like  any  other 
action.  It  is  aimed  at  the  individual  debtors.  A  service  on  one  is 
not  a  service  upon  the  other;  they  may  appear  separately;  their  de- 
fenses may  be  different;  the  judgment  is  against  each  for  the  whole 
amount ;  the  execution  issues  against  the  individual^,  the  officer  being 
commanded  to  collect  the  debt  from  the  goods  and  chattels,  and.  for 
want  thereof,  of  the  lands  and  tenements,  of  the  individuals.  And 
this  is  as  true  where  the  joint  obligation  is  a  partnership  debt  as  in 
cases  where  the  debtors  are  not  copartners.  The  act  authcfrizing  pro- 
ceedings in  attachment  permits  any  creditor  to  have  an  attachment 
against  his  debtor,  upon  conditions  mentioned.  The  conditions  are 
that  he  shall  show  that  the  defendant — i.  e.,  the  debtor — is  believed 
to  be  guilty  of  certain  acts,  or  to  possess  certain  intentions  regarding 
the  debt  or  his  property,  fraudulent  in  character,  the  general  tenor  of 
which  indicates  danger  that  such  debtor  will  put  his  property  beyond 
the  reach  of  the  creditor.  The  law  lays  hold  of  the  property  of  such 
debtor,  to  preserve  it   for  the  creditor.      So  long  as  there  is  a   sole 


504  RIGHTS  AND   REMEDIES  OF   CREDITORS.  (Ch.    8 

debtor,  no  difficulty  is  likely  to  arise,  but  when  the  debt  is  joint  the 
question  arises,  how  far  should  the  fraudulent  acts  and  intentions  of 
one  subject  the  property  of  another  to  seizure?  The  acts,  if  strictly 
construed,  only  provide  for  attachment  against  the  debtor  who  *  is 
guilty  of  the  fraud.  An  additional  remedy,  summary  in  its  nature,  is 
given  against  him.  It  is  given,  in  terms,  against  no  others.  And 
where  the  act  is  done  by  one  only,  the  law  can  only  be  made  applicable 
to  another  by  invoking  the  doctrine  of  agency. 

No  one  will  question  the  fact  that  one  can,  through  an  agent,  sub- 
ject his  property  to  attachment;  and  this  is  as  true  where  the  agent 
is  a  partner  as  where  he  is  not,  and  where  the  act  complained  of  is 
the  fraudulent  purchase  of  goods  by  a  partner,  as  in  this  case.  There 
is  much  persuasiveness  in  the  argument  that,  as  the  firm  received  the 
benefit  and  appropriated  the  fruit  of  the  transaction  (whether  with 
■knowledge  upon  the  part  of  both  or  not),  the  rule  that  a  partner  is 
an  agent  of  his  copartners  makes  his  act  the  act  of  both.  It  would 
not  be  so  convincing  if  the  cause  for  attachment  were  another  of 
those  named  in  the  statute — e.  g.,  if  one  only  was  shown  to  have  an 
intent  to  dispose  of  the  firm  property,  or  had  actually  done  so  without 
the  knowledge  of  his  partner,  or  where  he  absconded,  or  removed  out 
of  the  state,  or  was  about  to  do  so,  with  intent  to  defraud  the  firm 
creditors.  Still  more  hard  would  be  the  attachment  against  one  where 
his  copartner  had  merely  resided  out  of  the  state  for  three  months, 
which  in  itself  is  ground  for  attachment,  regardless  of  the  honesty  of 
his  intention.  Can  it  be  said  that  in  all  of  these  cases  these  acts  are 
partnership  acts,  binding  the  partners  under  this  application  of  the 
doctrine  of  agency?  Is  it  true  that  the  creditors  of  a  firm  in  Michi- 
gan, one  of  the  members  of  which  lives  in  Chicago,  have  the  absolute 
right  to  commence  all  actions  against  the  firm  by 'attachment,  and  to 
levy  not  only  on  the  firm  property,  but  that  of  each  resident  member, 
as  well  as  that  of  the  nonresident?  If  not,  it  must  be  that  this  doc- 
trine is  improperly  applied,  or  a  distinction  must  be  drawn  between 
the  different  causes  for  attachment  named  in  the  statute,  and  the  lia- 
bility limited  to  those  acts  which,  we  may  say,  either  as  a  conclusion 
of  fact  or  law,  are  the  acts  of  the  firm,  which  would  seem  to  limit 
the  cases  to  those  where  the  debt  was  fraudulently  contracted,  and 
where  the  property  of  the  firm  had  been  assigned,  concealed,  or  dis- 
posed of  with  intent  on  the  part  of  one  to  defraud  the  firm  creditors. 
If  plaintiffs'  theory  is  correct,  these  would  be  the  acts  of  all  partners, 
and  subject  to  seizure  not  only  the  partnership  property,  but  the  in- 
dividual property  of  each  partner,  no  matter  how  honest,  and  notwith- 
standing their  solvency.  There  can  be  no  doubt  that  partners  are 
bound  by  the  contracts,  and  many  times  by  the  torts,  of  one  of  their 
number,  to  the  extent  of  liability.  But  is  it  as  clear  that  the  nature  of 
the  remedy  is  always  subject  to  the  same  rule?  As  already  stated, 
this  remedy  is  statutory,  and  the  statutes  must  show  the  design  to 
cover  such  cases  as  this,  or  they  are  not  to  be  treated  as  within  them. 


Sec.  1)  AT  LAW.  505 

The  attachment  statute  is  borrowed  from  New  York.  It  will  be  found 
in  the  Revised  Statutes  of  1838  and  1846  and  the  Compiled  Laws 
of  1857.  The  section  of  which  Howell  (section  8015)  is  an  amend- 
ment remained  unchanged  from  the  time  of  its  adoption  until  18G1. 
It  is  section  19,  c.  1,  tit.  4,  pt.  3,  p.  512,  Rev.  St.  1838.  The  same  is 
found  in  Rev.  St..l84G,  §  30,  p.  517,  and  Comp.  Laws  1857,  §  4771. 
It  reads  as  follows,  viz. :  "When  two  or  more  persons  are  jointly  in- 
debted as  joint  obligors,  partners,  or  otherwise,  the  attachment  may 
be  issued  against  the  separate  or  joint  estates  or  property  of  such 
joint  debtors  or  any  of  them,  and  the  same  proceedings  shall  be  harl 
as  hereinbefore  prescribed."  It  goes  without  saying  that  under  this 
act,  where  all  of  the  joint  debtors  are  shown  to  have  participated  in 
the  statutory  act,  or  where  it  appears  that  each  has  entertained  the 
fraudulent  intent,  the  writ  should  issue  against  all ;  and  it  is  as  plain 
that  in  such  case  the  writ  could  be  issued  against  the  separate  or  joint 
estates  of  the  debtors.  So  far  it  lays  down  a  plain,  consistent,  and 
just  rule.  Shall  we  go  further,  and  say  that  it  was  meant  that  the 
writ  would  be  as  far-reaching  in  cases  of  joint  debtors,  who  are  not 
partners,  where  one  was  innocent  of  wrong?  That  would  probably 
not  be  claimed  by  any  one.  As  to  partners,  the  same  claim  might  be 
made  as  is  made  here,  viz.,  that  in  dealing  with  the  partnership  prop- 
erty the  act  of  one  is  the  act  of  all,  and  that  the  consequences  are  the 
same  to  all.  But  this  act  had  received  a  construction  before  it  be-' 
came  a  law  in  Michigan.  In  the  case  of  Cyrus  Chipman,  an  abscond- 
ing debtor  (14  Johns.  [N.  Y.]  217),  decided  in  1817,  it  was  held  that 
the  attachment  might  issue  against  the  property  of  one  of  several  part- 
ners who  absconds,  for  a  debt  due  by  the  firm,  although  his  copart- 
ners are  resident  within  the  state,  and  subject  to  process.  This  is 
not  conclusive  of  the  question  here,  and  is  cited  only  to  show  that 
counsel  in  that  case  did  not  resort  to  the  remedy  by  attachment  against 
all  of  the  partners.  Two  years  later  the  same  court  held  that  an  at- 
tachment might  issue  against  the  separate  propert)^  of  an  absconding 
debtor  upon  a  debt  due  from  his  copartnership.  Here,  again,  the  writ 
appears  not  to  have  been  sought  against  the  partners  who  remained. 
But  the  case  went  further,  and  held  that  the  partnership  property 
could  not  be  seized;  and  the  reason  was  that  the  other  partner  had  a 
right  to  retain  it  to  pay  the  partnership  debts.  Ex  parte  Smith,  16 
Johns.  (N.  Y.)  102.  It  may  still  be  said  that  in  neither  of  these  cases 
were  all  of  the  partners  sued  in  attachment,  and  therefore  there  yet 
remains  doubt  if  the  right  contended  for  does  not  exist  under  this 
statute,  and  it  is  probable  that  such  doubts  led  to  the  amendment  of 
1861,  which  reads  as  follows:  "When  two  or  more  persons  are  jointly 
indebted  as  joint  obligors,  partners,  or  otherwise,  and  an  affidavit  shall 
be  made,  as  provided  in  section  two  of  this  chapter,  so  as  to  bring  one 
or  more  of  such  joint  debtors  within  its  provisions,  and  amenable 
to  the  process  of  attachment,  then  the  writ  of  attachment  shall  issue 
against  the  property  and  effects  of  such  as  are  so  brought  within  the 


50C    '  EIGHTS  AND   REMEDIES  OF   CREDITORS.  (Ch.    8 

provisions  of  said  section;  and  the  officers  shall  be  also  directed  in 
said  writ  to  summon  all  such  joint  debtors  as  may  be  named  in  the 
affidavit  attached  thereto,  to  answer  to  the  said  action  as  in  other 
cases  of  attachment.'"'  Before  discussing  the  statute,  let  us  review  the 
situation.  Under  the  previous  statute,  attachment  lay  against  all 
joint  debtors,  whether  partners  or  not,  where  it  could  be  shown  as 
matter  of  fact  that  all  participated  in  the  act  constituting  a  cause.  It 
was  also  plain  that,  where  one  joint  debtor  only  committed  such  act, 
his  property  only  was  subject  to  the  writ,  unless  there  was  a  partner- 
ship. There  was,  then,  no  necessity  for  legislation  to  reach  either  of 
these  cases,  for  joint  debtors,  where  not  partners,  were  fully  protected 
where  innocent  of  wrong,  and  the  creditors  had  his  remedy  against 
both  where  both  participated,  and  against  the  offender  where  only 
one  was  guilty.  In  this  condition  of  affairs,  the  Legislature  passed 
section  8015,  thereby  giving  immunity  from  attachment  to  joint  debt- 
ors, including  partners,  who  were  not  themselves  participants  in  the 
wrongful  act.  Now,  by  a  construction  of  this  act,  it  is  sought  to  say 
that  partners  are  not  within  its  terms,  because  the  act  of  one  is  the 
act  of  all,  and  that,  as  a  matter  of  law,  they  are,  therefore,  all  par- 
ticipants in  the  fraudulent  act.  If  that  is  so,  the  statute  seems  to 
have  no  office  to  perform.  It  has  relieved  nobody.  Joint  debtors,  not 
partners,  could  not  be  attacked  by  attachment  before  unless  guilty. 
But  there  may  have  been  a  doubt  about  partners.  That  doubt  seems 
to  have  caused  the  enactment  of  a  law  whose  only  object  must  have 
been  to  reach  and  relieve  the  very  class  of  cases  which  the  construc- 
tion contended  for  seeks  to  exclude  from  its  protection. 

As  said  at  the  outset,  attachment  is  a  harsh  and  extraordinary  rem- 
edy. The  law  may  well  restrict  its  use,  and  deny,  it  as  against  all 
honest  persons,  though  they  have  the  misfortune  to  be  connected  in 
business  as  partners  with  dishonest  persons.  Such  persons  have. legal 
obligations  to  discharge  in  relation  to  the  partnership  affairs.  They 
must  see  that  obligations  are  discharged,  and  the  law  presumes  that 
they  will  faithfully  do  so.  No  very  good  reason  suggests  itself  why 
the  private  fortune  of  an  honest  partner  should  be  seized  because  his 
partner  has  been  detected  in  a  fraudulent  act  in  connection  with  part- 
nership affairs.  It  is  common  knowledge  that  few  men  or  firms  can 
survive  an  attack  by  attachment.  It  is  the  almost  certain  precursor 
of  insolvency,  as  in  former  days  it  was  of  bankruptcy,  and  we  should 
hesitate  before  broadening  the  scope  of  the  act  in  question.  A  case 
quite  similar  to  the  present  was  before  the  court,  viz.,  Edwards  v. 
Hughes,  20  Mich.  290.  Mr.  Justice  Cooley  wrote  the  opinion,  and 
seems  to  have  taken  a  similar  view  of  these  statutes  to  that  expressed 
above.  It  is  true  that  the  facts  in  that  case  may  permit  it  to  be  dis- 
tinguished from  the  present,  but  the  language  used  is  broad,  and  it 
is  hardly  possible  that  the  court  could  have  overlooked  the  contin- 
gency of  such  cases  as  this.  Since  this  decision  we  think  the  bar  have 
understood  that  the  liability  was  limited  to  such  partners  as  person- 


Sec.  1)  AT    LAW.  507 

ally  participated  in  the  fraudulent  act.  See  Tiffany's  Justice  Guide, 
p.  GO,  note  1,  where  this  doctrine  is  laid  down ;  Shinn,  PI.  &  Pr. 
§  307.  See,  also,  People  v.  Circuit  Judge,  41  Mich.  32G,  2  N.  W. 
26,  where  a  writ  issued  against  nonresident  partners  only.  We  think 
the  learned  circuit  judge  correct  in  his  conclusions,  and  that  his  order 
dissolving  the  attachment  should  be  atfirmed,  with  costs. ^ 


II.  Crkditors  of  the  Partners. 
HEYDON  V.  HEYDON. 

(Court  of  King's  Bench.  1003.     1  Salk.  .mi.) 

Coleman  and  Heydon  were  copartners,  and  a  judgment  was  against 
Coleman,  and  all  the  goods  of  both  Coleman  and  Heydon  were  taken 
in  execution.  And  it  was  held  by  Holt,  C.  J.,  and  the  court,  that  the 
sheriff  must  seize  all,  because  the  moieties  are  undivided ;  for  if  he 
seize  but  a  moiety,  and  sell  that,  the  other  will  have  a  right  to  a 
moiety  of  that  moiety ;  but  he  must  seize  the  whole,  and  sell  a  moiety 
thereof  undivided,  and  the  vendee  will  be  a  teliant  in  common  with 
the  other  partner. 


TAYLOR  V.  FIELDS. 
See  ante,  p.  210,  for  a  report  of  the  case. 


PARKER  V.  PISTOR. 

(Court  of  Common  Pleas.  1802.    3  Bos.  &  P.  2S8.) 

This  was  a  rule  calling  on  the  plaintiff  to  show  cause  why  the  sher- 
iffs of  London  should  not  have  time  to  return  a  writ  of  fieri  facias 
to  the  first  day  of  ne.xt  term. 

The  defendant  was  one  of  two  partners,  and  the  application  was 
made  on  the  part  of  several  creditors  of  the  partnership,  and  the  ob- 

1  The  dissenting  opinion  of  Montgomery,  J.,  In  which  .McGrath,  0.  J.,  cou- 
curreti,  is  omitted. 

Whether,  in  a  suit  against  the  firm,  the  property  of  the  partnership  can  be 
attaolied  because  of  the  misconduct  of  oue  partner,  will  depend  upon  whether 
his  act  was  within  or  without  tlie  scope  of  the  partnership  business.  In  Staats 
V.  Bristow.  73  N.  Y.  201,  the  nonresidence  of  one  partner,  and  In  Evans  v. 
Virgin,  (>9  Wis.  Wo,  33  N.  W.  509,  the  fraudulent  transfer  by  oue  partner  of 
his  sei)arate  property,  was  held  not  lo  justify  an  attachment  of  the  Ijrm  prop- 
erty, but  only  the  misconducting  partner's  interest  in  such  property.  Rut  in 
Winner  v.  Kuehn.  07  ^\'is.  394.  72  X.  W.  227,  whore  the  misconducting  part- 
\ier  was  the  general  manager,  his  misconduct  was  held  sullicient  to  justify  an 
attachment. 


508  EIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.   8 

ject  was  to  prevent  the  partnership  goods  from  being  sold  until  an  ac- 
count could  be  taken  of  the  several  claims  upon  this  property. 

Best,  Serjt.,  who  obtained  the  rule,  observed  that  the  sheriff  vi^as 
only  entitled  to  take  possession  of  an  undivided,  not  of  a  separate, 
moiety  of  the  partnership  goods ;  that  he  could  only  hold  that  moiety 
in  the  same  manner  as  the  defendant  himself  had  done;  and  that,  as 
the  defendant  -was  not  entitled  to  sell  the  partnership  goods  without 
the  consent  of  his  partner,  the  sheriff  ought  not  to  be  obliged  to  do 
so  by  a  writ  of  venditioni  exponas.  He  mentioned  a  case  in  the  Court 
of  King's  Bench,  where  a  similar  application  had  been  made,  which 
stood  over  several  times,  and  the  rule  was  at  last  made  absolute  by' 
consent ;  the  plaintiff  having  been  driven  to  give  that  consent  in  con- 
sequence of  Lord  Kenyon  saying  that  the  court  would  enlarge  the 
rule  from  time  to  time  un,til  the  parties  did  consent.  He  also  referred 
to  Eddie  v.  Davison,  Doug.  650,  and  Taylor  v.  Field,  4  Ves.  Jr.  396, 
where  it  was  holden  that  the  joint  property  of  an  insolvent  partner- 
ship, taken  in  execution  for  a  separate  debt,  could  not  be  retained 
against  the  joint  creditors. 

Lens,  Serjt.,  contra,  insisted  that  this  was  merely  the  common  case 
of  partnership  goods  taken  in  execution;  that,  if  the  defendant  had 
any  interest  whatever,  the  sheriff  was  bound  to  take  the  partnership 
goods  and  sell  them ;  if  not,  he  ought  to  return  nulla  bona.  He  ob- 
served that  in  Taylor  v.  Field  it  was  admitted  that  the  above  rule 
would  prevail  at  law,  and  in  Pope  v.  Haman,  Comb.  217,  this  dis- 
tinction is  pointed  at;  Holt,  C.  J.,  saying:  "Upon  a  judgment  against 
one  copartner  the  sheriff  may  take  the  goods  of  both  in  execution, 
and' the  other  copartner  hath  no  remedy  at  law  otherwise  than  by  re- 
taking the  goods  if  he  can ;  for  the  vendee  of  the  sheriff  becomes 
tenant  in  common  with  the  other  copartners," 

Thk  Court  were  of  opinion  that  there  was  no  ground  for  their  in- 
terposition; that  it  was  a  very  plain  case  at  law,  and  that  all  tli,e 
difficulties  were  to  be  encountered  in  equity;  that  the  safest  line  of 
conduct  for  the  sheriff  to  pursue  was  to  put  some  person  in  possession 
of  the  defendant's  share  as  vendee,  leaving  him  and  the  parties  in- 
terested to  contest  the  matter  in  equity,  where  a  bill  might  be  filed, 
stating  that  he  had  taken  possession  of  the  property,  and  praying  that 
it  might  not  be  disposed  of,  until  all  the  claims  were  arranged.  Vide 
Chapman  v.  Koops,  3  Bos.  &  P.  289. 

Rule  discharged. 


RANDALL  v.  JOHNSON. 

(Supreme  Court-  of  Rhode  Island,  1881.    13  R.  I.  338.) 

Potter,  J.  William  J.  Randall  and  Lydia  Randall,  copartners  by 
the  style  of  William  J.  Randall  &  Co.,  sue  Johnson,  the  defendant, 
in  trespass  vi  et  armis  for  breaking  and  entering  the  plaintiffs'  store 


Sec.  1)  AT  LAW.  509 

and  attaching  certain  personal  property  which  they  claim  as  the  prop- 
erty of  said  firm.  Johnson,  the  defendant,  pleads  that  J.  F.  Comstock 
&  Co.  sued  out  a  writ  of-  attachment  ag-ainst  said  William  J.  Randall, 
and  that  he,  Johnson,  being  a  deputy  sheriff,  attached  said  property 
on  the  said  writ  as  the  property  of  said  William,  and  said  property 
was  afterwards  sold  at  public  sale  by  order  of  one  of  the  judges  of 
this  court  according  to  the  provisions  of  the  statute,  and  that  the 
said  William  was  notified  thereof  as  by  law  provided,  and  was  him- 
self the  highest  bidder  for  and  purchaser  of  a  portion  of  them.  The 
plaintiffs  demur. 

The  plaintiffs,  William  J.  Randall  &  Co.,  contend  that,  being  part- 
nership property,  it  could  not  be  attached  as  the  property  of  one  of 
the  partners,  and  tliat  therefore  the  plea,  if  true,  alleges  no  valid  de- 
fense. 

The  weight  of  the  authority  seems  to  be  most  decidedly  in  favor  of 
the  right  of  a  creditor  of  one  partner  to  attach  that  partner's  right  in 
the  goods,  chattels,  and  tangible  property  of  the  firm  for  his  private 
debt  due  from  such  partner.  Story  on  Partnership,  §§  262,  311; 
3  Kent,  Com.  *65,  and  note  b;  Collyer  on  Partnership  (4th  Am.  Ed.) 
p.  738,  §  822,  and  note.  In  the  note  to  the  latter  work,  as  also  in 
Kent,  the  cases  are  well  stated.  The  attaching  creditor  can  only  take 
the  interest  of  the  partner — i.  e.,  subject  to  the  settlement  of  the 
partnership  affairs — and,  although  the  sheriff  may  and  must  seize  the 
chattel,  he  can  sell  only  the  partner's  right  in  it  as  above. 

The  difi'iculties  likely  to  arise  in  such  attachment  are  stated  in 
many  of  the  cases.  But,  on  the  other  hand,  if  the  law  were  otherwise, 
a  debtor  might  prevent  attachment  of  his  property  for  a  debt  due 
from  himself  by  putting  it  into  a  partnership. 

In  the  case  of  Phillips  v.  Cook,  24  Wend.  (N.  Y.)  389,  the  sub- 
ject was  considered  by  Judge  Cowen,  who  delivered  the  opinion  of 
the  court,  and  the  cases  reviewed  at  great  length.  It  was  there  held 
that  the  sheriff  might  seize  the  whole  of  the  particular  article,  and  sell 
.the  interest  of  the  debtor  in  it,  and  deliver  it  to  the  purchaser,  who 
then  became  a  tenant  in  common  with  the  other  partner  and  took  sub- 
ject to  a  settlement  of  partnership  accounts  and  to  the  equitable  claims 
of  the  creditors  of  the  firm;  and  this,  we  tliink,  is  in  accordance  with 
the  other  decisions  on  the  subject.  See,  also,  opinion  of  Nelson,  C.  J., 
in  Birdseye  v.  Ray,  4  Hill  (N.  Y.)  158,  161;  and  as  to  the  disposal 
of  the  purchase  money  and  the  remedv  of  the  other  partner,  see 
Phillips  v.  Cook,  24  Wend.  (N.  Y.)  389,  and  Doner  v.  Stauffer,  1 
Pen.  &  W.  (Pa.)  198,  21  Am.  Dec.  370. 

Although,  if  the  officer  sells  the  whole,  it  will  be  as  to  the  co-tenant 
a  conversion  (Ladd  v.  Hill,  4  Vt.  164;  White  v.  ]Morton,  22  Vt.  15, 
52  Am.  Dec.  75;  Bradley  v.  Arnold,  16  Vt.  382;  Walker  v.  Fitts, 
24  Pick.  [Mass.]  191;  Waddell  v.  Cook,  2  Hill  [N.  Y.]  47,  37  Am. 
Dec.  372;  Drake  on  Attachment.  §  248).  yet  it  is  no  conversion  as  to 
said  William  J.  Randall.     Whether  his  interest  or  the  whole  is  sold, 


510  RIGHTS  AND   REMEDIES  OF   CREDITORS.  (Ch.   8 

he  cannot  complain ;  and,  if  the  plea  be  taken  as  true,  he  cannot  main- 
tain this  action,  and  tlie  suit  in  its  present  form  must  fail.     Whether 
the  other  party  plaintiff  can  maintain  a  suit  will  depend  on  whether 
she  was,  or  not,  a  partner  or  had  any  interest  in  said  property. 
Demurrer  overruled. 


SANBORN  et  al.  v.  ROYCE. 
(Supreme  Judicial  Court  of  Massachusetts,  1882.     132  Mass.  oM.) 

Tort,,  by  Charles  H.  Sanborn  and  Charles  H.  Packard,  copartners 
doing  business  under  the  firm  name  of  Sanborn  &  Packard,  for  break- 
ing and  entering  the  plaintiffs'  close  in  Boston,  and  taking  and  carry- 
ing away  certain  articles  of  personal  property  belonging  to  them,  with 
a  count  in  tort  for  the  conversion  of  the  same.  The  defendant,  a  con- 
stable of  the  city  of  Boston,  justified  under  a  writ  against  Packard, 
by  virtue  of  which  he  attached  the  property  in  question.  At  the  trial 
in  the  superior  court,  before  Putnam,  J,,  it  appeared  that  the  plaintiffs 
were  copartners  in  the  grocery  and  provision  business,  and  the  de- 
fendant was  notified  of  this  fact  at  the  time  of  the  attachment;  that 
on  May  3,  1879,  a  creditor  of  Packard  individually  sued  out  a  writ 
against  him  and  delivered  it  to  the  defendant,  who  by  virtue  of  it,  on 
May  31,  1879,  attached  all  the  property  of  the  partnership,  placed  a 
keeper  over  the  same,  and  afterwards  on  the  same  day,  by  order  of 
the  plaintiff's  attorney,  withdrew  the  keeper  and  removed  the  goods, 
and  on  June  3,  1879,  released  the  attachment,  and  left  the  goods  where 
he  found  them;  and  that  the  writ  against  Packard  was  duly  entered 
in  court  on  June  19,  1879,  and  is  now  pending.  Upon  these  facts 
the  defendant  contended,  and  asked  the  judge  to  rule,  that  he  was 
justified,  by  virtue  of  said  writ,  in  what  he  did  with  reference  to  the 
property,  and  that  the  plaintiff's  could  not  maintain  their  action.  The 
judge  declined  so  to  rule,  and  ruled  otherwise.  The  jury  returned  a 
verdict  for  the  plaintiffs,  and  the  defendant  alleged  exceptions. 

C.  Allen,  J.  The  question  presented  in  this  case  has  been  several 
times  alluded  to,  but  has  never  been  decided  in  Massachusetts,  though 
it  has  been  the  subject  of  much  discussion  and  conflicting  opinion 
elsewhere.  It  has  been  declared  that  the  real  and  actual  interest  of 
each  partner  in  the  partnership  stock  is  the  net  balance  which  will  be 
coming  to  him  after  payment  of  all  the  partnership  debts  and  a  just 
settlement  of  the  account  between  himself  and  his  partner.  Peck  v. 
Fisher,  7  Cush.  386.  This  doctrine  is  in  accordance  with  the  great 
body  of  modern  decisions.  It  is  also  declared  in  Allen  v.  Wells,  22 
Pick.  450,  33  Am.  Dec.  757,  that  a  separate  creditor  can  only  take  and 
sell  the  interest  of  the  debtor  in  the  partnership  property,  being  his 
share  upon  a  division  of  the  surplus,  after  discharging  all  demands 
upon  the  partnership.  This  rule,  also,  is  supported  by  a  great  weight 
of  authority.     It  is  rather  remarkable,  in  view  of  the  multitude  of 


Sec.  1)  AT   LAW.  511 

cases  in  which  the  question  has  arisen  and  the  conflict  of  opinion  which 
has  existed,  that  the  manner  in  which  a  creditor  of  one  member  of  a 
firm  may  apply  that  member's  interest  in  the  partnership  to  the  pay- 
ment of  his  debt  has  not  been  more  often  the  subject  of  lej^islation. 
The  rights  of  parties,  however,  in  this  state,  as  in  ahnost  all  the  states 
of  the  Union,  are  still  left  to  be  worked  out  as  well  as  possible  by  the 
courts.  There  is  an  entire  concurrence  of  opinion  among-  the  leading 
text-writers,  in  recent  times,  that  courts  of  law  cannot  adequately  deal 
with  the  subject.  3  Kent,  Com.  G5,  note;  Story,  Part.  §§  202^312; 
Collyer,  Part.  (Gth  Ed.)  §  793.  Lindley  sums  up  what  he  has  to  say 
with  the  remark:  "The  truth,  however,  is  that  the  whole  of  this 
branch  of  the  law  is  in  a  most  unsatisfactory  condition  and  requires 
to  be  put  on  an  entirely  new  footing."     Lindley,  Part.  (-Ith  Ed.)   G9-1. 

It  is  sufficient  for  the  purposes  of  the  present  case  to  decide,  as 
we  do,  that  the  seizure  and  actual  removal  of  specific  chattels  of  a 
partnership  on  mesne  process  or  execution  against  one  member  thereof 
for  his  private  debt,  and  the  exclusion  of  the  firm  from  the  possession 
of  its  property,  are  a  trespass.  The  authorities  in  support  of  this 
proposition  seem  to  us  more  in  accordance  with  just  legal  principles 
than  those  which  are  opposed  to  it.  Fourth  Nat.  Bank  v.  Railroad 
Co.,  11  Wall.  (U.  S.)  62-i,  628,  529,  20  L.  Ed.  82;  Cropper  v.  Coburn. 
2  Curt.  (U.  S.)  4G5,  Fed.  Cas.  No.  3,41G ;  Burnell  v.  Hunt,  5  Jur. 
650,  by  Patteson,  J.;  Garvin  v.  Paul,  47  N.  H.  158;  Durborrow's 
Appeal,  84  Pa.  404;  Haynes  v.  Knowles,  36  Mich.  407;  Levy  v. 
Cowan,  27  La.  Ann.  556. 

Exceptions  overruled. 


PLACE  V.  SW'EETZER  et  al. 

(Supreme  Court  of  Ohio,  1847.     IG  Ohio,  142.) 

This  is  a  bill  in  chancery,  reserved  in  the  county  of  Delaware.  John 
W.  Place,  the  complainant,  Adam  Wolf,  and  Abraham  Wolf  were 
partners,  carrying  on  mercantile  business  in  Delaware  county,  and, 
while  they  were  so  in  partnership,  Sweetzer,  one  of  the  defendants, 
having  two  judgments  in  the  court  of  common  pleas  of  that  county 
against  said  Adam  Wolf,  amounting  together  to  somewhat  more  than 
$1,400,  and  the  defendant  Cone  having  a  judgment  in  the  same  court 
for  about  $150,  took  out  executions  by  virtue  of  which  the  sherilT 
levied  upon  the  stock  of  goods  of  the  firm  and  took  them  into  his 
possession.  The  complainant,  then  another  of  the  partners,  brought 
this  bill,  seeking  to  enjoin  the  judginent  creditors  from  selling  the 
partnership  effects  to  satisfy  the  separate  debt  of  one  of  the  part- 
ners. There  is  a  cross-bill  also,  filed  by  the  judgment  debtor,  Adam 
Wolf,  wherein  he  states  that  he  transferred  to  Sweetzer  a  certain 
quantity  of  pork  and  lard,  which  was  to  be  sold  and  the  proceeds 
thereof  applied  toward  the  payment  of  one  of  the  judgments;    that 


512  BIGHTS  AND    REMEDIES  OF   CREDITORS.  (Ch.    8 

this  pork  and  lard  were  sold,  but  the  proceeds,  through  the  neglect 
and  misconduct  of  Sweetzer,  were  entirely  lost,  and  not  so  applied; 
that  Svveetzer  ought  to  account  for  the  amount  of  sales,  and  give  a 
credit  for  it  upon  one  of  the  executions.  The  cause  comes  on  for  hear- 
ing upon  bill,  cross-bill,  answers,  replication,  and  testimony.     *     *     * 

AvERv,  J.  The  first  question  arising  in  this  case  is  whether  the 
original  bill,  with  its  mjunction,  can  be  sustained.  This,  of  course, 
must  depend  upon  the  rights  of  a  judgment  creditor  having  an  exe- 
cution against  one  of  the  partners  for  his  separate  debt. 

The  goods  of  the  firm,  being  personal  property,  and  held  always 
subject  to  levy  .under  an  execution  at  law  against  all  the  partners 
for  a  partnership  debt,  must  be  deemed  to  be  held  by  the  same  title, 
and  the  share  of  each  partner  to  be  held  likewise  subject  at  law  to 
levy  under  an  execution  against  him  individually.  But  though  this 
property  may  be  seized,  and  thus  withdrawn  from  the  debtor's  con- 
trol, it  does  not  necessarily  follow  that  it  must  be  sold  also  under  the 
execution.  If  the  sale  could  not  be  restrained,  great  injustice  might 
very  often  be  the  consequence;  for  in  many,  perhaps  in  most,  cases 
neither  the  sheriff,  nor  the  debtor,  nor  any  other  person,  could  make 
known  at  the  sale  what  property  the  purchaser  would  take.  The  in- 
terest of  the  partner  cannot  be  ascertained  till  all  the  partnership  ac- 
counts are  arranged ;  and  it  is  well  settled  that  this  interest  is  a  cer- 
tain share  of  the  surplus  after  all  of  the  demands  against  the  firm, 
including  those  of  the  partners  individually,  are  paid.  It  is  this  share 
of  the  surplus  only  which  can  be  sold  under  execution,  and  to  secure 
a  fair  sale  of  it  the  value  must  be  known.  This  can  be  accomplished 
through  the  aid  of  a  court  of  equity  alone,  where  all  the  intricate 
affairs  of  a  partnership  may  be  examined  and  adjusted.  A  resort 
to  this  court,  in  cases  like  the  present,  may  become  important  to  se- 
cure the  rights,  sometimes  of  judgment  creditors,  at  other  times  of 
the  debtor,  and  sometimes,  as  here,  to  secure  the  rights  of  other  part- 
ners. We  see  no  objection  to  allowing  the  remedy  in  either  case. 
The  present  complainant,  when  the  levy  was  made,  had  at  once  a  di- 
rect interest  to  bring  the  concerns  of  the  partnership  to  a  close,  to 
apply  the  effects  of  every  description  to  the  payment  of  debts  of  the 
firm,  and  to  prevent  a  sacrifice  of  the  judgment  debtor's  share,  be- 
cause by  such  a  sacrifice  his  own  share  might  be  burdened.  The  com- 
pliinant  prays  that  an  account  be  taken  between  the  parties  of  the 
amount  due  by  the  firm,  that  the  same  be  first  paid  out  of  the  property 
of  the  firm,  and  that  complainant's  interest  in  the  surplus  be  paid, 
before  execution  creditors  be  permitted  to  assert  their  claims  on  tlie 
property  and  apply  it  to  the  payment  of  the  separate  debt  of  Adnm 
Wolf.  This  prayer  of  the  bill  will  be  granted,  the  accounts  be  sent 
to  a  master  for  examination  and  report,  and  the  injunction  in  the 
meantime  be  continued.  The  cross-bill  will  be  dismissed,  as  the  al- 
legations are  not  sufficiently  supported  by  the  proof. 


Sec  1)  AT   LAW.  513 

PEOPLE'S  BANK,  Garnishee,  v.  SHRYOCK  et  a!. 
(Court  of  Appeals  of  Marylaud,  1877.    48  Md.  427,  M  Am.  Kep.  iTG.) 

BrivNT,  J.  The  appellees,  having  obtained  a  judgment  against 
William  H.  Trego,  issued  upon  it  an  attachment  by  way  of  execution. 
This  attachment  was  laid  in  the  hands  of  the  People's  Bank  of  Balti- 
more, to  bind  the  interest  of  the  defendant,  Trego,  in  a  sum  of  money 
standing  upon  the  books  of  the  bank  to  the  credit  of  the  firm  of  Trego 
&  Kirkland,  of  which  firm  Trego  was  a  partner. 

The  question  then  arises,  is  a  debt  due  to  a  copartnership  liable  to 
attachment  at  the  suit  of  a  creditor  of  one  of  the  partners?  If  the  at- 
tachment had  been  laid  upon  the  tangible  effects  of  the  firm,  there 
would  be  no  doubt  of  the  right  to  do  so;  for  all  the  authorities  con- 
cur that  the  property  of  a  firm  may  be  sold  for  the  debt  of  one  of  the 
partners.  When  sold,  the  vendee  purchases  and  is  substituted  to 
nothing  more  than  the  interest  of  the  partner,  which  afterwards  be- 
comes the  subject  of  ascertainment  by  a  proper  adjustment  of  the 
respective  interests  of  the  partners.  The  rights  of  copartners  and 
creditors  of  the  firm  are  not  thereby  sacrificed  or  disturbed.  But 
where  a  debt  is  the  subject  of  attachment,  the  judgment,  if  obtained 
against  the  garnishee,  changes  the  right  to  the  fund  without  any  set- 
tlement of  partnership  account,  and  vests  in  the  attaching  creditor 
an  absolute  claim  to  the  payment  over  to  him  of  so  much  money.  In 
Drake  on  Attachment,  §  567,  the  author  says:  "The  attachment  of 
a  debt  due  to  a  copartnership  in  an  action  against  one  of  the  partners 
is  justly  distinguishable  from  the  seizure  on  attachment  or  execution 
of  tangible  effects  of  the  firm  for  the  same  purpose."  He  refers  to 
the  case  of  Winston  v.  Ewing,  1  Ala.  129,  Si  Am.  Dec.  76S,  and 
this  case  is  a  very  strong  one  upon  the  question  now  presented  for 
our  decision.  There  it  was  sought  to  subject  the  debt  due  to  a  firm  to 
an  attachment  issued  against  one  of  the  partners.  The  court  held  that 
this  could  not  be  done.  The  property  of  the  partnership,  it  was  con- 
ceded, was  liable  to  execution  and  sale  for  the  separate  debt  of  a 
partner;  the  vendee  under  such  sale  becoming  tenant  in  common 
with  the  other  partner.  But  it  was  otherwise  held  in  regard  to  a 
debt  due.  The  court  says:  "It  has  been  expressly  adjudged  that  the 
interest  of  one  partner  in  a  debt  due  to  the  partnership  cannot  be 
subjected  by  process  of  attachment  to  the  satisfaction  of  the  separate 
debt  of  that  partner,  without  showing  from  the  state  of  the  partner- 
ship accounts,  as  between  the  partners  and  with  reference  to  the  in- 
debtedness of  the  partnership,  what  the  right  or  interest  claimed 
amounts  to."  The  authorities  cited  are  Fisk  v.  Herrick,  G  Mass.  ^T'?, 
Lyndon  v.  Gorham,  1  Gall.  (U.  S.)  367,  Fed.  Cas.  No.  8,640.  Church 
v.  Knox.  2  Conn.  514,  and  Brewster  v.  Hammet,  4  Conn.  540 ;  and 
thev  conclusivelv  show  that  an  attachment  like  the  present  would  not 
be  maintained  in  the  courts  of  either  Massachusetts  or  Connecticut. 
GiT..rAr.T. — 33 


514  EIGHTS   AND   REMEDIES   OF   CREDITORS.  (Ch.    8 

In  Lyndon  v.  Gorham,  1  Gall.  (U.  S.)  367,  Fed.  Gas.  No.  8,640,  de- 
cided by  Judge  Story,  that  learned  judge  says:  "In  order  to  ad- 
judge the  trustee  responsible  in  this  suit,  it  must  be  decided  that  the 
funds  of  one  partnership  may  be  applied  to  the  payment  of  the  debts 
of  another  partnership  upon  the  mere  proof  that  the  principal  debtor 
has  an  interest  in  each  firm.  If  this  be  correct,  it  will  follow  that  a 
separate  creditor  of  one  partner  will  have  greater  equitable  as  well  as 
legal  rights  than  the  partner  himself  has.  The  general  rule  undoubt-  ^ 
ediy  is  that  the  interest  of  each  partner  in  the  partnership  funds  is 
only  what  remains  after  the  partnership  accounts  are  taken;  and  un- 
less, upon  such  an  account,  the  partner  be  a  creditor  of  the  fund, 
he  is  entitled  to  nothing."  In  Johnson  *v.  King,  6  Humph.  (Tenn.) 
233,  ii  is  said:  "The  question  in  this  case  is  whether  an  execution 
creditor  of  one  member  of  a  partnership  is  entitled  to  a  judgment 
in  a  garnishment  proceeding  against  a  debtor  to  such  partnership. 
This  question  we  decide  in  the  negative.  Such  debt  belongs  to  and 
is  assets  of  the  partnership,  primarily  liable  to  the  satisfaction  of  part- 
nership debts.  If  a  judgment  were  given  at  law,  upon  the  garnish-  . 
ment  proceeding  against  the  debtor  of  the  partnership,  to  satisfy  the 
separate  liability  of  one  of  the  partners,  it  would  unjustly  abstract  a 
portion  of  the  fund  primarily  belonging  to  the  objects  and  purposes 
and  creditors  of  the  concern.  And  in  such'  garnishment  nothing  can 
be  done  but  to  give  or  refuse  the  judgment.  The  court  has  no  power 
to  impound  the  debt,  until  by  the  adjustment  of  all  the  partnership- 
affairs  it  shall  appear  whether  the  separate  debtor  of  the  execution 
creditor  has  any,  and  what,  interest  in  the  general  surplus,  or  in  the 
particular  debt  so  impounded.  Such  proceedings  cannot  take  place 
at  law." 

We  have  quoted  at  length  from  this  case,  because  the  views  there 
expressed  seem  to  be  specially  appropriate  to  the  case  before  us. 
The  proceeding  of  attachment  in  this  state  is  essentially  a  legal  pro- 
ceeding, and  in  no  way  appropriate  to  ascertain  and  settle  the  equitable 
rights  between  the  garnishee  and  defendant,  or  to  ascertain,  by  ad- 
justing the  partnership  affairs,  the  true  interest  of  the  defendant  in 
the  fund  attached.  The  only  judgment  which  could  be  given  against 
the  garnishee  would  be  for  a  proportion  of  the  money  due  the  partner- 
ship, that  proportion  to  be  measured  by  the  number  of  the  members 
composing  the  firm  and  the  amount  due  the  attaching  creditor.  This 
would  certainly  be  against  the  weight  of  authorities  in  this  country, 
and  in  most  cases  productive  of  the  greatest  injustice. 

In  the  cases  of  Sheedy  v.  Bank,  Garnishee,  62  Mo.  18,  21  Am.  Rep. 
407,  and  Myers  v.  Smith  et  al.,  29  Ohio  St.  120,  both  decided  in  1876, 
it  was  helfl  that  partnership  demands  cannot  be  garnished  for  the 
separate  debt  of  one  of  the  partners.  And  to  the  same  effect  are  the 
decisions  in  Vermont,  New  Hampshire,  New  Yolrk,  Louisiana,  and 
Mississippi.  See  Drake  on  Attachment  (4th  Ed.)  §  570,  and  notes. 
The  exception  to  this  rule  is  where  equity  powers  have  been  conferred 


Sec.  1)  AT   LAW.  515 

by  statute  upon  the  common-law  courts,  and  when  by  virtue  of  such 
powers  they  can  compel  a  settlement  of  the  partnership  for  the  pur- 
pose of  ascertaining  whether  one  of  the  partners  has  such  an  interest 
in  a  particular  debt  due  the  firm  as  to  justify  its  appropriation  to  the 
payment  of  his  individual  indebtedness.  As  no  such  powers  have 
been  conferred  upon  the  common-law  courts  of  this  state,  the  excep- 
tion cannot  be  applied  to  an  attachment  here. 

The  only  cases  in  this  country  in  which  it  is  claimed  a  contrary 
doctrine  is  held,  and  to  which  we  have  been  referred,  are  the  cases  of 
McCarty  v.  Emlen,  2  Dall.  (Pa.)  277,  1  L.  Ed.  380,  Knox  v.  Schcp- 
ler,  2  Mill  (S.  C.)  505,  and  Wallace  v.  Patterson,  2  Har.  &  McH. 
(Md.)   4G3.1     *     *     * 

So  satisfied  are  we,  upon  the  ground  of  reason  and  expediency,  and 
the  great  weight  of  authority,  that  the  partnership  credits  of  a  con- 
tinuing partnership  should  not  be  subjected  to  the  process  of  attach- 
ment at  the  suit  of  a  separate  creditor  of  one  of  the  partners,  that  we 
cannot  adopt  the  case  of  Wallace  v.  Patterson  to  the  extent  which  is 
claimed  for  it. 

In  our  opinion,  then,  in  a  case  like  the  present,  where  the  partner- 
ship is  a  continuing  one,  and  where  there  has  been  no  adjustment  of 
partnership  affairs,  a  debt  due  the  partnership  cannot  be  taken  by 
garnishment  to  pay  the  individual  debt  of  one  of  the  members  of  the 
firm. 

•This  judgment  will  therefore  be  reversed,  and  judgment  entered 
for  the  appellant. 


•  JOHNSON  V.  WINGFIELD  et  al. 

(Court  of  Chancery  Appeals  of  Tennessee,  1S97.     42  S.  W.  203.) 

Barton,  J.  This  cause  is  before  us  on  bill  and  demurrer.  The  de- 
murrer was  sustained,  and  the  bill  dismissed.  Complainant  appealed, 
and  assigns  errors.  The  main  question  presented  in  the  case  is  whether 
in  this  state  specific  property  belonging  to  the  firm  is  subject  to  levy 
for  the  individual  debt  of  one  of  the  members  of  the  firm.  The  case 
made  in  the  bill  substantially  is  as  follows:  The  complainant  shows 
and  avers  that  he  had  obtained  before  a  justice  of  the  peace  in  Ham- 
ilton county  two  judgments  against  the  defendant  Wingfield,  on 
which  executions  had  been  issued  and  certified,  in  pursuance  of  sec- 
tion 3786  of  the  Code  of  Tennessee,  to  Plamblen  county,  where  exe- 
cutions had  been  issued,  which  were  placed  in  the  hands  of  a  con- 
stable, and  by  him,  on  the  2d  day  of  January,  189G,  levied  on  the 
interest  of  Nisbet  Wingfield  in  a  lot  of  iron  pipe  and  other  material, 
the  property  of  the  firm  of  J.  N.  Hazelhurst  &  Co.,  a  firm  composed 
of  J.  N.  Hazelhurst  and  Xisbet  Wingfield,  in  which  firm,  it  is  alleged, 

I  Thompson  v.  Lewis,  34  Me.  1G7,  contra. 


516  RIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.   8 

Hazelhurst  and  Wingfield  were  equal  partners.     It  is  further  alleged 
that  the  interest  so  levied  on  in  the  partnership  property  was  advertised 
and  sold  according  to  law  by  the  constable  making  the  levy  at  public 
sale  in  the  city  of  Morristown,  on  the  5th  of  January,  1896.     It  is 
further  cliarge'd  that  J.   N.  Hazelhurst  and  Wingfield  continued  as 
partners,  under  the  firm  name  of  Hazelhurst  &  Co.,  until  January  7, 
1896,  when  the  firm  dissolved ;   upon  what  terms  and  conditions,  com- 
plainant does  not  know,  but  it  is  charged  that  there  was  no  partner- 
ship settlement  had  between  the  partners,  and  that  the  purpose  and 
object  of  the  dissolution  of  the  partnership  was  to  embarrass  and  de- 
feat the  collection  of  complainant's  execution.     It  is  further  charged 
that  on  January  7,  1896,  a  new  partnership  was  organized,  under  the 
old  firm  name  of  J.  N.  Hazelhurst  &  Co.,  composed  of  J.  N.  Hazel- 
hurst and  D.  R.  H.  Plant,  and  that  this  firm  was  engaged  in  the  com- 
pletion of  the  waterworks  for  the  city  of  Morristown,  under  the  con- 
tract made  for  that  purpose  by  the  old  company.     It  is  charged  that, 
after  the  sale  was  made,  the  statement  was  made  by  one  of  the  attor- 
neys of  Hazelhurst,  a  member  of  both  firms,  who  had  been  present 
and  made  a  bid  at  the  sale  of  the  property,  that  Wingfield  was  no 
longer  a  member  of  the  firm,  and  had  no  interest  in  any  other  property 
which  belonged  to  the  old  firm  of  Hazelhurst  &  Co.     It  charged  that 
the  new  firm,  composed  of  Hazelhurst  and  Plant,  had  full  knowledge 
of  the  complainant's  levies;    that  the  property  levied  on  was  reason- 
ably worth  in  the  market,  at  the  time  of  the  levy,  $3,000;    and  tkat 
Wingfield's  interest  in  the  property  was  at  the  time  of  the  sale  and 
purchase  by  the  complainant,  who  was  the  purchaser  at  the  execution 
sale,  reasonably  worth  $1,500;    that  complainant  notified,  Hazelhurst 
&  Co.  not  to  move  or  interfere  with  the  pipe  until  his  interest  was  paid 
for;    that  Hazelhurst  &  Co.  disregarded  the  notice  and  complainant's 
rights  in  the  property,  and  converted  the  same  to  their  use,  in  the 
construction  of  the  waterworks,  a  few  days  after  complainant  had  pur- 
chased Wingfield's  interest  in  the  partnership  property;    that  con> 
plainant  was  damaged  by  the  conversion  fully  $1,500.     It  is  further 
shown  that  the  new  members  of  the  firm  of  Hazelhurst  &  Co.  were 
nonresidents;   that  they  had  a  fund  coming  to  them  in  the  First  Na- 
tional Bank  of  Morristown,  against  which  an  attachment  was  prayed 
aiid  issued.    The  prayer  of  the  bill  is  that  a  partnership  account  be  had 
and  stated  between  the  defendant  J.  N.  Hazelhurst  and  Nisbet  Wing- 
field, so  as  to  ascertain  what  interest  Wingfield  had  in  the  partnership 
property  described  in  the  levies,  and  the  value  of  that  interest  at  the 
time  the  levies  were  made,  at  the  time  of  the  sale,  and  also  at  the 
time  when  the  property  was  converted  by  J.  N.  Hazelhurst  &  Co.,  and 
for  a  decree  against  J.  N.  Hazelhurst  &  Co.  and  R.  H.  Plant,  or  the 
new  firm  of  Hazelhurst  &  Co.,  for  the  amount  so  found,  and  for  gen- 
eral relief.     It  is  also  shown  in  the  bill  that  the  old  firm  of  Hazel- 
burst  &  Co.  had  other  property  at  the  time  of  the  levies  besides  that 
levied  on,  it  appearing  that  certain  property  was  levied  on  belonging 


Sec.  1)  AT  LAW.  517 

to  the  firm,  and  that  was  released,  and  levy  made  on  other  property. 
The  proceedings  before  the  justice  of  the  peace,  the  executions,  and 
the  return  of  the  officer,  arc  made  exhibits  to  the  bill.  The  officer's 
return,  in  substance,  is  that  he  levied  on  all  the  right,  title,  and  in- 
terest which  Nisbet  Wingfield,  as  member  of  the  firm  of  J.  N.  Hazel- 
hurst  &  Co.,  had  in  the  following  personal  property,  situated  and 
being  in  Morristown,  Tenn.,  on  the  Southern  Railway's  side  track, 
to  wit,  25  iron  fire  plugs,  etc.,  described  in  the  paper.  Both  executions 
also  show  due  sale  of  the  property  after  advertising,  the  property  in 
each  instance  being  bid  in  by  the  complainant,  Johnson,  for  •$!.■). 
The  defendants  filed  a  demurrer  and  answer,  the  demurrer  being  in- 
corporated in  the  answer;  the  substance  and  point  lof  demurrer  be- 
ing that  a  levy  cannot  be  made  on  a  certain,  specific  part  of  partner- 
ship property  for  the  individual  debt  of  one  of  the  members  of  the 
firm,  as  the  bill  shows  was  done  in  this  case,  and  that,  to  reach  a  part- 
ner's interest  in  partnership  property,  the  levy  must  be  made  upon 
all  the  partnership  property.  The  point  is  made  that  the  partnership 
owned  as  an  entirety  the  particular  assets  of  the  partnership,  and  had 
a  right  to  use  the  same  in  the  business  of  tlie  partnership;  that  the 
purchaser  would  be  required  simply  to  take  the  interest  of  the  debtor 
partner,  and  would  have  no  right  to  maintrain  this  bill  for  trdver  or 
conversion  of  the  specific  property  levied  on.  The  answer  filed  denies 
that  the  interest  of  Wingfield  at  the  time  of  the  levy  amounted  to  any- 
thing, and  asserts  there  was  an  excess  of  liabilities  at  that  time  over 
assets.  As  stated,  the  demurrer  was  sustained,  and  the  bill  was  dis- 
missed.    *     *     * 

The  main  question  presented  has  been  before  our  Supreme  Court  in 
a  number  of  cases-,  and  the  subject  seems  to  be  surrounded  by  many 
perplexities.  One  of  the  earlier  and  the  leading  case  in  this  state 
on  the  subject  is  that  of  Haskins  v.  Everett,  -i  Sneed.  531.  This  was 
an  action  of  replevin  brought  by  Haskins  &  Reynolds  against  James 
Everett,  to  recover  certain  personal  property  belonging  to  the  firm  of 
Haskins  &  Reynolds,  which  had  been  levied  on  by  an  execution  in  the 
hands  of  a  constable,  issued  on  a  judgment  recovered  by  one  Brow- 
den  against  Haskins  for  his  individual  debt.  Judge  Caruthers,  in  hi? 
opinion,  stated  that  the  question  was  whether  partnership  property 
can  be  taken  in  execution  and  sold  for  the  private  debt  of  one  of  the 
members.  The  circuit  judge  held  that  it  could,  and  gave  judgment 
for  the  value  of  the  property,  and  also  for  $43,  damages  for  the  de- 
tention of  the  property  which  had  been  taken  in  the  action,  against 
the  complainants,  Haskins  &  Reynolds;  and  this  judgment  was  af- 
firmed by  the  Supreme  Court.  Judge  Caruthers,  in  his  opinion,  says: 
"Whatever  doubts  and  difficulties  may  have  existed  on  this  subject, 
the  law  is  now  well  settled  that  partnership  property  may  be  seized 
and  the  interest  of  one  partner  sold  for  his  individual  debt.  The  pur- 
chaser, however,  only  takes  the  interest  of  such  judgment  debtor  after 
the  settlement  and  adjustment  of  the  partnership  accounts,  and  not 


518  BIGHTS   AND   REMEDIES  OF   CREDITORS.  (Ch.   8' 

his  proportion  of  the  property  sold.    What  that  interest  is  cannot  gen- 
erally be  ascertained  until  a  final  adjustment  and  settlement  of  the 
partnership  concerns.     The  effect  of  the  sale  and  purchase  is  only  to 
place  the  purchaser  in   the  shoes  of  the   partner  whose  interest  he 
buys,  and  make  him  a  tenant  in  common  with  the  other  partners.    This 
is  a  necessary  consequence  of  the  rule  that  each  partner  has  a  lien 
upon  the  firm  property,  as  well  for  the  debts  due  by  the  firm  as  his 
own   share  and  proportion  thereof.     The  judgment  creditor  or   the 
purchaser  under  him  must  take  the  interest  sold  subject  to  all  such 
liens  and  claims.    To  ascertain  the  interest  sold,  the  purchaser  or  any 
of  the  other  partners  may  file  a  bill  for  the  settlement  of  the  partner- 
ship.    The  great  uncertainty  of  the  value  of  the  interest  purchased 
(for  it  may  be  nothing,  or  more  or  less  than  the  amount  bid)   does 
not  afifect  the  principle."     In  this  case  it  will  be  noted  that  the  Su- 
preme Court  gave  judgment  against  the  firm  for  $43,  damages  for 
the  retention  of  the  property  belonging  to  the  firm.     While  it  is  not 
specifically  stated  that  the  property  levied  on  was  only  a  part  of  the 
property  belonging  to  the  firm,  we  think  it  sufficiently  appears  that  it 
was  certain,  specific  property.     In  the  case  of  Saunders  v.   Bartlett, 
12  Heisk.  317,  a  bale  of  cotton,  which  was  held  to  be  the  property 
of  Joyner  &  Son,  had  been  levied  on  by  an  attachment  at  the  suit  of 
Rolfe  Saunders,  for  a -debt  of  Rodney  Joyner,  Jr.,  the  second  mem- 
ber of  the  firm  of  Joyner  &  Son.     It  was  sought  to  be  replevied  by 
Bartlett,  Gould  &  Heath,  to  whom  the  property  had  been  consigned. 
The  decision  was  against  the  plaintiffs  in  the  replevin  suit.     But  two 
grounds  were   stated    for   the   decision   in  the   opinion:     First.  That 
there  was  no  right  of  action  in  the  complainant,  because  the  property 
was  held  to  be  the  property  of  Joyner  &  Son.     Setond.  Judge  Free^ 
man  said,  in  delivering  the  opinion :    "Assuming  that  the  owners  were 
partners,  it  presents  the  question  whether  the  sheriff  can  levy  an  at- 
tachment against  one  of  the  partners  on   the  property  of  the  firm, 
and  take  possession  by  virtue  of  such  levy.     We  think  it  settled  in 
Tennessee  that  he  may  do  so  under  an  execution ;    but  he  can  sell 
only  the  interest  of   the  partner   against   whom   the  process   issued. 
Haskins  v.  Everett,  4  Sneed,  531.    The  same  doctrine  was  laid  down 
in  a  case  of  joint  ownership.     Rains  v.  McNairy,  4  Humph.  358,  40 
Am.  Dec.  651.     Such  seems  to  be  the  weight  of  authority  in  most 
of  the  other  states  of  the  Union,  as  well  as  in  England.     In  fact,  it 
would  seem  to  follow  as  a  matter  of  necessity  from  allowing  the  in- 
terest of  the  partner  to  be  sold  or  taken  at  all  under  process  against 
him.     We  therefore  hold  that  the  attachment  was  properly  levied  on 
the  interest  of  Rodney  Joyner,  Jr.,  whether  he  was  a  partner  or  joint 
owner;    that  the  sheriff  was  properly  in  possession  of   the  cotton; 
and  that  the  plaintiffs  below  had  not  the  right  to  possession  as  against 
him."     In  the  case  of  Morrow  v.  Fossick,  3  Lea,  129,  it  is  said  the 
right  of  the  creditor  to  seize  the  firm  property,  either  by  execution  or 
attachment,  for  the  debt  of  the  member  of  the  firm,  and  sell  or  ap- 


Sec.  1)  AT   LAW.  519 

propriate  the  debtor  partner's  interest,  and  ordinarily  to  file  a  bill  in 
advance    to   ascertain   that    interest,    is   conceded;    citing    Raskins    v. 
Everett,  4  Sneed,  531,  and  1  Story,  Eq.  Jur.  §  GT?.,  In  Lincoln  Sav. 
Bank  v.  Gray,  12  Lea,  45U,  the  case,  as  shown  by  the  opinion,  was 
substantially  that  there  were  two  firms  of  Gray  &  Co.,  known  as  the 
old  and  the  new,  in  both  of  which  one  T.  J.  Gray  was  a  partner.    The 
old  firm  became  indebted  to  the  bank,  the  complainant  in  the  suit; 
and  the  case  made  in  the  bill  was  that  Gray  had  used,  in  the  business 
of  the  new  firm,  the  property  and  funds  of  the  old  firm.    Judge  Free- 
man states  that  complainant  has  sought,  based  on  these  facts,  a  de- 
cree for  its  debts  against  Gray  &  Co.,  the  old  firm,  and  also  the  new 
firm,  and  has  obtained  an  attachment  against  the  new  firm  attaching 
all  its  effects  and  assets,  and  prays  that  these  properties  be  sold,  or  a 
sufficiency  to  pay  the  bank,  and  the  proceeds  applied  to  the  payment 
of  the  debts  stated  in  the  bill  of  Gray  as  Gray  &  Co.,  the  old  firm. 
He  states   this   attachment   and   impounding  of  these  assets   has   no 
foundation  on  which  it  could  have  been  sustained  had  proper  steps 
been  taken  by  the  defendants  to  defeat  it.    "Gray  was  simply  the  debtor 
of  complainant,  and  was  a  partner  in  the  new  firm  of  Gray  &  Co., 
of  which  Woodard  was  a  member.    This  certainly  gave  him  no  right 
to  have  the  latter  firm  wound  up  without  something  more.     A  levy 
on  the  interest  of  one  party  in  a  partnership,  either  of  an  execution 
or  an  attachment  levied  on  such  interest,  would  be  the  basis  on  which 
such  relief  could  be  asked,  in  order  that  the  creditor  might  have  the 
interest  of  his  debtor  ascertained  and  applied,  he  having  a  fixed  lien 
on  the  same  by  process."     "But  we  know  of  no  principle  on  which 
a  simple  creditor  at  large  of  a  member  of  the  firm  has  such  a  right." 
In  the  case  of  Boro  v.  Harris,  13  Lea,  47,  Judge  Cooper,  delivering 
the  opinion  of  the  court,  said:    "All  .that  an  individual  creditor  of 
either  one  6f  the  partners  could  reach  by  the  levy  of  an  execution,  or 
which  a  purchaser  could  acquire  under  an  execution  §ale,  would  be 
the  interest  of  that  partner  dependent  upon   a  partnership  account. 
Haskins  v.  Everett,  4  Sneed,  531.    And,  if  the  ostensible  partners  had 
in  fact  no  interest  in  the  partnership"  property,  the  creditor  or  pur- 
chaser, if  there  were  nothing  else  in  the  case,  would  take  nothing." 
There  would  appear  to  be  in  these  cases  some  confusion  of  principle. 

Referring  to  authorities  outside  of  the  state:  The  confusion  and 
perplexity  in  which  this  question  is  involved  is  not  confined  to  our 
own  state,  but  is  found  in  the  annunciations  of  the  text-writers  on 
this  subject,  and  in  the  decisions  of  nearly  all  of  the  courts  of  last 
resort  of  the  United  States  and  in  England.  :Mr.  Freeman  in  his 
work  on  Executions  (2d  Ed.  §  125),  in  treating  of  the  matter,  says: 
"It  is  universally  conceded  that,  except  where  some  statutory  provi- 
sion to  the  contrary  has  been  enacted,  the  interest  of  the  partner  is 
liable  to  an  execution  for  his  individual  debts.  *  *  *  Confessedly, 
a  sale  under  an  execution  against  one  partner  does  not  divest  the 
title  of  the  partnership  in  the  property.    It  transfers  only  such  interest 


520  RIGHTS   AND   REMEDIES  OF   CREDITORS.  (Ch.   8 

as  remains  in  the  judgment  debtor  upon  the  settlement  and  adjust- 
ment of  the  affairs  of  the  partnership.  As  the  rights  of  the  partner- 
ship are  paramount,  it  would  seem  that  they  would  preclude  the  of- 
ficer sending  the  writ  from  taking  the  property  into  his  exclusive  pos- 
session, even  for  the  purposes  of  levy  and  sale.  And  this  view  has 
been  maintained  with  great  force  in  several  decisions  pronounced  in 
the  Supreme  Court  of  New  Hampshire.  The  authorities  elsewhere 
are  almost  unanimous  in  affirming  that  the  officer  may,  in  levying  on 
the  interest  of  a  partner,  assume  exclusive  possession  of  the  chattels 
of  the  firm,  and  retain  it  until  the  sale.  It  is  also  undoubted  that  the 
interest  subject  to  execution  is,  at  least  in  equity,  in  no  respect  greater 
than  that  held  by  the  defendant ;  that  it  is  subject  to  the  paramount 
claims  against  the  partnership,  and  is  in  fact  nothing  beyond  the  right 
to  demand  an  accounting,  and  to  share  in  the  surplus  that  may 
remain  after  all  the  partnership  obligations  have  been  discharged. 
Whether  the  levy  can  be  upon  any  specific  part  of  the  goods  of  the 
firm,  and  whether,  by  the  sale,  the  purchaser  acquires  any  interest 
in  the  property  sold,  beyond  the  right  to  call  for  an  accounting,  are 
questions  upon  which  the  authorities  are  not  agreed.  The  earlier 
cases  were  determined  when  partnerships  were  regarded  as  mere  co- 
tenancies. Hence  those  cases,  and  such  modern  cases  as  have  been 
controlled  by  them,  place  sales  under  execution  for  the  separate  debt 
of  a  co-partner  very  much  on  the  same  ground  as  a  sale  for  a  separate 
debt  of  a  co-tenant.  Therefore,  according  to  this  view,  an  officer 
can,  under  such  an  execution,  levy  upon  a  part  as  well  as  upon  the 
whole  of  the  chattels  of  the  firm ;  and  it  can,  by  his  sale,  transfer 
a  moiety  of  the  legal  title,  together  with  the  right  to  take  and  hold 
possession  against  the  other  partners,  levying  them  without  any  other 
means  of  enforcing  the  rights  of  the  partnership  than  by  proceedings 
in  chancery.  But  the  courts  have  gradually  progressed  towards  a 
realization  of.  the  true  nature  of  partnerships,  and  have  therefore 
come  to  understand  that  they  are  materially  different  from  co-tenan- 
cies. A  copartner  has  no  right  to  any  specific  chattel  belonging  to 
the  firm,  nor  has  he  any  right  as  against  the  firm  to  take  or  hold 
exclusive  possession  of  any  such  chattel.  The  real  ownership  of  all 
the  chattels  is  vested  in  the  firm.  The  interest  of  each  partner  is 
merely  a  right  to  share  in  the  proceeds  of  these  chattels  after  all  the 
partnership  obligations  have  been  satisfied.  Upon  what  principle 
can  the  purchaser  at  an  execution  sale  be  sustained  in  the  exercise 
of  rights  to  which  the  defendant  was  never  entitled?  Clearly,  upon 
no  principle  whatever.  The  precedents  made  at  an  early  day,  when 
the  law  of  partnership  was  imperfectly  understood,  are  losing  their 
force*  as  authorities.  Their  place  is  being  supplied  by  a  line  of  deci- 
sions destined  to  grow  in  favor  and  in  number,  declaring  that  the 
creditor  of  an  individual  partner  cannot  sell  any  specific  article,  but 
only  the  partner's  interest  in  the  whole  of  the  partnership  assets,  and 
that  the  purchaser  does  not  acquire  the  right  to  hold  possession  of 


Seel)  AT  LAW.  521 

the  property  purchased  as  against  the  other  member  of  the  firm,  but 
only  an  interest  in  the  proceeds,  after  the  business  of  the  firm  shall 
have  been  settled.  Though  the  right  of  the  officer  to  seize  the  prop- 
erty of  the  partnership  under  an  execution  against  one  of  its  members 
is  conceded,  it  must  be  exercised,  as  far  as  possible,  in  harmony  with 
the  rights  of  the  other  partners,  and  not  in  hostility  to  them.  His 
power  to  take  and  deliver  possession  of  the  corpus  of  the  property  is 
merely  incidental  of  the  right  to  reach  the  interest  of  the  debtor,  and 
is  to  be  exercised  only  as  a  means  to  that  end.  Consequently,  if  he 
exceeds  that  limit,  and  undertakes  to  interfere  with  the  rights  of  the 
otiier  partners  to  a  greater  extent  than  is  necessary  to  reach  the  inter- 
est of  the  debtor  partner,  and  dispose  of  it,  as  when,  instead  of  selling 
the  interest  of  the  debtor  partner,  he  undertakes  to  sell  the  entire 
property,  though  his  act  is  nugatory,  such  interference  renders  him 
liable  as  a  trespasser  ab  initio."  In  the  same  authority  (section  254) 
it  is  said :  "Taking  possession  is,  not  optional  with  the  officer.  He 
must  fake  possession,  or  in  some  way  subject  the  property  to  his  con- 
trol, in  order  to  make  a  valid  levy  and  sale.  The  levy  and  sale  must 
be  consistent  with  the  defendant's  interest.  If  the  levy  or  sale  pur- 
ports to  be  upon  an  estate  in  severalty,  this  is  an  invasion  of  the  rights 
of  the  co-tenants,  who  are  not  parties  to  the  writ,  for  which  they  may 
sustain  an  action  against  the  officer  making  it.  When  the  defendant 
is  a  member  of  a  copartnership,  the  duty  of  the  officer  must  be  as- 
certained from  examining  the  decisions  of  his  own  state.  The  ma- 
jority of  the  decisions  on  this  subject  are  based  on  the  false  assump- 
tion that  a  copartnership  is  a  co-tenancy,  and  therefore  sustains  the 
officer  in  taking  exclusive  possession  of  the  partnership  property  un- 
der a  writ  against  one  member  alone.  [Citing,  among  other  cases, 
as  authority  for  this  statement,  the  case  of  Haskins  v.  Everett,  4 
Sneed,  531.]  The  minority,  based  on  more  correct  preceptions  of  the 
nature  of  a  copartnership  and  the  rights  of  its  respective  members, 
will  not  permit  a  writ  against  one  member  to  be  used  to  seize  all  the 
assets  and  to  suspend  the  business  of  the  firm.  The  law  with  respect 
to  the  levy  of  a  writ  on  a  partner's  interest  in  firm  property  involves 
many  perplexities,  the  solution  of  which  is  worthy  of  legislative  aid. 
To -deny  the  right  to  make  such  a  levy  may  very  seriously  embarrass 
creditors  of  a  debtor  amply  able  to  discharge  their  debt;  while  to  ad- 
mit the  right  may  involve  the  copartners,  and  perhaps  the  creditors 
of  the  firm,  in  very  serious  inconvenience  and  substantial  loss.  \\'here 
the  levy  is  permitted,  its  ultimate  effect  is  to  confer  on  the  purchaser 
thereunder  nothing  beyond  the  right  to  an  accounting.  This  is  all  the 
judgment  debtor  has,  and  therefore  all  he  can  transfer,  whether  the 
transfer  be  voluntary  or  involuntary.  Specific  chattels  constituting  a 
part  of  the  assets  cannot  in  several  of  the  states  be  seized  and  sold 
under  a  writ  against  one  of  the  partners.  In  other  states,  the  seizure 
of  either  a  part  or  the  whole  of  the  chattels  of  a  copartnership  under 
a  writ  against  one  of  its  members,  and  the  exclusion  of  its  copartners 


522  RIGHTS   AND    REMEDIES  OP  CREDITORS.  (Ch-    8 

from  their  possession,  are  unauthorized,  and  warrant  an  action  of  tres- 
pass against  the  officer.  But  in  the  majority  of  the  states  the  right 
and  duty  of  an  officer  acting  under  a  writ  against  a  copartner  are  the 
same  as  when  acting  under  a  writ  against  a  co-tenant.  He  may 
seize  any  of  the  property  in  which  the  defendant  has  an  interest;  may 
retain  possession  until  the  sale;  and  may  then  deliver  possession  to 
the  purchaser,  who,  in  a  qualified  sense,  becomes  a  co-tenant  with  the 
copartners  who  were  not  parties  to  the  writ.  Whether  the  latter  are 
entitled  to  resume  possession  in  the  event  that  the  property  is  needed 
in  liquidating  the  partnership  liabilities,  or  for  other  partnership  pur- 
poses, and,  if  so,  by  what  remedies  their  rights  may  be  enforced,  are 
unsolved  judicial  problems.  Though,  by  the  laws  of  the  state  in  which 
the  officer  is  acting,  he  may  take  exclusive  possession  of  property 
under  a  writ  against  one  of  its  owners,  he  must  confine  his  levy  and 
sale  to  the  interest  of  the  defendant.  If  he  assumes  to  levy  upon  or 
to  sell  the  whole  property,  his  act,  as*against  the  partners  or  co-tenants 
not  named  in  the  writ,  is  wrongful.  They  may  regard  him  as  a  tres- 
passer upon  their  rights,  or  as  guilty  of  an  unlawful  conversion  of 
their  property.  He  may  be  sued  for  trespass  or  conversion,  as  the 
injured  co-tenants  may  elect." 

Mr.  Parsons,  in  his  work  on  Principles  of  Partnership,  also  dis- 
cusses these  questions,  points  out  the  confusion,  and  says,  among 
other  things  (section  104)  :  "It  is  needless  to  state  that  a  system 
cannot  be  coherent  while  the  fundamental  principle  upon  which  it 
rests  remains  unsettled.  *  *  *  An  attachment  by  a  separate  cred- 
itor is  sustained  upon  the  ground  that  the  sherifif  could  seize  the  firm 
stock,  and  sell  a  partner's  interest,  which  would  be  treated  as  a  moiety. 
This  is  according  to  the  theory  of  a  tenancy  in  common,  or  holding 
by  several  titles  with  joint  possession,  which  v/ould  be  severed  by  exe- 
cution, and  the  purchaser  vested  with  defendant's  title  and  possession. 
This  practice  is  unsound.  The  sherifif  can,  it  is  true,  seize  the  firm 
stock  in  order  to  sell  a  partner's  interest  in  it.  The  execution  fi.  fa. 
required  a  tenable  thing  for  it  to  operate  from ;  but,  the  requirement 
of  the  writ  being  satisfied,  the  sheriff  must  not  disturb  or  remove  the 
stock,  and  can  sell  only  the  partner's  interest  in  it.  The  purchaser 
acquires  no  right  to  immediate  possession,  but  merely  a  claim  to  flie 
balance,  if  any  is  coming  to  the  partner,  to  be  ascertained  by  an  ac- 
count." 

In  17  Am.  &  Eng.  Enc.  Law,  p.  1336,  we  find  it  stated:  "The  in- 
terest of  one  partner  in  the  partnership  property  may  be  attached  or 
taken  and  sold  on  execution  for  his  separate  debt;  but  only  that  por- 
tion of  the  partnership  property  which  belongs  to  the  debtor  partner, 
after  paying  the  debts  due  to  the  firm  and  his  own  indebtedness  to  the 
firm,  can  be  sold.  The  duty  of  the  sheriff  is  to  attach  or  levy  upon 
the  whole  of  the  partnership  effects,  or  so  much  of  them  as  may  be 
requisite  to  satisfy  his  process  [citing  in  note  3,  for  this  statement, 
cases   from  Alabama,   Illinois,   Indiana,   Louisiana,    Mississippi,    New 


Sec.  1)  AT  LAW.  523 

York,  Pennsylvania,  Texas,  Virginia,  and  California],  though  some 
of  the  states  permit  a  levy  on  specific  property  less  than  the  whole 
[citing,  as  authority  for  this  statement,  cases  from  Kansas,  Louisiana. 
Maine,  Missouri,  New  York,  New  Jersey,  Ohio,  and  Kentucky].  The 
creditor  acquires  no  legal  interest  in  the  property  levied  upon,  and, 
until  the  interest  of  the  debtor  becomes  a  share  in  common  in  the 
buyer  by  means  of  a  sale,  the  title  is  unaffected,  and  a  purchaser  froip 
the  firm  would  get  a  title  unincumbered  by  the  levy ;  and  even  a 
judgment  against  one  partner  is  not  such  a  lien  upon  the  real  estate 
of  the  firm  as  to  remain  an  incumbrance  after  a  sale  by  it.  These 
principles  apply  to  actions  brought  by  a  creditor  of  the  partnership 
against  one  partner,  or  to  an  attachment  or  levy  of  execution  by  a 
partnership  creditor  against  the  individual  interest  of  one  partner,  as 
well  as  to  actions  upon  claims  against  an  individual  partner."  On 
page  13  10  of  the  same  book  we  find  it  stated :  "In  order  to  guard 
against  intermediate  sales,  and  to  make  the  levy  effectual,  the  sheriff  is, 
as  a  general  rule,  required  to  take  exclusive  possession  of  the  property 
levied  upon ;  such  possession  not  being  deemed  adverse  to  the  part- 
nership, and  the  property  in  his  hands  being  subject  to  partnership 
debts" — citing,  as  authority  for  this  statement,  cases  from  nearly  every 
state  in  the  Union,  and  among  others  the  Tennessee  cases  above  cited. 
Continuing,  it  is  said :  "In  some  states,  however,  the  theory  is  adopted 
that,  as  the  debtor  partner  is  not  entitled  to  exclusive  possession,  the 
sheriff  is  not,  and  that,  therefore,  it  is  sufficient  to  declare  that  there 
is  an  attachment  or  execution,  designating  the  property  levied  upon, 
or  otherwise,  according  to  local  practice" — citing,  as  authority  for  this 
statement,  cases  from  Iowa,  Louisiana,  Massachusetts,  Michigan,  New 
Hampshire,  New  York,  North  Carolina,  Wisconsin,  and  the  case  of 
Fourth  Nat.  Bank  v.  Railroad  Co.,  11  Wall.  (U.  S.)  624,  20  L.  Ed. 
82.  Continuing,  it  is  said:  "A  sale  of  the  entire  interest  in  the  prop- 
erty, or  any  specific  part  of  it,  as  distinguished  from  the  interest  of 
the  debtor  partner,  will  make  the  officer  a  trespasser  ab  initio."  It 
is  further  stated  on  page  1343,  same  book:  "The  buyer  at  an  execu- 
tion sale  acquires  the  same  title  that  the  debtor  partner  had,  subject 
to  the  partnership  debts  and  equities  between  the  partners ;  the  claim 
of  the  copartners,  or  any  balance  found  due  them,  being  considered  as 
a  debt,  in  determining  the  debtor  partner's  interest.  If  the  partner- 
ship is  insolvent,  or  if  the  debtor's  share  is  absorbed  by  the  equities 
of  his  copartners,  the  buyer  gets  nothing.  And  if  the  buyer  sells  or 
disposes  of  the  whole  property,  and  appropriates  the  proceeds,  he  is 
liable  for  conversion.  That  a  partnership  is  insolvent,  or  that  there  is 
no  surplus  for  the  debtor  partner,  does  not  make  the  levy  a  trespass. 
The  property  sold  continues  liable  for  the  joint  debts,  but  the  joint 
creditors  have  no  claim  upon  the  purchase  money." 

These  extracts  will  show  into  what  confusion  this  subject  has  fallen 
by  reason  of  the  early  decisions  in  all  the  states,  evidently  based,  as 
stated  by  the  text-writers  from  whom  we  have  quoted,  on  an  erroneous 


524  RIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.   8 

conception,  or,  rather,  a  failure  to  recognize  the  true  status  of  part- 
nership property.  It  is  well  settled  everywhere  that,  as  to  partner- 
ship property,  partners  are  trustees  of  the  partnership,  as  to  each  other 
and  the  advantages  derived  from  it  inure  to  the  benefit  of  the  firm. 
And  it  is  undoubtedly  true  that  a  firm  or  its  members  could,  by  in- 
junction, or  other  appropriate  remedy,  prevent  a  partner  from  divert- 
ing partnership  property  to  his  individual  use,  to  the  damage  of  the 
firm,  and  could  prevent  him  from  exercising  rights  of  possession  and 
control  which  would  be  destructive  of  the  purposes,  or  an  injury  to 
the  business,  of  the  firm.  It  is  also  well  settled,  as  a  general  rule, 
that  an  execution  cannot  reach  any  higher  interest  in  property  than 
the  debtor  himself  has;  and  yet  all  these  decisions  which  justify  an 
officer  in  taking  exclusive  possession  of  firm  property  would  seem  to 
ignore  these  just  principles,  which  are  so  absolutely  necessary  to  the 
successful  operation  of  partnership  business.  It  would  seem  to  be  a 
contradiction  of  terms  and  principles  to  hold  that  the  officer  only  takes 
and  the  purchaser  only  gets  the  interest  which  a  partner  may  have  in 
partnership  property  after  a  firm  has  been  wound  up  and  liquidated, 
and  the  partner's  ultimate  interest  thus  ascertained,  and  that  an  officer 
may  seize  partnership  property,  and  retain  exclusive  possession  of  it 
until  the  sale,  he  thus  being  enabled  to  do  what  the  individual  partner 
w^ould  have  no  right  to  do.  And  it  also  seems  a  violation  of  fundamen- 
tal rights,  and  the  taking  of  private  property  without  compensation,  to 
hold,  as  we  understand  was  held  in  the  case  of  Haskins  v,  Everett,  su- 
pra, that  where  a  partnership  has  endeavored  to  assert  its  rights  of  pos- 
session by  a  replevin  suit  as  against  an  officer  who  had  levied  on  the 
property  for  the  individual  debt  of  one  of  its  merpbers,  it  would  be 
liable  for  damages  for  the  use  and  detention  of  its  own  property.  It 
would  seem  that  many  perplexing  questions  might  arise  out  of  this 
holding.  Suppose  different  executions  were  levied  on  different  ar- 
ticles or  lots  of  personal  property  belonging  to  a  partnership  for  the 
individual  debt  of  a  member  of  the  firm,  and  on  an  accounting  and 
liquidation  it  was  ascertained  that  the  interest  of  the  debtor  partner 
was  only  sufficient  to  pay  one  of  the  claims ;  what  claim  would  have 
priority?  It  seems  to  be  clear  that,  as  long  as  property  has  not  been 
converted  by  a  partner,  and  is  being  used,  or  subject  to  be  used,  for 
the  legitimate  purposes  of  the  partnership,  no  partner  has  any  certain 
or  exclusive  or  special  interest  in  any  specific  partnership  property,, 
but  it  is  the  property  of  the  entity,  the  firm.  How,  then,  can  a  cred- 
itor or  an  officer  take  any  specific  interest  in  any  particular  piece  of 
property  belonging  to  the  firm  under  such  an  execution,  levy,  and  sale  ? 
Let  us  suppose  that  a  creditor  having  a  debt  amounting  in  the  aggre- 
gate to  about  $500,  as  in  this  case,  levies  on  partnership  property 
worth  $3,000,  and  another  creditor,  having  a  debt  of  $1,500.  levies  at 
a  subsequent  time  on  another  article  of  partnership  property  worth 
$1,500.  On  an  accounting  it  is  ascertained  that  the  debtor  partner's 
interest  in  the  firm  at  the  time  of  the  levies  amounted  to  $1,500.     The 


Sec.  1)  AT  i^w.  525 

property  worth  $3,000  was  sold,  and  bid  in  by  the  execution  creditor, 
at  $500,  in  satisfaction  of  the  first  debt  mentioned.  What  will  be  the 
result?  At  the  time  of  the  first  levy,  if  the  debtor  partner  is  to  be 
charged  with  one-half  the  property  levied  on,  as  taken  out  in  his  in- 
terest, it  would  absorb  all  his  interest  in  the  firm.  In  other  words, 
does  the  levy  on  specific  property  appropriate  any  specific  property, 
or  only  the  debtor's  interest  in  the  firm  ?  It  would  seem  that  by  far  the 
more  sensible  and  enlightened  method  of  reaching  a  partner's  interest 
in  the  firm  would  be  by  garnishment,  as  provided  by  statute  in  Geor- 
gia; and,  as  said  in  Freem.  Ex'ns,  it  would  seem  to  be  a  subject  de- 
serving of  legislative  attention.  The  hardship  that  might  result  from 
carrying  out  the  rule  liiid  down  in  this  state  in  the  cases  in  -4  Sneed, 
531,  and  12  Heisk.  317,  could  be  well  illustrated  by  this  case,  where 
the  firm  had  a  contract  to  build  an  extension  system  of  waterworks. 
A  part  of  the  material  necessary  to  the  completion  of  the  contract  was 
levied  on  and  sold  by  an  officer  for  the  individual  debt  of  one  of  the 
members,  and  it  is  stated  in  the  bill  that  the  purchaser,  the  complain- 
ant in  this  case,  notified  the  other  partner  that  he  must  not  move  or 
do  anything  with  this  property  until  his  interest  was  paid  for.  It 
seems  that  this  partner  paid  no  attention  to  this  direction ;  and  it 
would  clearly  appear  that,  if  the  complainant  had  had  it  in  his  power 
to  enforce  .the  directions  given  by  him,  it  would  not  only  have  resulted 
in  great  damage  and  ruin  to  the  firm's  business,  but  also  to  the  other 
partner,  who  was  in  no  way  to  blame  for  Wingfield's  indebtedness. 
But,  whatever  trouble  may  arise  from  these  holdings  we  do  not  feel 
at  liberty,  in  this  court,  to  depart  from  what  we  understand  to  be  well- 
settled  principles  in  this  state.  Nor  do  we  wish  to  be  understood  as 
criticising  the  holdings  of  our  Supreme  Court  upon  this  subject,  further 
than  to  call  attention  to  the  seeming  inconsistencies  that  arise  there- 
from, and  which  are  common  to  all  the  earlier  cases  in  almost  every 
state  in  the  Union,  as  well  as  in  England.  But,  for  the  purposes  of 
this  case,  we  may  state  that  we  understand  the  decisions  in  this  state 
from  which  we  have  above  quoted  to  settle  the  following  points:  (1) 
That  partnership  property  may  be  levied  on  by  the  creditor  for  the 
individual  debt  of  a  member  of  the  firm.  (3)  That  specific  property, 
may  be  levied  on,  and  it  is  not  necessary  that  the  execution  be  levied 
upon  all  the  property  of  the  firm.  (3)  That  the  officer  may,  and  that 
in  fact  it  is  his  duty  to,  take  actual  possession  of  the  property  levied 
on,  and  to  retain  it  until  the  sale  is  made.  (4)  That  the  purchaser 
only  takes  the  interest  of  such  judgment  debtor  after  the  settlement 
and  adjustment  of  the  partnership  accounts,  as  is  the  language  used 
in  the  case  of  Haskins  v.  Everett,  supra,  or  a  mere  right  to  an  ac- 
counting, as  stated  in  another  case.  (5)  That,  as  stated  by  Judge 
Freeman  in  Lincoln  Sav.  Bank  v.  Gray,  12  Lea,  459,  a  levy  is  neces- 
sary in  order  to  fix  a  lien  so  as  to  authorize  the  filing  of  a  bill. 

These  points  being  settled,  it  results,  in  our  opinion,  that  the  chan- 
c<^llor  v.as  in  error  in  dismissing  the  complainant's  bill.     While  we 


526  BIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

think  that  Hazelhurst  had  the  right  to  use,  and  properly,  whether  by 
himself,  or  by  the  new  firm  of  Hazelhnrst  &  Co.,  used,  the  iron  which 
had  been  levied  on,  in  carrying  out  the  contract  and  business  of  the 
old  firm,  still  it  is  the  logical  effect  of  the  decisions  which  we  have 
quoted  that  the  creditor,  Johnson,  having  the  right  to  have  the  prop- 
erty levied  on,  by  the  sale  and  purchase  took  whatever  interest  Wing- 
field  had  in  this  property  at  that  time,  which  could  only  be  ascertained 
by  an  accounting,  and  that  this  he  has  a  right  to  do.  If  it  shall  turn 
out  on  an  accounting  that  at  the  time  of  the  levy  the  liabilities  of  the 
firm,  as  claimed  in  the  answer  filed  with  the  demurrer,  exceeded  the 
assets,  and  that  the  firm  was  insolvent,  tlien  Johnson  will,  of  course, 
take  nothing  by  his  purchase ;  and  it  is  also  clear  that  Johnson's  in- 
terest could  not  exceed  the  value  of  Wingfield's  share  in  all  the  part- 
nership assets  after  all  partnership  debts  were  paid,  and  all  charges 
against  him  in  favor  of  Hazelhurst  were  settled.  The  logical  result 
of  our  cases  on  this  subject  seems  to  be  that  the  taking  by  the  officer 
has  practically  the  same  effect  as  the  withdrawal  and  conversion  of 
that  amount  of  property  by  the  debtor  member  of  the  firm,  subject 
to  being  compelled  to  return  such  an  amount  of  the  property  after 
the  exhaustion  of  other  partnership  property  as  might  be  necessary 
to  pay  all  partnership  debts,  and  to  secure  to  the  other  partner  his 
just  share  and  division  of  the  partnership  assets.  For  these  reasons 
the  decree  of  the  chancellor  will  be  reversed,  and  the  cause  remanded 
to  be  further  proceeded  with,  with  directions  to  refer  the  cause  to 
the  master  to  take  an  account,  and  to  ascertain  and  report  the  condi- 
tion of  the  old  firm  of  Hazelhurst  &  Co.  at  the  time  of  the  levies  made, 
as  shown  in  the  bill;  and  the  complainant  will  be  entitled  to  a  decree 
for  the  value  of  Wingfield's  interest  in  the  property  levied  on,  if  anv. 
on  the  lines  indicated  in  this  opinion.  The  decree  of  the  chancellor 
is  reversed,  the  demurrer  overruled,  and  the  cause  remanded,  as  stated, 
and  the  defendants  will  pay  the  costs  of  the  appeal.^ 


AULTMAN  &  CO.  v.  FULLER,  WILLIAMS  &  CO. 

(Supreme  Court  of  Iowa,  1880.    53  Iowa,  GO,  4  N.  W.  809.) 

Action  in  equity  to  set  aside  an  execution  sale  of  an  undivided  half 
of  a  threshing  machine,  and  to  determine  the  conflicting  claims  of 
the  plaintiffs  and  defendants  in  relation  to  the  same.  The  machine 
was  owned  by  one  Tierney  and  one  Cook.  The  plaifitiffs  obtained  a 
judgment  against  both,  and  the  defendants  obtained  a  judgment 
against  Tierney  alone.  The  plaintiffs  cause  execution  to  be  levied 
upon  the  entire  machine.  The  defendants  cause  execution  to  be  levied 
upon  an  undivided  half,  as  being  the  interest  of  Tierney.  The  whole 
machine   was    sold    to   plaintiffs   under   their   execution,   and    an    un- 

1  Affirmed  orally  by  Supreme  Court,  October  16,  1897. 


Sec.  1)  AT  LAW.  527 

divided  half  was  sold  to  defendants  under  their  execution;  the  sale 
to  defendants  being  made  first.  The  plaintiffs  aver  that  Tierney  and 
Cook  were  in  partnership,  that  the  machine  was  partnership  prop- 
erty, and  that  their  claim  against  them  was  a  partnership  debt.  They 
also  aver  that  here  was  no  valid  levy  of  the  defendants'  execution. 
The  defendants  for  answer  make  a  general  denial.  Other  facts  are 
stated  in  the  opinion.  The  court  dismissed  the  plaintiffs'  petition, 
and  they  appeal. 

Adams,  C.  J.  *  *  *  We  have,  then,  a  case  where  the  defendants, 
as  creditors  of  one  of  the  partners  only,  levied  upon  partnership  prop- 
erty for  the  purpose  of  collecting  their  debt.  This  they  might  do  under 
a  provision  of  the  statute.  Section  3053  of  the  Code  of  1873  provides 
that  "when  the  officer  has  an  execution  against  a  person  who  owns 
property  in  partnership  with  another,  such  officer  may  levy  on  and  take 
possession  of  the  property  owned  *  *  *  in  partnership  sufficiently 
to  enable  him  to  appraise  and  inventory  the  same." 

The  defendants  by  their  levy,  if  regularly  made,  acquired  a  Hen 
upon  the  interest  of  Tierney  in  the  property.  Code  1873,  §  3054. 
But  his  interest  was  not  necessarily  equivalent  to  an  undivided  half 
of  the  property.  It  might  be  more  or  less  than  that,  and  it  might  be 
nothing.  His  interest  was  equivalent  to  such  fraction  as  would  con- 
stitute his  share  in  the  property,  after  satisfying  from  the  partner- 
ship assets  all-  claims  against  the  partnership,  whether  due  to  third 
persons  or  to  his  partner.  But  such  interest,  of  course,  was  uncertain 
while  the  partnership  affairs  remained  unsettled.  Possibly  it  might 
be  sold  on  execution  notwithstanding  its  uncertainty.  Hubbard  v. 
Curtis,  8  Iowa,  1,  74  Am.  Dec.  283.  It  would  seem  certain  that  it 
could  be,  unless  the  remedy  provided  by  section  3054  of  the  Code  is 
to  be  deemed  exclusive  of  all  other  remedies.  That  section  provides 
that,  where  a  debtor  partner's  interest  in  firm  property  is  levied  upon 
by  his  separate  creditor,  the  interest  may  be  ascertained  by  an  action 
in  equity,  and  the  lien  acquired  by  the  levy  may  be  enforced  in  such 
action.  The  defendants  should,  we  think,  have  proceeded  under  that 
section.  They  sold,  however,  without  the  ascertainment  of  Tierney's 
interest.  Whether  the  sale  was  void,  or  not,  we  need  not  determine. 
In  purchasing  at  the  sale  they  certainly  acquired  nothing  more  than 
Tierney's  interest,  as  the  same  should  appear  after  the  partnership 
liabilities  had  been  discharged.  Hubbard  v.  Curtis,  above  cited.  And 
the  plaintiff's  claim  that  such  interest  would  be  nothing.    *     *     * 

It  is  finally  insisted  by  the  defendants  that  the  plaintiffs'  remedy,  if 
any,  is  not  in  equity.  But  it  should  be  remembered  that  the  defend- 
ants had  acquired  a  lien  upon  the  property,  which  under  the  statute 
was  enforceable  in  equity  to  the  extent  of  Tierney's  interest,  to  be 
ascertained  in  an  action  in  equity,  if  one  should  be  instituted  for  that 
purpose.  None,  however,  was  instituted.  In  the  meantime  the  plain- 
tiffs, as  partnership  creditors,  acquired  by  their  levy  an  interest  in  the 
same  property.     They  claim  that  the  defendants  have  no  rights  in  the 


528  RIGUTS  AKD   REMEDIES  OF   CREDITORS.  (Cll.    8 

property  as  against  them.  As  the  defendants'  rights  in  the  property, 
if  any,  could  be  determined  and  enforced  only  by  an  action  in  equity, 
which  they  neglected  to  bring,  it  appears  to  us  that  the  plaintiffs 
should  be  allowed  to  maintain  an  action  in  equity  to  determine  sub- 
stantially the  same  question. 

In  our  opinion  the  court  erred  in  dismissing  the  plaintiffs'  petition. 

Reversed.  *^ 


SECTION  2.— IN  EQUITY. 


RODGERS  V.  MERANDA  et  al. 
(Supreme  Court  of  Ohio,  1857.     7  Ohio  St.  180.) 

The  original  proceeding  was  a  petition  for  an  order  of  distribution 
of  the  separate  or  individual  assets  of  an  insolvent  debtor,  as  be- 
tween separate  and  partnership  creditors. 

It  appears  from  the  record  that  about  the  13th  of  June,  1854,  Peter 
Murray,  an  insolvent  debtor,  made  an  assignment  of  all  his  estate, 
real  and  personal,  to  the  plaintiff,  in  trust  for  the  payment  of  his 
individual  creditors  in  proportion  to  the  amount  of  their  respective 
demands.  Though  possessed  of  a  large  and  valuable  estate,  it  had 
been  found  insufficient  to  pay  his  separate  debts  and  liabilities  in  full. 
At  the  date  of  his  failure  and  assignment  he  was  a  partner  with  John 
W.  Dever  in  a  mercantile  firm  under  the  name  and  style  of  Dever  & 
Murray ;  which  firm  had  also  become  insolvent,  and  likewise  Dever ; 
and  the  firm  had  made  an  assignment  of  the  partnership  property  and 
assets  about  the  same  time  to  John  Meranda,  one  of  the  defendants, 
in  trust  for  the  payment  of  the  joint  debts  or  liabilities  of  the  firm. 

In  this  condition  of  affairs  the  partnership  creditors,  although  they 
have  filed  their  claims  with  the  assignee  of  the  firm  for  their  distribu- 
tive shares  out  of  the  partnership  property,  claim  the  right  to  be  ad- 
mitted to  a  participation  in  the  dividends  of  the  separate  estate  of 
Murray,  pari  passu   with  his   individual  creditors;    while  the  latter 

1  In  Willis  V.  Henderson,  43  Ga.  32,5  (1S71),  McCfiy,  J.,  In  holding  illesjal 
an  execution  for  the  debt  of  one  partner  levied  against  the  firm's  property, 
said:  "Without  doubt,  by  the  common  law,  it  was  competent  to  levy  upon 
and  sell  the  interest  of  a  partner  in  any  property  belonp:ii)g  to  the  partncr- 
feliip.  Shaw  V.  McDonald,  21  Ga.  395.  The  purchaser  got  the  interest  of  the 
partner.  He  did  not  get  an  undivided  title  equal  to  the  partner's  share  in 
the  concern  according  to  the  agreement,  but  the  interest  of  the  partner  alter 
a  settlement  of  the  concern  affairs.  Hoskins  v.  Johnson,  24  Ga.  G2.j.  Evident- 
ly this  was  a  very  clumsy  and  often  a  very  unjust  mode  of  enforcing  the 
claims  of  a  creditor  against  one  of  the  firm.  The  purchaser  did  not  know 
what  he  was  buying,  since  his  interest  depended  altogether  upon  the  result  of 
a  settlement  of  the  firm  afl'airs.  Our  Code  (section  1908)  proliibits  the  sale  of 
effects  so  situated,  and  provides  that  the  interest  of  a  pai'tner  in  the  partntr- 
Bhip  assets  may'be  reached  by  the  process  of  gamishmeut." 


Sec.  2)  IN    EQUITY.  529 

deny  tlie  right,  and  insist  that  his  separate  estate  shall  be  applied  to 
the  satisfactioh  of  his  individual  debts  in  preference  to  his  partnership 
debts. 

It  appears,  further,  that  Murray,  besides  advancing  his  part  of  the 
capital  of  the  firm,  also  loaned  money  to  the  firm  to  a  large  amount, 
for  which  he  held  the  obligations  of  the  firm,  which  obligations,  by 
the  assignment  of  Murray,  came  into  the  hands  of  the  plaintifT,  who 
has  presented  the  same  to  the  assignee  of  the  firm,  and  claims  to 
have  the  same  paid  out  of  the  assets  of  the  firm,  pari  passu  with  the 
other  partnership  debts.  The  other  creditors  resist  this,  and  plaintiff 
asks  an  order  of  distribution  to  that  effect  out  of  partnership  assets. 

Defendants  demurred  to  the  petition.  The  court  below  sustained 
the  demurrer,  and  gave  judgment  in  favor  of  the  defendants;  and 
this  petition  in  error  is  filed  to  review  and  reverse  that  judgment. 

Bartley,  C.  J.  Two  questions  are  presented  for  determination  in 
this  case.  The  first  is  whether,  in  the  distribution  of  the  assets  of 
insolvent  partners,  where  there  are  both  individual  and  partnership 
assets,  the  individual  creditors  of  a  partner  are  entitled  to  be  first 
paid  out  of  the  individual  effects  of  their  debtor,  before  the  partner- 
ship creditors  are  entitled  to  any  distribution  therefrom.  It  is  well 
settled  that,  in  the  distribution  of  the  assets  of  insolvent  partnci^s,  the. 
partnership  creditors  are  entitled  to  a  priority  in  the  partnership  ef- 
fects, so  that  the  partnership  debts  must  be  settled  before  any  division 
of  the  partnership  funds  can  be  made  among  the  individual  creditors 
of  the  several  partners.  This  is  incident  to  the  nature  of  partnership 
property.  It  is  the  right  of  a  partner  to  have  the  partnership  property 
applied  to  the  purposes  of  the  firm,  and  the  separate  interest  of  each 
partner  in  the  partnership  property  is  his  share  of  the  surplus  after 
the  payment  of  the  partnership  debts.  .  And  this  rule,  which  gives  the 
partnership  creditors  a  preference  in  the  partnership  effects,  would 
seem  to  produce,  in  equity,  a  corresponding  and  a  correlative  rule, 
giving  a  preference  to  the  individual  creditors  of  a  partner  in  his 
separate  property ;  so  that  partnership  creditors  can,  in  equity,  only 
look  to  the  surplus  of  the  separate  property  of  a  partner,  after  the 
payment  of  his  individual  debts,  and,  on  the  other  hand,  the  inclividual 
creditor?  of  a  partner  can  in  like  manner  only  claim  distribution -from 
the  debtor's  interest  in  the  surplus  of  the  joint  fund  after  the  satis- 
faction of  the  partnership  creditors.  The  correctness  of  this  rule, 
however,  has  been  much  controverted ;  and  there  has  not  been  always 
a  perfect  concurrence  in  the  reasons  assigned  for  it  by  those  courts 
which  have  adhered  to  it.  By  some  it  has  been  said  to  be  an  arbitrary 
rule,  established  from  considerations  of  convenience ;  by  others,  that 
it  rests  on  the  basis  that  a  primary  liability  attaches  to  the  fund  on 
which  the  credit  was  given — that  in  contracts  with  a  partnership, 
credit  is  given  on  the  supposed  responsibility  of  the  firm,  while  in 
contracts  with  a  partner  as  an  individual  reliance  is  supposed  to  be 
placed  on  his  separate  responsibility.  3  Kent,  Com.  65.  And,  aga'M, 
Gtl.Part.— 34 


530  BIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.   8 

Others  have  assigned  as  a  reason  for  the  rule  that  the  joint  estate  is 
supposed  to  be  benefited  to  the  extent  of  every  credit  which  is  given 
to  the  firm,  and  that  the  separate  estate  is,  in  hke  manner,  presumed 
to  be  enlarged  by  the  debts  contracted  by  the  individual  partner,  and 
that  there  is  consequently  a  clear  equity  in  confining  the  creditors,  as 
to  preference,  to  each  estate  respectively,  which  has  been  thus  bene- 
fited by  their  transactions.  McCulloh  v.  Dashiell,  1  Har.  &  G.  (Md.) 
96,  IS  Am.  Dec.  271.  But  these  reasons  are  not  entirely  satisfactory. 
So  important  a  rule  must  have  a  better  foundation  to  stand  upon  than 
a  mere  consideration  of  convenience;  and  practically  it  is  undeniable 
that  those  who  give  credit  to  a  partnership  look  to  the  individual  re- 
sponsibility of  the  partners,  as  well  as  that  of  the  firm,  and  also  those 
who  contract  with  a  partner  in  his  separate  capacity  place  reliance  on 
his  various  resources  or  means,  whether  individual  or  joint.  And  in- 
asmuch as  individual  debts  are  often  contracted  to  raise  means  which 
are  put  into  the  business  of  a  partnership,  and  also  partnership  ef- 
fects often  withdrawn  from  the  firm  and  appropriated  to  the  separate 
use  of  the  partners,  it  cannot  be  practically  true  that  the  separate 
•estate  has  been  benefited  to  the  extent  of  every  credit  given  to  each 
individual  partner,  nor  that  the  joint  estate  has  retained  from  the  sepa- 
rate estate  of  each  partner  the  benefit  of  every  credit  given  to  the 
firm.  Unsatisfactory  reasons  may  weaken  confidence  in  a  rule  which 
is  well  founded. 

What,  then,  is  the  true  foundation  of  the  rule  which  gives  the  in- 
dividual creditor  a  preference  over  the  partnership  creditor  in  the  dis- 
tribution of  the  separate  estate  of  a  partner?  To  say  that  it  is  a  rule 
of  general  equity,  as  has  been  sometimes  said,  is  not  a  satisfactory 
solution  of  the  difficulty;  for  the  question  is  whether  it  be  a  rule  of 
equity  or  not.  In  the  distribution  of  the  assets  of  insolvents,  equality 
is  equity;  and  to  say  that  the  rule  which  gives  the  individual  creditor 
a  preference  over  the  partnership  creditor  in  the  separate  estate  of  the 
partner  is  a  rule  of  equality  does  not  still  rid  the  subject  of  difficulty. 
For,  leaving  the  rule  to  stand  which  gives  the  preference  to  the  joint 
creditors  in  the  partnership  property,  and  perfect  equality  between  the 
joint  and  individual  creditors  is,  perhaps,  rarely  attainable.  That  it 
is,  however,  more  equal  and  just,  as  a  general  rule,  than  any  other 
which  can  be  devised,  consistently  with  the  preference  to  the  partner- 
ship creditors  in  the  joint  estate,  cannot  be  successfully  controverted. 
It  originated  as  a  consequence  of  the  rule  of  priority  of  partnership 
creditors  in  the  joint  estate,  and,  for  the  purpose  of  justice,  became 
necessary  as  a  correlative  rule.  With  what  semblance  of  equity  could 
one  class  of  creditors,  in  preference  to  the  rest,  be  exclusively  entitled' 
to  the  partnership  fund,  and,  concurrently  with  the  rest,  entitled  to  the 
separate  estate  of  each  partner?  The  joint  creditors  are  no  more 
meritorious  than  the  separate  creditors;  and  it  frequently  happens 
that  the  separate  debts  are  contracted  to  raise  means  to  carry  on  the 
partnership   business.      Independent   of   this   rule,   the  joint  creditors 


I 


Sec.  2)  IN   EQUITY.  531 

have,  as  a  general  thing,  a  great  advantage  over  the  separate  creditors. 
Besides  being  exclusively  entitled  to  the  partnership  fund,  they  take 
their  distributive  shares  in  the  surplus  of  the  separate  estate  of  each 
of  the  several  partners  after  the  payment  of  the  separate  creditors  of 
each.  It  is  a  rule  of  equity  that,  where  one  creditor  is  in  a  situation 
to  have  two  or  more  distinct  securities  or  funds  to  rely  on,  the  court 
will  not  allow  him,  neglecting  his  other  funds,  to  attach  himself  to 
one  of,  the  funds  to  the  prejudice  of  those  who  have  a  claim  upon  that 
and  no  other  to  depend  on.  And  besides  the  advantage  which  the 
joint  creditors  have,  arising  from  the  fact  that  the  partnership  fund  is 
usually  much  the  largest,  as  men  in  trade,  in  a  great  majority  of  cases, 
embark  their  all,  or  the  chief  part  of  their  property,  in  it,  and  besides 
their  distributive  rights  in  the  surplus  of  the  separate  estate  of  the 
other  partners,  the  joint  creditors  have  a  degree  of  security  for  their 
debts  and  facilities  for  recovering  them  which  the  separate  creditors 
have  not.  They  can  sell  both  the  joint  and  the  separate  estate  on  an 
execution,  while  the  separate  creditor  can  sell  only  the  separate  prop- 
erty and  the  interest  in  the  joint  effects  that  may  remain  to  the  part- 
ners, after  the  accounts  of  the  debts  and  effects  of  the  firm  are  taken, 
as  between  the  firm  and  its  creditors,  and  also  as  between  the  partners 
themselves.  With  all  these  advantages  in  favor  of  the  partnership 
creditors,  it  would  be  grossly  inecjuitable  to  allow  them  the  exclusive 
benefit  of  the  joint  fund,  and  then  a  concurrent  right  with  individual 
creditors  to  an  equal  distribution  in  the  separate  estate  of  each  part- 
ner. What  equality  and  justice  is  there  in  allowing  partnership 
creditors,  who  have  been  paid  80  per  cent,  on  their  debts  out  of  the 
joint  fund,  to  come  in  pari  passu  with  the  individual  creditors  of 
one  of  the  partners,  whose  separate  property  will  not  pay  20  per 
cent,  to  his  separate  creditors?  How  could  that  be  said  to  be  an  equal 
distribution  of  the  assets  of  insolvents  among  their  creditors?  It  is 
true  that  an  occasional  case  may  arise  where  the  joint  effects  are  pro- 
portionably  less  than  the  separate  assets  of  an  insolvent  partner. 
But.  as  a  general  thing,  a  very  decided  advantage  is  given  to  the 
partnership  creditors,  notwithstanding  this  preference  of  the  individ- 
ual creditors  in  the  separate  property ;  and  that  advantage,  arising 
out  of  the  nature  of  a  partnership  contract,  is  unavoidable.  Some 
general  rule  is  necessary;  and  that  must  rest  on  the  basis  of  the  un- 
alterable preference  of  the  partnership  creditors  in  the  joint  effects, 
and  their 'further  right  to  some  claim  in  the  separate  property  of  each 
of  the  several  partners.  The  preference,  therefore,  of  the  individual 
creditors  of  a  partner  in  the  distribution  of  his  separate  estate  results 
as  a  principle  of  equity  from  the  preference  of  partnership  creditors 
in  the  partnership  funds,  and  their  advantages  in  having  different 
funds  to  resort  to,  while  the  individual  creditors  have  but  one. 

It  has  been  argued  that  partnership  contracts  are  several  as  well 
as  joint,  and  consequently  have  an  equal  legal  right  with  separate 
creditors   upon  the  individual  property  of  a  partner.     But  the  right 


532  RIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

of  partnership  creditors  against  the  separate  property  of  individual 
partners  in  proceedings  at  law  is  not  in  controversy.  The  question 
here  relates  to  the  relative  equitable  rights  of  two  classes  of  creditors 
in  the  distribution  of  the  estates  of  insolvents.  Much  of  the  confusion 
upon  this  subject  has  probably  arisen  from  confounding  the  abstract 
rights  of  creditors  in  proceedings  at  law  with  their  relative  rights  to 
an  equitable  adjustment  in  marshaling  the  assets  of  insolvents  in  chan- 
cery. 

The  rule  here  adopted  appears  to  have  been  followed  in  England 
for  nearly  a  century  and  a  half.  We  find  it  distinctly  recognized  in 
the  case  of  Ex  parte  Crowder,  2  Vern.  706,  decided  in  1715.  And  in 
Ex  parte  Cook,  2  P.  Wms.  500,  Lord  Chancellor  King  declared  it  set- 
tled as  a  rule  of  convenience  in  bankruptcy  that  joint  creditors  should 
be  first  paid  out  of  the  partnership  estate  and  the  separate  creditors 
out  of  the  separate  estate  of  each  partner,  and,  if  there  be  a  surplus 
of  the  joint  estate  after  paying  the  joint  creditors,  the  share  of  each 
partner  should  be  distributed  to  his  separate  creditors,  and  if,  on  the 
ot^er  hand,  there  should  be  a  surplus  of  the  separate  estate  of  a  part- 
ner after  the  satisfaction  of  his  individual  creditors,  it  should  be  ap- 
plied to  any  deficiency  of  the  joint  funds  in  the  satisfaction  of  the 
partnership  debts.  Lord  Hardwicke  followed  the  same  rule,  in  Ex 
parte  Hunter,  1  Atk.  228.  But  it  appears  that  in  Ex  parte  Hodgson, 
2  Bro.  C.  C,  decided  in  1785,  Lord  Thurlow  made  an  innovation  on 
the  rule  in  bankruptcy,  declaring  that  there  was  no  distinction  between 
joint  and  separate  creditors,  that  they  ought  to  be  paid  out  of  the 
bankrupt's  estate  and  his  moiety  of  the  joint  estate,  and  that  the  joint 
creditors  ought  to  come  in  pari  passu  with  the  separate  creditors. 
This  ruling  of  Lord  Thurlow  appears  to  have  had  reference  to  pro- 
ceedings at  law  and  in  bankruptcy,  for  it  is  said  that,  consistently 
therewith,  it  was  competent  for  the  assignees  to  confine  the  joint  cred- 
itors, where  there  was  a  joint  estate,  to  that  fund  exclusively,  by  fil- 
ing a  bill  in  equity  against  the  other  partners  and  obtaining  an  injunc- 
tion on  the  order  in  bankruptcy.  But  how  far  this  innovation  went, 
in  practice,  to  affect  the  ultimate  rights  of  the  parties,  is  wholly  im- 
material, inasmuch  as  Lord  Loughborough,  in  Ex  parte  Elton,  3  Ves. 
Jr.  238,  in  the  year  1796,  restored  the  rule  which  previously  prevailed, 
holding  that  the  rule  introduced  by  the  Case  of  Hodgson  was  incon- 
venient, inasmuch  as  every  order  which  he  passed  in  bankruptcy,  giv- 
ing a  joint  creditor  a  dividend  out  of  the  separate  estate  of  ^  partner, 
would  give  rise  to  a  bill  in  equity,  on  the  part  of  the  separate  creditors, 
to  restrain  the  order  and  secure  the  application  of  the  separate  es- 
tate to  the  satisfaction  of  the  separate  debts;  and,  although  it  was 
adjudged  that  a  joint  creditor  might  prove  his  claim  under  .a  separate 
commission,  yet  he  could  not  receive  any  dividend  therefrom  until 
the  amount  of  his  distribution  in  the  joint  fund  could  be  ascertained 
and  the  claims  of  the  separate  creditors  satisfied.  And  the  opinion  of 
the  Lord  Chancellor,  in  this  case,  puts  an  end  to  the  assertion,  which 


Sec.  2)  IN  EQUiTT.  533 

has  been  sometimes  made,  that  this  rule  was  peculiar  to  proceedings 
in  bankruptcy.  Touching  this  he  said:  "If  it  stands  as  a  rule  of  law, 
we  must  consider  what  I  have  always  understood  to  be  settled  by  a 
vast  variety  of  cases,  not  only  bankruptcy,  but  upon  general  equity, 
that  the  joint  estate  is  applicable  to  partnership  debts  and  the  separate 
estate  to  the  separate  debts."  Again,  in  speaking  of  the  inconvenience 
of  Lord  Thurlow's  rule,  he  said:  "What  I  order  here  to-day,  sitting 
in  bankruptcy,  I  shall  forbid  to-morrow,  sitting  in  chancery;  for  it  is 
quite  of  course  to  stop  the  dividend  on  a  bill  filed.  The  plain  rule  of 
distribution  is  that  each  estate  shall  bear  its  own  debts.  The  equity 
is  so  plain  that  it  is  of  course  upon  a  bill  filed." 

Lord  Kldon,  with  some  characteristic  doubts  and  misgivings,  con- 
sistently followed  this  rule  of  his  immediate  predecessor.  Chiswell 
V.  Gray,  9  Ves.  126 ;  Button  v.  Morrison,  17  Ves.  207.  And  it  has 
ever  since  remained  the  settled  law  of  England,  applicable,  not  simply 
to  proceedings  in  bankruptcy,  but  as  a  general  rule  of  equity,  in  the 
distribution  of  the  assets  of  insolvents. 

The  supposition  that  this  rule  arose  from  any  provision  of  the 
statutes  concerning  bankruptcy  in  England  is  a  mistake.  It  was  long 
and  well  settled  as  a  rule  of  equity  before  any  statute  was  enacted 
touching  this  subject.  It  does  not  appear  to  have  been  sanctidned 
bv  any  positive  enactment  until  St.  6  Geo.  IV,  c.  16,  §  16. 

'  It  is  not  a  little  remarkable  that  this  rule  of  equity,  so  long  settled 
and  acted  on  in  England,  should  have  encountered  so  much  opposition 
as  it  has  in  the  courts  of  the  several  states  of  this  country. 

In  Pennsylvania  the  rule  was  discarded  by  a  majority  of  the  court 
in  the  case  of  Bell  v.  Newman,  5  Scrg.  &  R.  78,  decided  in  1819.  And 
the  rule  adopted  in  that  case  was  that  where  a  sur\'iving  partner  dies 
indebted  to  partnership  and  also  to  individual  creditors,  and  leaving 
joint  assets  and  also  separate  assets,  the  separate  creditors  should  re- 
ceive as  much  out  of  the  separate  property  as  the  joint  creditors  could 
receive  from  the  separate  portion  or  share  of  such  partner  in  the  joint 
property,  and  that  then  the  balance  of  the  separate  property  should 
be  divided  pro  rata  among  both  classes  of  creditors.  This  was  placed 
partly  on  the  ground  of  equity  and  partly  on  the  ground  of  a  statute 
(Urecting  equality  of  distribution  of  the  assets  of  deceased  persons. 
Judge  Gibson,  however,  dissented,  insisting  forcibly  on  the  rule  adopt- 
ed in  England  as  a  general  principle  founded  in  equity. 

And  it  has  been  insisted  that  this  case  did  not  strictly  fall  within 
the  application  of  the  principle,  inasmuch  as  the  estate  to  be  distrilmted 
in  that  case  was  the  estate  of  a  surviving  partner,  against  which  the 
claims  of  the  joint  creditors  were  as  purely  legal  as  those  of  the  sepa- 
rate creditors.  And  Chief  Justice  Tilghman  remarked,  in  the  opin- 
ion of  the  case,  that  "no  rule  was  intended  to  be  laid  down  which 
mav  affect  cases  differently  circumstanced." 

.the  case  of  Sperry's  Estate,  1  Ashm.  347,  did  not  directly  affect  the 
question,  inasmuch  as  it  came  fully  within  the  exception  that  where 


534  EIGHTS   AND   REMEDIES  OF   CREDITORS.  (Ch.    8 

there  is  no  joint  fund,  and  no  solvent  partner,  the  separate  and  joint 
creditors  should  be  paid  ratably  out  of  the  separate  estate.  The  ques- 
tion was  ag-ain  brought  to  the  attention  of  the  court  in  that  state  in 
Walker  v.  Eyth,  25  Pa.  216,  where  the  court  expresses  the  opinion 
that  it  is  a  rule  of  equity  "that,  where  there  are  partnership  and  sepa- 
rate creditors,  each  estate  should  be  applied  exclusively  to  the  pay- 
ment of  its  own  creditors,  the  joint  estate  to  the  joint  creditors  and  the 
separate  estate  to  the  separate  creditors."  But  the  question  was  not 
directly  decided;  the  decision  of  the  case  being-  put  upon  another 
ground.  So  that  the  general  principle,  in  a  case  proper,  for  its  appli- 
cation, is  said  to  remain  still  an  open  question  in  Penn^sylvania.  1  Am. 
Law  Cases,  483. 

In  Virginia  the  question  was  presented  in  1818,  in  the  case  of  Mor- 
ris' Adm'r  v.  Morris'  Adm'r,  4  Grat.  293,  and  was  elaborately  dis- 
cussed on  both  sides;  but  the  court  was  equally  divided  on  the  ques- 
tion of  adoption  of  the  rule  as  a  general  rule  of  equity,  and  the  deci- 
sion of  the  case  was  put  on  other  grounds. 

In  New  Jersey,  in  the  case  of  Wisham  v.  Lippincott,  9  N.  J.  Eq. 
353,  the  rule  was  doubted  as  a  general  principle  of  equity,  although 
not  decided. 

In  Vermont,  in  the  case  of  Bardwell  v.  Perry  et  al.,  19  Vt,  292, 
47  Am.  Dec.  687,  the  rule  was  discarded  as  a  principle  of  equity,  with 
this  qualification :  that  the  separate  creditors  could  require,  in  equity, 
that  the  joint  creditors  should  first  exhaust  the  partnership  funds,  be- 
fore coming  in  with  the  separate  creditors  of  a  partner  for  a  pro  rata 
distribution  out  of  his  separate  estate. 

It  does  not  appear  that  the  doctrine  of  the  English  courts  on  this 
subject  was  ever  adopted  as  a  rule  of  equity  by  the  courts  of  Massa- 
chusetts ;  but  it  is  said  that  a  statute  was  enacted  in  that  state  in  1838, 
providing,  as  a  rule  for  the  distribution  of  insolvents'  estates,  that  the 
net  proceeds  of  the  separate  estate  shall  go  to  the  separate  creditors 
and  that  of  the  partnership  estate  to  the  joint  creditors. 

The  rule  appears  to  have  been  discarded  in  Connecticut,  in  the  case 
of  Camp  V.  Grant  et  al,  21  Conn.  41,  54  Am.  Dec.  321,  and  also  in 
Mississippi,  in  the  case  of  Dahlgren  v.  Duncan,  7  Smedes  &  M.  280, 
but  adopted  in  Alabama,  in  Bridge  v.  McCullough,  27  Ala.  661. 

In  New  York  it  has  been  adjudged  that  "the  rule  of  equity  was 
uniform  and  stringent  that  the  partnership  property  of  a  firm  shall 
all  be  applied  to  the  partnership  debts  to  the  exclusion  of  the  creditors 
of  the  individual  members  of  the  firm,  and  that  creditors  of  the  latter 
are  to  be  first  paid  out  of  the  separate  eflfects  of  their  debtor  before 
the  partnership  creditors  can  claim  anything  therefrom."  Jackson  v. 
Cornell,  1  Sandf.  Ch.  348.  The  history  of  the  English  rule  was  some- 
what reviewed  by  Chancellor  Kent  in  Murray  v.  Murray,  5  Johns. 
Ch.  60,  and  upon  full  consideration  adopted  as  a  rule  of  equity  by 
Chancellor  Walworth  in  Wilder  v.  Keeler,  3  Paige,  167,  23  Am.  Dec. 


Sec.  2)  IN    KQDITY.  535 

781,  Payne  v.  Matthews,  6  Paige,  19,  29  Am.  Dec.  738,  and  Hutchin- 
son V.  Smith,  7  Paige,  26. 

The  same  doctrine  was  adopted  by  Chancellor  Desaussure  in  South 
Carolina  as  early  as  1811  in  Woddrop  v.  Ward,  3  Desaus.  203,  and 
also  by  the  Supreme  Court  of  New  Hampshire  in  Jarvis  v.  Brooks, 
3  Foster,  136. 

The  subject  was  very  fully  reviewed  in  the  Court  of  Appeals  of 
Maryland  in  McCulloh  v.  Dashiell's  Adm'r,  1  Har.  &  G.  96,  18  Am. 
Dec.  271,  wherein  it  was  settled  in  that  state  that  in  equity  the  indi- 
vidual creditors  of  a  partner  were  entitled  to  a  preference  over  the 
joint  creditors  in  a  distribution  of  the  separate  estate  of  their  debtor. 

And  the  same  doctrine  was  settled  by  the  Supreme  Court  of  the 
United  States,  on  full  consideration,  in  Murrill  et  al.  v,  Neill  et  al., 
8  How.  414,  12  L.  Ed.  1135. 

It  has  been  laid  down  generally  by  the  elementary  writers,  both  in 
Kngland  and  in  this  country,  as  a  settled  rule  of  equity.    *    *     * 

It  is  arg^ued,  however,  that  this  doctrine  was  overruled  in  Ohio  in 
the  case  of  Grosvenor  v.  Austin,  6  Ohio,  104,  25  Am.  Dec.  743.  It  is 
true  that  the  reasoning  of  the  court  in  the  opinion  is  to  that  effect ; 
but  the  case  decided  falls  within  one  of  the  acknowledged  exceptions 
to  the  rule.  Where  the  partnership  has  become  insolvent,  and  there 
are  no  partnership  assets  for  distribution,  and  no  living  solvent  part- 
ner, it  has  been  uniformly  conceded  that  the  principle  of  the  rule  does 
not  apply.  The  case  of  Grosvenor  v.  Austin  was  a  bill  in  equity  by 
the  creditors  of  the  firm  of  Seymour  Austin  &  Calvin  Austin  for  a 
distributive  share  with  the  individual  creditors  of  Seymour  Austin 
out  of  the  assets  of  his  separate  estate  in  the  hands  of  his  adminis- 
trator. There  were  no  partnership  assets,  and  both  parties  had  died 
insolvent.  This  was  not  a  case,  therefore,  for  the  application  of  the 
principle  under  consideration.  And  Judge  Lane,  in  delivering-  the 
opinion,  says  as  to  this  rule:  "This  court  are  of  opinion  that,  if  any 
such  rule  exist,  it  must  have  been  of  frequent  application,  and  thus 
have  become  familiar  to  the  profession,  ^et  no  case  is  found  in  the 
books,  except  the  one  in  9  Vesey  and  the  South  Carolina  case,  that 
touches  such  a  doctrine,  unless  cases  founded  on  the  statutes  of  bank- 
ruptcy. A  claim  so  novel,  in  a  case  necessarily  of  such  common  oc- 
currence, must  be  listened  to  with  caution  amounting  to  jealousy,"  etc. 
Touching  the  subject  of  this  obiter  opinion,  the  following  remarks  of 
the  Supreme  Court  of  the  United  States,  in  Murrill  v.  Neill,  8  How. 
414,  12  L.  Ed.  1135,  are  in  point:  "The  rule  in  equity  governing  the 
administration  of  insolvent  partnerships  is  one  of  familiar  acceptation 
and  practice.  It  is  one  which  will  be  found  to  have  been  in  practice 
in  this  country  from  the  beginning  of  our  judicial  history,  and  to  have, 
been  generally,  if  not  universally,  received.  This  rule,  with  one  or 
two  eccentric  variations  in  the  English  practice,  which  may  be  noted 
hereafter,  is  believed  to  be  identical  with  that  prevailing  in  England, 
and  is  this:     That  partnership  creditors  shall,  in  the  first  instance,  be 


536  RIGHTS   AND    UEMEDIKS   OF   CKDDITORS.  (Cll.    8 

satisfied  from  the  partnership  estate,  and  separate  or  private  cred- 
itors of  the  individual  partners  from  the  separate  or  private  estate  of 
the  pirtners  with  whom  they  have  made  private  and  individual  con- 
tracts, and  that  the  private  and  individual  property  of  the  partners 
shall  not  be  applied  in  extinguishment  of  partnership  debts,  until  the 
separate  and  individual  creditors  of  the  respective  partners  shall  be 
paid.  The  reason  and  foundation  of  vthis  rule,  or  its  equality  and  fair- 
ness, the  court  is  not  called  on  to  justify.  Were  these  less  obvious 
than  they  are,  it  were  enough  to  show  the  early  adoption  and  general 
prevalence  of  this  rule  to  stay  the  hand  of  innovation  at  this  day — at 

least,  under  any  motive  less  strong  than  the  most  urgent  proprie- 
ty"    *    *    * 

The  remaining  matter  for  determination  in  this  case  involves  the 
inquiry  whether,  in  case  of  an  indebtedness  for  money  lent  to  the  part- 
nership by  a  partner  who  afterward  becomes  insolvent,  the  separate 
creditors  of  the  latter  shall  be  entitled  therefor  to  a  pro  rata  dis- 
tribution with  the  partnership  creditors  out  of  the  joint  fund.  It  is 
claimed  that  the  liability  of  the  firm  to  a  partner  for  money  loaned  is 
a  partnership  debt,  and  that  the  individual  creditors  of  that  partner  are, 
in  equity,  entitled  to  an  equal  distribution  therefor  out  of  the  part- 
nership property.  On  the  other  hand,  it  is  claimed  that  as  each  part- 
ner is  individually  liable  for  the  debts  of  J;he^firm,  and  as  no  partner 
can  be  allowed  to  participate  with  his  own  creditors  in  the  distribution 
of  a  fund,  the  separate  creditors  of  a  partner,  as  they  can  only  claim 
through  the  rights  of  their  debtor,  cannot  be  allowed  such  participa- 
tion with  the  joint  creditors. 

It  was  at  one  time  held  to  be  the  law,  on  the  authority  of  adjudica- 
tions by  Lord  Talbot  and  Lord  Hardwicke,  that  if  a  partner  has  loaned 
money  to  the  partnership,  or  the  partnership  has  loaned  money  to 
the  separate  estate  of  one  of  the  partners,  according  to  the  equitable 
rule  of  distribution  of  the  assets  after  insolvency,  in  the  former  case 
the  separate  creditors  of  the  partner  would  be  entitled  to  •  an  equal 
share  out  of  the  joint  assets  to  the  extent  of  the  debt  created  for 
the  money  lent,  and  that  in  the  latter  case  the  partnership  creditors 
would  be  entitled  to  payment  to  the  same  extent  out  of  the  individual 
estate  of  the  partner.  Ex  parte  Hunter,  1  Atk.  223 ;  Story  on  Partn. 
§  390.  But  this  doctrine  has  long  since  been  overruled,  and  the  con- 
trary appears  now  to  be  well  settled.  In  Ex  parte  Lodge,  1  Ves.  Jr. 
166,  Lord  Thurlow  held  that  the  assignees  on  behalf  of  the  joint  estate 
could  not  be  eijtitled  to  distribution  out  of  the  estate  of  Lodge  lor  mon- 
ey which  he  had  abstracted  from  the  partnership,  unless  he  had  taken 
it  with  fraudulent  intent  to  augment  his  separate  estate.  And  in  Ex 
parte  Harris,  2  Ves.  &  B.' 210,  212,  Lord  Eldon  said:  "There  has 
long  been  an  end  of  the  law  which  prevailed  in  the  time  of  Lord  Hard- 
wicke, whose  opinion  appears  to  have  been  that  ifthe  joint  estate  lent 
money  to  the  separate  estate  of  one  partner,  or  if  one  partner  lent  to 
the  joint  estate,  proof  might  be  made  by  the  one  or  the  other  in  each 


Sec.  2)  IN  KQUiTT.  537 

case.  That  has  been  put  an  end  to,  among  other  principles,  upon  this, 
certainly,  that  a  partner  cannot  come  in  competition  with  separate 
creditors  of  his  own,  nor  as  to  the  joint  estate  with  the  joint  creditors. 
The  consequence  is  that  if  one  partner  lends  il,000  to  the  partner- 
ship, and  they  become  insolvent  in  a  week,  he  cannot  be  a  creditor  of 
the  partnership,  though  the  money  was  supplied  to  the  joint  estate. 
So,  if  the  partnership  lends  to  an  individual  partner,  there  can  be  no 
proof  for  the  joint  against  the  separate  estate;  that  is,  in  each  case  no 
proof  to  affect  the  creditors,  though  the  individual  partners  may  cer- 
tainly have  the  right  against  each  other." 

This  doctrine  proceeds  upon  the  principle  that,  in  the  distribution 
of  the  assets  of  insolvents,  the  equities  of  the  creditors,  wliether  joint 
or  separate,  must  be  worked  out  through  the  medium  of  the  partners ; 
that  creditors  can  only  step  into  the  shoes  of  their  immediate  debtors 
in  reaching  their  effects,  where  there  are  conflicting  claims;  and  that, 
inasmuch  as  an  individual  partner  could  not  himself  come  in  and 
compete  with  the  partnership  creditors,  who  are  in  fact  his  own  cred- 
itors, in  the  distribution  of  the  fund,  and  thereby  prejudice  those  who 
were  not  only  creditors  of  the  partnership,  but  also  of  himself,  there- 
fore the  separate  creditors  of  a  partner  could  not  enforce  any  claim 
to  a  distributive  share  of  the  joint  effects  against  the  partnership  cred- 
itors which  could  not  have  been  enforced  by  the  partner  himself  for 
his  own  benefit.  Story  on  Partnership,  §  390.  The  rule,  however, 
that  these  several  funds  are  to  be  thus  admini-stered  as  they  stood  at 
the  time  of  the  insolvency,  is  to  be  received  with  this  important  limita- 
tion :  That  it  does  not  apply  in  case  either  where  the  effects  obtained, 
creating  the  debt,  were  taken  from  the  separate  estate  to  augment  the 
joint  estate,  or  from  the  joint  estate  to  augment  the  separate,  fraudu- 
lently, or  under  circumstances  from  which  fraud  may  be  inferred,  or 
under  which  it  w-ould  be  implied. 

In  the  case  before  us,  however,  it  is  not  pretended  that  the  firm  ob- 
tained th^  borrowed  money  from  Murray  improperly.  The  separate 
creditors  of  Murray,  therefore,  are  not,  on  account  of  this  claim  for 
money  lent  by  Murray  to  the  firm,  entitled  to  participate  with  the 
partnership  creditors  in  the  distribution  of  the  joint  effects. 

Judgment  of  the  common  pleas  rewrsed,  and  ordered  that  the  sepa- 
rate effects  of  Peter  Murray  be  distributed  pro  rata,  first  among  his 
individual  creditors,  before  any  application  thereof  be  made  to  the 
payment  of  the  partnership  delDts  of  Dever  &  Murray,  and  that  the 
partnership  effects  be  applied  first  to  the  payment  of  the  partnership 
debts,  irrespective  of  the  claim  of  the  partner,  Peter  Murray,  of  money 
loaned  by  him  to  the  firm. 


538  EIGHTS   AND   REMEDIES  OF  CREDITORS.  (Ch.   8 

DAVIS  V.  HOWELL. 

(Court  of  Chancery  of  New  Jersey,  1S80.    33  N.  J.  Eq..  72.) 

RuNYON,  Ch.  John  C.  Bennett  and  James  M.  Andrews  were,  on 
or  about  the  10th  of  February,  1876,  partners  in  business  in  Phillips- 
burg.  On  that  day  they  made  an  assignment  under  the  assignment 
act,  for  the  equal  benefit  of  their  creditors,  to  the  complainant,  Wil- 
liam M.  Davis.  Five  days  after  the  making  of  that  assignment  An- 
drews made  an  assignment  under  the  act  for  the  equal  benefit  of  his 
creditors  to  the  complainant  and  Joseph  Howell,  and  about  the  same 
time  Bennett  made  a  like  assignment  to  Sylvester  A.  Comstock  and 
Charles  F.  Fitch.  The  partnership  estate  will  pay  a  dividend  of  only 
about  11  per  cent,  of  the  partnership  debts.  Most  of  the  partnership 
creditors  have  put  in  their  claims  under  the  assignment  of  Andrews, 
and  claim  and  insist  upon  a  proportionate  participation  with  his  in- 
dividual creditors  therein  as  to  so  much  of  their  claims  as  may  not 
be  paid  out  of  the  partnership  estate,  and  they  threaten  the  complain- 
ant and  his  co-assignee  of  Andrews'  estate  with  legal  proceedings  if 
their  demand  be  not  complied  with.  The  complainant,  therefore,  comes 
into  this  court  for  protection  and  instruction  as  to  his  duty  in  the 
premises.  His  co-assignee,  Howell,  is  a  creditor  of  Andrews'  estate, 
and  he  is  made  a  defendant. 

The  question  present.ed  has  been  often  discussed,  and,  though  there 
exists  some  contrariety  of  judicial  determination  upon  it,  must  be 
considered  as  settled  by  the  great -weight  of  authority.  The  rule  is 
laid  down  in  the  text-books  that  joint  debts  are  entitled  to  priority  of 
payment  out  of  the  joint  estate  and  separate  debts  out  of  the  separate 
estate.  Story's  Eq.  Jur.  §  G75 ;  Snell's  Prin.  of  Eq.  419 ;  Story  on 
Part.  376 ;  3  Kent's  Com.  64,  65 ;  Pars,  on  Part.  480..  And  though 
the  propriety  of  the  rule  has  been  often  and  persistently  questioned, 
on  the  ground  that  it  is  a  violation  of  principle  and  devoid  of  equity, 
and  was  originally  adopted  from  considerations  of  convenience  only 
and  in  bankruptcy  cases,  and  not  on  principles  of  general  equity,  yet 
it  is  so  firmly  established  that  it  must  be  regarded  as  a  fixed  rule  of 
equity.  Its  history  is  so  well  known  and  has  'been  so  often  stated  that 
it  is  profitless  to  repeat  it.  It  was  declared  in  1715,  in  Ex  parte 
Crowder,  2  Vern.  706 ;  it  was  affirmed  by  Lord  Hardwicke,  and, 
though  Lord  Thurlow  refused  to  follow  it,  it  was  restored  by  Lord 
Loughborough  and  followed  by  Lord  Eldon ;  and  it  has  existed  ever 
since  in  the  English  Chancery.  It  has  an  exception  where  there  is  no 
joint  estate  and  no  solvent  partner;  but  where  there  is  any  joint  es- 
tate the  rule  is  to  be  applied.  That  part  of  the  rule  which  gives  the 
joint  creditors  a  preference  upon  the  joint  estate  has  been  repeatedly 
recognized  in  this  state.  Cammack  v.  Johnson,  2  N.  J.  Eq.  163 ;  Mat- 
lack  V.  James,  13  N.  J.  Eq.  126;  Mittnight  v.  Smith,  17  N.  J.  Eq.  259,' 


Sec.  2)  IN  EQuiTr.  539 

88  Am.  Dec.  233;  Scull  v.  Alter,  IG  X.  J.  Eq.  147;  Hollingshead  v. 
Curtis,  14  N.  J.^  Law,  402;  Brown  v.  Bissctt,  21  N.  J.  Law,  40;  Lin- 
ford  V.  Linford,  28  N.  J.  Law,  113.  In  Scull  v.  Alter  the  Supreme 
Court  recognized  the  rule  in  all  its  parts.  Chief  Justice  Hornblower, 
by  whom  the  opinion  of  the  court  was  delivered  (the  question  arose 
under  an  assignment  under  the  assignment  act,  and  was  the  same  ^s 
is  presented  in  this  case),  said:  "But  if  it  is  an  assignment  not  only 
of  the  partnership  effects  and  property  of  the  firm  of  Carhart  &  Brit- 
ton,  but  also  an  individual  and  several  assignment  by  them  of  their 
respective  and  several  estates,  then  it  must  be  treated  as  such.  The 
estates  and  debts  must  be  marshaled,  the  partnership  effects  applied  in 
the  first  instance  to  the  partnership  debts,  the  effects  of  Carhart  ap- 
plied in  the  first  instance  to  the  payment  of  his  separate  debts,  and  in 
like  manner  the  effects  of  Eritton  to  the  payment  of  debts  due  from 
him  individually." 

In  Connecticut  the  rule  is  not  followed,  and  that  part  of  it  which 
gives  the  separate  creditors  a  preference  upon  the  separate  estate  has 
been  repudiated.  Camp  v.  Grant,  21  Conn.  41,  54  Am.  Dec.  321.  It 
has  been  repudiated,  also,  in  certain  other  states.  Bardwell  v.  Perry, 
19  Vt.  292,  47  Am.  Dec.  687;  Emanuel  v.  Bird,  19  Ala.  596,  54  Am. 
Dec.  200.  But  the  doctrine  is  recognized  elsewhere,  and  has  been  es- 
tablished after  thorough  discussion  and  careful  consideration.  In 
Wilder  v.  Keeler,  3  Paige  (N.  Y.)  167,  23  Am.  Dec.  781,  Chancellor 
Walworth,  after  a  full  discussion  of  the  subject,  gives  the  sanction  of 
his  weighty  opinion  to  the  rule  as  a  doctrine  of  equity.  He  says:  "In 
the  case  now  under  consideration  there  was,  at  the  death  of  G.  F.  Lush, 
a  large  joint  fund  belonging  to  the  partnership,  out  of  which  the 
joint  creditors  were  entitled  to  a  priority  of  payment,  and  out  of  which 
several  of  the  joint  creditors  who  have  come  in  under  this  decree  have 
actually  secured  a  portion  of  their  debts.  Nothing  but  an  unbending 
rule  of  law  should,  under  such  circumstances,  induce  the  court  to 
permit  them  to  come  in  for  the  residue  of  their  debts,  ratably,  with  the 
separate  creditors.  The  amount  of  the  fund  which  will  remain  after 
paying  the  separate  creditors,  being  a  fund  which  could  not  be  reach- 
ed at  law  by  the  joint  creditors,  whose  remedy  survived  against  the 
surviving  partner  alone,  must  be  considered  in  the  nature  of  equitable 
assets,  and  must  be  distributed  among  the  joint  creditors  upon  the 
principle  of  this  court  that  equality  is  equity."  The  doctrine  was 
recognized  in  Morgan  v.  Skidmore,  55  Barb.  (N.  Y.)  263.  In  Penn- 
sylvania, in  Bell  v.  Newman,  5  Serg.  &  R.  (Pa.)  78,  91,  92,  Gibson.  J. 
(afterward  Chief  Justice),  in  a  dissenting  opinion  strongly  supports 
the  rule  as  one  founded  on  the  most  substantial  justice.  In  Black's 
Appeal,  44  Pa.  503,  and  again  in  ^^IcCormick's  Appeal,  55  Pa.  252, 
the  doctrine  is  completely  recognized  and  affirmed.  In  South  Caro- 
lina, in  Woddrop  v.  Price,  3  Desaus.  203,  Tunno  v.  Trezevant,  2 
Desaus.  264,  and  Hall  v.  Hall,  2  McCord,  Eq.  269,  the  doctrine  was 
held  to  be  a  doctrine  of  equity.     In  INfassachusetts  it  is  established  by 


540  RIGHTS  AND   REMEDIES   OF  CREDITORS.  (Ch.    8 

Statute.    In  Murrill  v.  Neill,  8  How.  414,  12  L.  Ed.  1135,  it  is  recog- 
nized by  the  Supreme  Court  of  the  United  States. 

The  objection  that  is -always  pressed  as  the  conclusive  argument 
against  it  is  that  partnership  debts  are  several  as  well  as  joint,  ^nd 
it  is  urged  that  therefore  the  partnership  creditor  has  an  equal  claim 
u^on  the  individual  estate  with  the  separate  creditor.  But  it  is  beyoncj 
dispute  that  in  equity  the  former  has  a  preferred  claim  upon  the  part- 
nership estate.  To  accord  to  him  an  equal  claim,  as  to  the  balance  of 
his  debt  which  the  partnership  assets  may  not  be  sufficient  to  satisfy 
with  the  individual  creditor,  would  be  to  give  him  an  advantage  to 
which  he  is  not  equitably  entitled.  If  he  obtains  a  legal  lien  on  the 
separate  estate,  he  will  not  be  deprived  of  it.  Wisham  v.  Lippincott, 
9  N.  J.  Eq.  353;  Randolph  v.  Daly,  IG  N.  J.  Eq.  313;  National  Bank 
V.  Sprague,  20  N.  J.  Eq.  13 ;  Howell  v.  Teel,  29  N.  J.  Eq.  490.  But 
if  he  has  no  such  lien,  and  the  assets  are  to  be  marshaled  in  equitv, 
that  same  equitable  doctrine  by  which  the  partnership  assets  are  de- 
voted in  the  first  place  to  the  payment  of  his  debt,  to  the  exclusion  of 
the  separate  creditor,  and  to  which  he  is  indebted  for  the  preference, 
will  in  like  manner  and  for  like  reason  give  the  latter  preference  up- 
on the  separate  property.  Such  was  the  view  of  Chancellor  Kent. 
He  says:  "So  far  as  the  partnership  property  has  been  acquired  by 
means  of  partnership  debts,  those  debts  have  in  equity  a  priority  of 
claim  to  be  discharged,  and  the  separate  creditors  are  only  entitled  in 
equity  to  such  payment  from  the  surplus  of  the  joint  fund  after  sat- 
isfaction of  the  joint  debts.  The  equity  of  the  rule,  on  the  other  hand, 
equally  requires  that  the  joint  creditors  should  only  look  to  the  sur- 
plus of  the  separate  estates  of  the  partners  after  payment  of  the  sepa- 
rate debts.  It  was  a  principle  of  the  Roman  law,  and  it  has  been  ac- 
knowledged in  the  equity  jurisprudence  of  Spain,  England,  and  the 
United  States,  that  partnership  debts  must  be  paid  out  of  the  partner- 
ship estate  and  private  and  separate  debts  out  of  the  private  and  sepa- 
rate estate  of  the  individual  partner."  3  Kent's  Com.  64,  65.  The 
obvious  infirmity  of  the  objection  to  the  rule  is  that  it  leaves  out  of 
consideration  the  fact  that  it  is  to  equity  that  the  joint  creditor  is  in- 
debted for  his  preference.  It  is  also  urged  that,  instead  of  the  rule, 
it  would  be  more  equitable  to  require  the  joint  creditor  to  have  re- 
course to  the  partnership  property  before  allowing  him  to  participate 
in  the  separate  estate,  on  the  equitable  ground  that  he  has  two  funds 
for  the  payment  of  his  debt,  while  the  separate  creditor  has  but  one ; 
but  the  rule  as  established  is  a  rule  of  justice  and  equity.  It  has  for 
its  basis,  the  presumption  that  joint  debts  have  been  contracted  on  the 
credit  of  the  joint  estate  and  separate  debts  on  that  of  the  separate 
estate.  It  has  the  weight  of  great  authority  and  long  establishment, 
notwithstanding  persistent  objection  and  some  fluctuation,  and  it  is 
based  on  equitable  principles.  Sound  policy  is  in  its  favor.  Though 
there  may  be,  as  there  are  in  the  case  of  all  such  rules,  instances  in 
which  it  works  unsatisfactorily,  yet  that  on  the  whole,  and  as  a  rule. 


Sec.  2)  IN    EQUITY.  541 

it  has  not  operated  unjustly,  is  evidenced  by  the  fact  that  it  has  existed 
so  long  (Ex  parte  Crowder  was  decided  in  1715),  notwithstanding 
opposition,  and  tiiat  in  IMassachusetts,  at  least,  it  has,  in  the  face  of 
the  opposition  referred  to,  been  established  by  legislative  authority, 
and  that,  too,  as  lately  as  1838.  In  this  state  it  has,  as  has  been  shown, 
the  sanction  of  our  judicial  tribunals,  and  it  is  too  firmly  established 
to  be  disturbed.  It  is  true  that  in  Wisham  v.  Lippincott,  9  N.  J.  Eq. 
353,  356,  the  Chancellor  expressed  strong  doubt  of  its  correctness  as  a 
general  rule ;  but  in  the  other  cases  before  cited,  both  previous  and  sub- 
sequent, the  rule  has  been  recognized  without  any  expression  of  dis- 
approbation or  dissatisfaction. 

There  will  be  a  decree  that  the  joint  assets  be  first  applied  to  the 
payment  of  the  joint  debts,  and  the  separate  assets  to  the  separate 
debts,  and  that  the  joint  creditors  may  participate  in  any  surplus  of 
the  separate  assets,  which  may  reinain  after  payment  of  the  separate 
debts.  The  costs  of  the  parties  will  be  paid  out  of  the  funds  repre- 
sented by  the  complainant — the  partnership  estate — and  Andrews'  es- 
tate in  equal  shares. 


HARRIS  et  al.  v.  PEABODY  et  al. 
(Supreme  Judicial  Court  of  Maine,  18S1.    73  Me.  262.) 

Virgin,  J.  Royal  Williams  and  James  A.  Norton,  copartners  un- 
der the  firm  name  of  Williams  &  Norton,  upon  their  own  petition 
were  individually  and  as  copartners  duly  adjudged  insolvent  debtors. 
The  assets  of  the  partnership,  amounting  to  $1.19  only,  were  absorbed 
by  the  expense  of  selling  the  same.  Norton's  individual  estate  had  no 
assets,  wdiile  Williams',  after  deducting  legal  costs  and  charges, 
amounted  to  $1,177.36;  Against  the  partnership  estate  claims  amount- 
ing to  more  than  $2,200  were  proved;  against  Williams'  individual 
estate,  $1,133.67;  and  against  Norton's,  no  claims.  Before  the  court  of 
insolvency  the  partnership  creditors  claimed  a  pro  rata  dividend  from 
the  separate  assets  of  Williams  pari  passu  with  his  individual  cred- 
itors; but  the  judge  denied  the  claim,  and  decreed  that  the  assignees 
should  distribute  those  assets  among  the  individual  creditors.  There- 
upon the  complainants  brought  this  bill  (claimed  by  them  to  be  author- 
ized by  the  insolvent  statute  [St,  1878,  p.  72,  c.  74,  §  11,  as  amended 
by  St.  1879,  p.  156,  c.  154,  §  3]),  somewhat  in  the  nature  of  an  appeal 
from  the  decree  of  the  judge  of  insolvency;  and  the  parties  have 
brought  the  case  before  us  on  an  agreed  statement,  reserving  the 
question  of  jurisdiction  of  this  court,  which  is  expressly  raised.    *    *    * 

The  next  question  is,  was  the  decree  of  the  court  of  insolvency  cor- 
rect in  ordering  a  distribution  of  Williams'  individual  assets  among 
his  separate  creditors,  to  the  exclusion  of  the  complainants,  the  cred- 
itors of  the  firm.  The  respondents  rely  upon  the  provisions  of  St. 
1878,  p.  86,  c.  74,  §  54,  and  certain  cases  cited  on  their  brief. 


542  RIGHTS  AND   REMEDIES   OF  CREDITORS.  (Ch.    8 

It  is  familiar  history  that  as  early  as  1715  Lord  Chancellor  Har- 
court  laid  down  as  the  rule  of  administering  the  joint  and  separate 
estates  in  bankruptcy  that  the  joint  estate  shall  be  applied  in  payment 
of  the  partnership  debts,  and  the  separate  estate  of  the  Separate  debts ; 
any  surplus  of  either  estate  being  carried  over  to  the  other.  Ex  parte 
Crowder,  2  Vern.  706.  This  doctrine  was  followed  by  Lord  Chan- 
cellor King  in  Ex  parte  Cook,  2  P.  Wms.  500.  But  it  seems  that  this 
rule  was  departed  from  by  Lord.Thurlow,  who  let  in  creditors  of  the 
firm  concurrently  with  the  separate  creditors  upon  the  separate  es- 
tate, upon  the  ground  that  they  were  equally  creditors  of  the  firm  and 
of  the  partners.  Ex  parte  Cobham,  1  Bro.  C.  C.  576 ;  Ex  parte  Hodg- 
son, 2  Bro.  C.  C.  5;  Ex  parte  Page,  2  Bro.  C.  C.  119.  The  former 
rule  was  restored,  however,  by  Lord  Loughborough  (Ex  parte  Elton, 
3  Ves.  239;  Ex  parte  Abell,  4  Ves.  837),  confirmed  by  Lord  Eldon 
(Ex  parte  Clay,  6  Ves.  813;  Ex  parte  Taitt,  16  Ves.  193),  and  it  has 
been  the  prevailing  general  rule  ever  since  in  England  (Lindl.  Part. 
[3d  Eng.  Ed.]  1201;  Robs.  Bank.  584;  Colly.  Part.  [Perkins'  Ed.] 
775,  776;  Lodge  v.  Prichard,  1  De  G.,  G.  &  S.  609),  and  in  this  coun- 
try as  well.  Among  the  numerous  cases,  see  Wilder  v.  Keeler,  3 
Paige  (N.  Y.)  167,  23  Am.  Dec.  781;  Payne  v.  Matthews,  6  Paige 
(N.  Y.)  19,  29  Am.  Dec.  738;  Murray  v.  Murray,  5  Johns.  Ch.  (N. 
Y.)  60;  3  Kent,  64,  65;  Story,  Part.  §§  376-378;  In  re  Marwick,  2 
Ware,  233 ;  Pars.  Part.  480  et  seq.,  and  notes.  This  rule  was  also 
adopted  in  the  United  States  bankrupt  law  of  1841  (Act  Aug.  19,  1841 
c.  9,  §  14,  5  Stat.  448),  in  the  United  States  bankrupt  law  of  1867 
(Act  March  2,  1867,  c.  176,  §  36,  14  Stat.  534;  Rev.  St.  U.  S.  §  5121), 
in  the  insolvent  laws  of  Massachusetts  (St.  1837-38,  p.  475,  c.  163, 
§  21),  and  in  the  insolvent  laws  of  this  state  (St.  1878,  p.  86,  c.  74,  § 
54).    Jarvis  v.  Brooks,  23  N.  H.  136. 

This  rule  applies  to  the  estates  as  they  exist  when  the  parties  are 
declared  bankrupt  or  insolvent,  and  not  before ;  for  the  creditors  of 
the  firm  have  no  lien  upon  its  property  which  can  prevent  the  partners 
from  bona  fide  changing  its  character  and  convertings  it  into  separate 
estate  of  one  of  them  prior  thereto.  Ex  parte  Ruffin,  6  Ves.  119 ; 
Case  v.  Beauregard,  99  U.  S.  119,  25  L.  Ed.  370;  Robb  v.  Mudge, 
14  Gray  (Mass.)  534. 

The  reasons  assigned  for  giving  the  partnership  creditors  the  pref- 
erence over  the  joint  estate  in  bankruptcy  have  been  various.  But 
the  view  generally  taken  founds  it,  not  upon  any  lien  or  superior  claim 
which  they  primarily  have,  but  upon  a  privilege  or  preference,  some- 
times denominated  a  lien,  "derived  from  the  equitable  right  which  each 
partner,  who  being  liable  for  all  the  partnership  debts,  and  whose 
interest  in  its  property  being  simply  his  share  of  the  residue  after  pay- 
ment of  its  debts  and  settlements  of  its  accounts,  consequently  has,  that 
the  partnership  property  shall  go  to  pay  its  debts  in  preference  to  those 
of  any  individual  partner."  Case  v.  Beauregard,  supra;  Johnson  v. 
Hersey,  70  Me;  74,  35  Am.  Rep.  303 ;  Washburn  v.  Bank,  19  Vt.  286, 


Sec.  2)  IN   EQUITY.  543 

288.  It  has  also  been  said  that  this  priority  in  joint  assets  and  equality 
in  the  separate  are  founded  on  the  fact  that  the  partnership  creditor 
trusted  each  and  all  partners  while  the  separate  creditor  trusted  but 
one,  and  that  natural  justice  warrants  the  marshaling  of  the  assets  so 
as  to  give  the  former  the  preference  (Brock  v.  Bateman,  25  Ohio  St. 
609) ;  that  it  is  familiar  law  that  a  creditor  of  a  partnership,  having 
recovered  a  judgment  against  it,  may  satisfy  his  execution  against 
partnership  property  or  against  the  individual  property  of  any  of  the 
partners  (Tucker  v.  Oxley,  5  Cranch  [U.  S.]  34,  40,  3  L.  Ed.  20; 
Egery  v.  Howard,  64  Me.  G8,  73;  Washburn  v.  Bank,  supra)  ;  and  in 
the  case  of  intervening  insolvency,  having  two  funds  from  which  to 
satisfy  his  claim,  the  principle  familiar  in  marshaling  assets  or  securi- 
ties comes  in  and  compels  him  to  exhaust  the  fund  to  which  he  has 
the  exclusive  right  before  he  be  allowed  to  comp.  Ic  with  a  creditor 
who  has  a  claim  only  on  one  of  the  funds  (Ex  parte  Elton,  3  Ves.  240; 
I  Story,  Eq.  §  558).  Lord  Justice  Turner  said:  "This  rule  may  per- 
haps proceed  upon  this :  That  the  joint  estate  is  clearly  liable  both 
at  law  and  in  equity  for  the  joint  debts — at  law  by  reason  of  the  sur- 
vivorship, and  in  equity  by  virtue  of  the  rights  of  the  partners  inter 
se  to  have  it  so  applied — and  that  the  separate  estate  is  as  clearly  liab.le, 
both  at  law  and  in  equity,  for  the  separate  debts,  and  that  carrying 
over  the  surplus  of  the  one  estate  to  the  other,  although  it  may  not 
strictly  work  out  the  rights,  may  afford  the  best  means  of  adjusting 
the  complications  which  arise  from  the  joint  estate  being  liable  for 
the  separate  debts  only  so  far  as  the  interest  of  the  partners  from 
whom  the  debts  may  be  due  may  extend,  and  from  the  separate  es- 
tates, if  taken  for  the  joint  debts,  having  recourse  over  against  the 
joint  estates,  and  which  arise  also  from  the  equities  between  the  par- 
ties." Lodge  V.  Prichard,  supra.  Prof.  Parsons  suggests  the  ground 
that  a  partnership  is  a  distinct  entity,  contracting  its  own  debts,  having 
its  own  creditors,  and  possessing  its  own  property  applicable  to  its 
debts ;  that,  when  it  has  ceased  to  exist,  it  is  resolved  into  its  ele- 
ments, and  the  relations  between  its  members  and  creditors  arise. 
If  the  joint  debts  have  been  paid,  the  former  partners  share  the  re- 
maining property.  If  the  joint  funds  are  not  sufficient  to  pay  its  debts, 
they  who  were  its  members  become  the  debtors  of  the  joint  creditors. 
Pars.  Part.  346,  347. 

The  rule  that  each  estate  is  to  be  applied  to  its  own  debts,  and  the 
surpl^is  of  each  to  the  creditors  remaining  of  the  other,  is  applicable 
only  to  the  facts  upon  which  it  is  predicated ;  i.  e.,  when  there  is  joint 
estate,  and  all  the  partners  are  insolvent.  But,  if  there  is  no  available 
joint  estate  and  no  solvent  partner,  then  the  creditors  of  the  partner- 
ship have  no  exclusive  fund  to  exhaust,  but  may  share  concurrently 
with  the  separate  creditors  the  separate  estate.  Ex  parte  Hayden, 
1  Bro.  C.  C.  454,  and  notes  in  Perkins'  Ed.  398 ;  Colly.  Part.  §  926 ; 
Lindl.  Part.  1234;  Story,  Part.  §  380;  Pars.  Part.  482.  In  some  of 
the  cases  this  is  called  an  exception  to  the  rule.     Prof.  Parsons  says 


^44  RIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

that,  "instead  of  being  an  exception,  it  is  a  case  that  falls  without  the 
rule."  Others  say  it  is  a  part  of  the  rule.  Judge  Drummond,  after 
stating  what  he  denominates  "the  well-established  rule  upon  the  sub- 
ject," says:  "It  is  partly  on  the  ground  that,  although  it  is  a  debt  of 
the  firm,  it  is  still  a  debt  against  each  individual  member  of  it,  for 
the  satisfaction  of  which  the  property  of  each  is  responsible,  and  that, 
being  the  only  source  to  resort  to  for  the  payment  of  the  debt  of  the 
firm,  it  should  be  appropriated  as  well  to  pay  the  debts  due  from  the 
firm  as  from  the  individual  members."  In  re  Knight,  8  Nat.  Bankr. 
Rep.  436,  438,  Fed.  Cas.  No.  7,880.  The  same  doctrine  prevails  in  all 
the  federal  District  Courts.  In^re  Marwick,  2  Ware,  233;  Bump, 
Bankruptcy  (9th  Ed.)  771,  and  cases  there  cited.  Such,  evidently,  is 
the  opinion  of  Mr.  Justice  Clifford.  Amsink  v.  Bean,  11  Nat.  Bankr. 
Rep.  495,  22  Wall.  395,  22  L.  Ed.  801,  and  the  case  of  Ex  parte 
Leland,  5  Nat.  Bankr.  Rep.  222,  Fed.  Cas.  No.  8,228,  which  he  there 
cites. 

We  are  aware  that  this  question  has  been  decided  otherwise'  in 
Massachusetts  (Howe  v.  Lawrence,  9  Cush.  553,  57  Am:  Dec.  68,  and 
Somerset  Potters'  Works  v.  Minot,  10  Cush.  592)  ;  but  the  answer 
of  Judge  Drummond  is  more  satisfactory  to  our  minds  (In  re  Knight, 
supra).  Neither  does  the  dictum  of  Mr.  Justice  Daniel  outweigh  the 
great  weight  of  current  authority.  See,  also,  Rogers  v.  Meranda,  7 
Ohio  St.  179 ;   Brock  v.  Bateman,  25  Ohio  St.  609. 

It  seems  there  were  some  joint  assets,  though  not  enough  to  pay 
the  cost  of  selling;  and  hence  (in  the  language  of  the  statute)  no 
"net  proceeds."  In  such  case  there  should  be  considered  no  joint  as- 
sets, though,  v.hen  there  are  any  available  joint  assets,  however  small 
in  value,  the  rule  is  applicable.  Lindl.  Part.  1235 ;  Colly.  Part.  §  926. 
Story,  Part.  §  380,  says  they  must  be  enough  to  be  "available."  The 
question'  is  thoroughly  examined  in  Re  McEwen,  12  Nat.  Bankr.  Rep. 
11,  Fed.  Cas.  No.  8,783.  As  recently  as  December,  1880,  the  ques- 
tion came  before  Judge  Choate  (S.  D.  N.  Y.),  who  said:  "It  is,  how- 
ever, unnecessary  to  go  into  this  question,  because  in  a  recent  decision, 
which  is  conclusive  on  this  court,  the  right  of  firm  creditors  to  share 
pari  passu  with  individual  creditors  in  the  individual  estate  has  been 
recognized  and  enforced,  where  the  firm,  as  well  as  the  individual 
partners,  had  been  adjudicated,  and  the  firm  assets  were  not  more  than 
sufficient  to  pay  the  costs  and  expenses  properly  chargeable  to  the 
firm  estate.  In  re  Slocum  (D.  C.  Vt.  Oct.  4,  1879)  Fed.  Cas.  No. 
12,951 ;  affirmed  on  review  bv  Blatchford,  C.  J.,  December  13,  1880." 
Fed.  Cas.  No.  12,950.    In  re  Litchfield  (D.  C.)  5  Fed.  47,  50. 

Decreed  that  the  partnership  creditors  of  Williams  and  Norton  are 
entitled  to  dividends  from  the  assets  of  the  estate  of  Royal  Williams, 
pari  passu  with  his  separate  creditors. 


Sec.  2)  IN  EQUITY.  t>il 


In    re    MARWICK. 

(UnltPfl   Statos  Distrif>t  CoiiiL   lor  Maine,  184i3.     2  Waro.  220.   Fori.  Tns.  No. 

9,181.) 

This  was  a  case  of  objection  to  a  proof  of  a  debt.  Albert  Marwick, 
the  bankrupt,  in  May,  1837,  entered  into  a  copartnert-hip  with  one 
Frederick  Davis,  and  as  partners  they  purchased  a  quantil}-  of  pro- 
visions for  the  Georgia  Lumber  Company  to  the  amount  of  $800,  for 
which  they  drew  their  bill  on  the  company  in  favor  of  one  Bradbury. 
Before  the  bill  was  paid  the  company  failed,  and  the  failure  of  the 
company  produced  that  of  the  copartnership  of  Marwick  &  Davis, 
by  which  the  firrq  was  dissolved.  They  afterwards  gave  their  joint 
note  for  the  sum  remaining  due,  viz.,  $740.88.  This  note  Bradbury 
for  a  valuable  consideration  transferred  to  Dole,  with  notice  that  it 
was  a  partnership  debt.  The  assignee  of  Marwick  &  Davis  rendered 
in  his  account  of  the  joint  estate,  October  25,  1844,  showing  outstand- 
ing demands  in  favor  of  the  firm  to  the  amount  of  $13,000,  which 
comprised  the  whole  assets  of  the  firm,  and  which  were  all  represented 
as  utterly  worthless.  Dole,  the  creditor,  proved  his  debt  June  17, 
1842.  The  assignee,  after  rendering  his  first  account,  applied  for 
liberty  to  compromise  or  sell  the  claim  against  the  Georgia  Lumber 
Company,  which  was  disposed  of  for  $40^  of  which  a  supplementary 
account  was  rendered,  and  the  amount  paid  into  court  April  25,  1845, 
to  the  credit  of  the  joint  estate.  The  final  account  of  the  assignee 
of  the  separate  estate  showed  assets  to  the  amount  of  $545.93.  Two 
debts  have  been  proved  and  allowed  against  the  estate — one  by  Charles 
E.  :\Iarwick  for  $684.04,  and  the  debt  of  Dole.  Marwick  objected  to 
the  admission  of  Dole's  debt  against  the  separate  estate. 

Ware.  District  Judge.  Two  questions  have  been  raised  and  argued 
in  the  present  case.  The  first  is  whether  the  creditors  of  a  copartner- 
ship can  in  any  case  be  admitted  to  prove  their  claims  against  the 
separate  estate  of  one  of  the  copartners,  for  the  purpose  of  receiving 
dividends  in  concurrence  with  the  separate  creditors  of  the  copartner. 
The  second  is  whether,  admitting  that  they  may  in  some  cases,  the 
partnership  creditors  can  be  admitted  so  to  prove  under  the  facts  in 
this  case.     *     *     * 

This  general  rule  for  marshaling  the  assets  and  claims  is  taken  from 
the  English  bankrupt  law ;  but  under  that  system  there  are  exceptions 
as  well  established  as  the  rule  itself.  One  of  these  exceptioris  is  where 
there  is  no  joint  estate  and  no  living  solvent  partner,  as  is  the  fact 
in  the  present  case.  In  such  a  case  the  joint  creditors  are  allowed  to 
prove  and  receive  dividends  against  the  separate  estate,  in  concurrence 
with  the  separate  creditors.  Story,  Part.  §  372;  Eden,  Bankr.  Law, 
172.  But  to  bring  the  case  within  the  exception  there  must  be  ab- 
solutely no  joint  estate.  If  there  be  any,  however  small,  the  excep- 
tion is  not  allowed,  and  it  has  been  rejected  where  the  joint  estate 
amounted  only  to  £1.  lis.  6d.  And  again  there  must  be  no  living 
Gil.Part, — 35 


546  RIGHTS  A^D   REMEDIES   OF   CREDITORS.  (Ch.    8 

solvent  partner ;  and  "solvent"  is  here  used,  not  in  its  ordinary  sense 
— that  is,  an  ability  to  pay  the  whole  of  one's  debts — but  in  the  sense 
of  nonbankrupt  partner.  For,  though  he  may  be  in  fact  insolvent  and 
unable  to  pay  the  whole  of  his  debts,  if  he  be  not  actually  in  legal 
bankruptcv,  the  exception  is  excluded,  and  the  general  rule  prevails. 
Ex  parte  Janson,  3  j\Iadd.  229.    *     *     * 

It  appears  from  the  proofs  in  the  case,  or  the  facts  which  are  ad- 
mitted, that  the  assignee  rendered  in  his  first  account  of  the  partner- 
ship estate  in  October,  1844,  in  which  the  whole  assets,  consisting  of 
outstanding  demands,  are  represented  as  worthless;  that  afterwards 
he  applied  for  liberty  to  compromise  or  collect  a  debt,  on  which  he 
obtained  $40,  and  rendered  into  court  a  supplementary  account;  and 
it  further  appears,  that  the  money  to  take  up  this  'note  was  actually 
advanced  by  Charles  E.  Marwick,  as  creditor  of  the  separate  estate. 
Now,  the  argument  is  that  if,  the  exception  to  the  general  rule  of 
marshaling  the  assets  and  debts,  established  under  the  English  bank- 
rupt svstem,  may  be  admitted  under  our  statute,  then,  as  it  is  founded 
on  the  general  principles  of  equity  and  distributive  justice,  a  creditor 
of  the  separate  estate  ought  not  to  be  permitted  to  defeat  the  equity 
of  the  joint  creditor  by  purchasing  for  a  small  sum  a  partnership  de- 
mand, for  which  nothing  could  have  been  obtained  but  for  this  pur- 
pose. Allowing  the  premises  on  which  the  argument  is  founded  to  be 
correct,  it  does  seem  to  pres'ent  itself  wuth  some  force  to  the  equitable 
consideration  of  the  court.  The  effect  in  the  present  case  will  be  that 
the  separate  creditor  will  receive  nearly  the  whole  of  his  claim  and 
the  joint  creditors  but  a  small  percentage,  if  each  is  restricted  to  his 
own  appropriate  fund. 

But  after  considerable  reflection  I  have  come  to  the  conclusion  that, 
admitting  the  assumption  on  which  the  argument  is  founded,  it  can- 
not prevail.     *     *     *  • 

My  opinion,  on  the  whole,  is  that  the  proof  cannot  be  admitted 
against  the  separate  estate,  in  competition  with  the  separate  creditors. 


THAYER   V.    HUMPHREY. 
DAVIES    V.    SAME. 

(Supreme  Court  of  Wisconsin,  1895.     1>1  Wis.  276,  04  N.  W.  1007,  30  U  R.  A, 
549,  51  Am.  St.  Rep.  887.) 

J.  D.  Putnam  and  Alfred  G.  Goss  were  partners  in  the  milling  busi- 
ness under  the  name  of  J.  D.  Putnam  &  Co.  The  partnership  was 
dissolved  by  mutual  consent;  the  business  being  thenceforward  car- 
ried on  by  J.  B.  Goss  alone  ,at  the  same  place  under  the  name  of  J.  B. 
Goss  &  Co.,  who  assumed  all  the  debts  of  J.  D.  Putnam  &  Co.  The 
firm  property  of  J.  D.  Putnam  &  Co.  was  conveyed  to  J.  B.  Goss. 


Sec.  2)  IX  EQCITY.  547 

Lottie  Thayer  was  a  creditor  for  money  lent  to  J.  D.  Putnam  &  Co. 
After  the  dissolution  she  took  the  note  of  J.  B.  Goss  &  Co.  for  her 
claim  against  J.  D.  Putnam  &  Co.  She  afterwards  recovered  judg- 
ment on  this  note  against  J.  B.  Goss  and  Alfred  J,  Goss,  in  form 
joint  and  several.  The  trial  court  found  that  Alfred  J.  Goss  was  not 
a  partner  with  J.  B,  Goss  in  the  firm  of  J.  B.  Goss  &  Co.,  but  that  he 
was  liable  to  Thayer  by  reason  of  his  being  held  out  to  her  as  a  part- 
ner. Alfred  J.  Goss,  being  insolvent,  made  an  assignment  for  the  bene- 
fit of  his  creditors  to  Humphrey.  J.  B.  Goss,  likewise,  being  in- 
solvent, assigned  to  one  Weld  all  his  property,  including  the  remaining 
assets  of  J.  D.  Putnam  &  Co.  J.  D.  Putnam  was  also  insolvent.  Thay- 
er filed  her  claim,  based  on  her  judgment,  with  Humphrey,  seeking 
to  participate  pari  passu  with  the  individual  creditors  of  A.  J.  Goss 
in  the  distribution  of  his  separate  assets. 

The  court  held  that  she  must  first  go  against  the  partnership  assets, 
and  could  not  go  against  the  individual  assets  of  A.  J.  Goss  until  his 
separate  creditors  were  paid.     From  this  order  Thayer  appealed. 

Davies  was  also  a  creditor  of  J.  D.  Putnam  &  Co.,  but  did  not  ac- 
cept J.  B.  Goss  &  Co.  as  a  substitute  for  his  original  debtor.  He  is 
not  a  creditor  of  either  J.  B.  Goss  or  J.  B.  Goss  &  Co.  He  also  filed 
his  claim  with  Humphrey,  seeking  to  participate  in  the  distribution  of 
the  separate  assets  of  A.  J.  Goss.  The  court  held  that  he  must  first 
go  against  the  assets  in  the  hands  of  the  assignee  of  J.  B.  Goss.  From 
this  order  Davies  appealed. 

Marshall,  j.  *  *  *  Now,  in  this  situation,  can  the  creditors  of 
J.  B.  Goss,  doing  business  as  J.  B.  Goss  &  Co.,  who  are  so  circum- 
stanced as  to  be  entitled  to  hold  J.  B.  Goss  and  A.  J.  Goss  liable  as 
members  of  an  ostensible  firm — and  all  the  creditors,  at  least  of  the 
new  concern,  including  those  having  claims  against  the  old  firm  that, 
by  arrangement  with  them,  have  been  assumed  and  made  debts  of 
J.  B.  Goss  &  Co.,  are  so  circumstanced  in  fact — prove  their  claims 
pari  passu  wdth  the  individual  creditors  of  A.  J.  Goss  in  his  assign- 
ment? Also,  can  the  creditors  of  the  firm  of  J.  D.  Putnam  &  Co.  so 
prove  ?    *    *    * 

There  are  several  propositions  of  law  that  apply  which  are  well  es- 
tablished— too  well  to  need  to  be  more  than  stated — arnong  which 
are  that  the  assets  of  an  insolvent  partnership,  in  insolvency  proceed- 
ings, must  be  applied  first  to  the  payment  of  the  partnership  debts; 
that,  generally  speaking,  partnership  creditors  cannot  prove  in  com- 
petition with  the  individual  creditors  of  a  partner;  that  the  fixed  rule 
is  that  joint  estate  must  go  to  joint  creditors,  and  separate  estate  to 
separate  creditors,  though  the  former  may  prove  pari  passu  with 
separate  creditors,  when  there  is  no  living  solvent  partner  and  no 
partnership  assets.  Now,  in  this  case  there  is  no  solvent  partner.  J. 
D.  Putnam,  J.  B.  Goss,  and  A.  J.  Goss  are  all  insolvent.  So,  keep- 
ing in  mind  the  above-stated  propositions  of  law,  the  vital  question  is : 
Are  there  any  partnership  assets  to  which  appellants  can  resort?     If 


54:8  RIGHTS   AND    REMEDIES   OF   CKEUITOUS.  (Cll.    8 

there  are  such,  then  the  foundation  stone,  upon  which  they  construct 
their  claim  of  right  to  share  pari  passu  with  the  individual  creditors 

of  A.  J.  Goss,  disappears. 

On  that  subject  we  shall  not  attempt  to  harmonize  the  large  number 

of  cases  that  can  be  found  in  this  country.  The  simple  question  of 
whether,  when  there  is  an  ostensible  firm,  by  holding  out  to  creditors 
generally,  the  property  of  such  firm  is  to  be  considered,  in  equity,  joint 
property  for  the  administration  thereof,  in  insolvency,  the  same  as  if 
such  property  belonged  to  a  firm  in  fact,  is  the  key  to  the  situation; 
That  it  ought  to  be  so  considered  is,  we  assume,  too  clear  for  argu- 
ment ;  that  is  to  say,  if  A.  and  B,  do  business  with  persons  generally 
a's  A.  &  Co.,  and  incur  liabilities  to  such  persons  who  deal  in  good 
faith,  believing  that  there  is  a  firm  in  fact  as  well  as  in  name,  and, 
under  such  circumstances,  that  they  have  a  right  to  believe  it  is  com- 
posed of  A.  and  B.,  and.  the  business  becomes  insolvent,  the  property 
of  the  ostensible  firm  should  be  considered,  to  all  intents  and  pur- 
poses, in  regard  to  the  administration  of  the  business  in  insolvency  un- 
der the  control  and  direction  of  a  court  of  equity,  the  same  as  if  they 
were  partners  in  fact.    The  doctrine  that  estops  B.  from  saying  that 

■  he  is  not  a  partner  of  A.  at  the  suit  of  the  creditors  of  the  ostensible 
firm  should  estop  A.  from  holding  that  the  property  is  his  individual 
property,  to  the  prejudice  of  those  who  dealt  with  the  firm  as  a  firm 
in  fact,  and  should  estop  the  creditors  of  the  ostensible  firm,  in  the 
case  of  the  bankruptcy  of  such  firm,  from  resorting  primarily  to  the 
individual  property  of  the  members  of  such  firm;  in  short,  should 
work  effectually  to  compel  liquidation  in  all  respects  the  same  as  if 
the  members  of  such  firm  were  just  what  they  seem  to  be.  This  is 
what  the  doctrine  of  estoppel  is  for ;  that  is  what  equity  is  supposed 
to  accomplish, — to  prevent  fraud  and  promote  justice  between  man 
and  man  in  the  administration  of  human  affairs.  And  we  are  there- 
fore prepared  to  find  that  such  is  the  law  as  substantially  4eclared  by 
the  court  of  appeals  in  chancery  of  England. 

In  Re  Rowland  and  Crankshaw,  1  Ch.  App.  421,  the  precise  ques- 
tion here  under  consideration  was  presented.  The  business  was  con- 
ducted in  the  name  of  Rowland  &  Co.  Crankshaw  was  held  to  be  the 
ostensible  partner,  in  a  contest  to  determine  whether  the  property 
should  be  administered  in  bankruptcy  as  joint  property  of  Crankshaw 
and  Rowland,  partners,  or  as  the  individual  property  of  the  one  who 
was  the  actual  owner.  The  opinion  of  the  court,  which,  being  short, 
can  best  be  stated  by  quoting  it  in  full  so  far  as  relates  to  the  par- 
ticular question  under  consideration,  is  by  Lord  Cranworth,  as  fol- 
lows: "In  the  administration  of  bankruptcy,  it  has  been  the  object 
from  the  earliest  times  to  apportion  the  assets,  as  fairly  as  possible, 
between  the  joint  and  separate  creditors.  There  is  found  much  diffi- 
culty in  doing  this  satisfactorily,  but  some  rules  have  been  clearly 
laid  down;  for  instance,  that  the  joint  property  pays  the  joint  cred- 
itors, and  the  separate  property  pays  the  separate  creditors.     Now, 


Sec.  2)  IN    EQUITY.  549 

what  is  said  here  is  that  this  estate,  though  said  to  be  joint,  is,  in  fact, 
separate.  These  two  gentlemen  traded  under  the  name  of  Rowland 
&  Co.,  and  tradesmen  supplied  them  with  large  quantities  of  goods, 
and  thus  they  became  bankrupt ;  and  now  it  is  said  that  they  were  not 
partners,  and  that  the  real  arrangement  between  them  was  that  every- 
thing belonged  to  Crankshaw.  That  is  no  reason;  and,  as  Crank- 
shaw  suffered  Rowland  to  trade  in  the  name  of  the  firm,  any  persons 
trading  with  him  are  entitled  to  say  that  Rowland  &  Co.  are  the  pcr- 
soixs  with  whom  they  dealt,  and  the  goods  are  joint  goods."  This  is 
a  most  concise  statement  of  the  law,  as  held  by  the  English  Court  of 
Chancery.  The  meaning  is  too  plain  and  unmistakable  to  leave  any 
room  for  discussion,  and  we  find  that  the  rule  so  tersely  stated  has  been 
arlhered  to,  and  repeatedly  approved,  in  subsequent  cases,  in  language 
rather  lending  to  extend  than  restrict  the  principle  involved.  In  Ex 
parte  Sheen  (In  re  Wright)  6  Ch.  Div.  235,  the  question  was  again 
before  the  court,  where  the  circumstances  were  that  there  was  no 
general  holding  out,  and  the  court  held  that  where  there  is  no  os- 
tensible partnership  by  a  holding  out  to  creditors  generally,  but  only 
a  holding  out  to  two  or  three  creditors,  the  facts  are  not  sufficient  to 
make  the  property  of  the  alleged  ostensible  firm  joint  estate.  This, 
though  not  referring  to,  inferentially  approves.  In  re  Rowland  and 
Crankshaw.  In  Ex  parte  Hayman  (In  re  Pulsford)  8  Ch.  Div.  11, 
the  question  again  came  before  the  Court  of  Chancery,  on  appeal  from 
the  Chief  Judge  in  Bankruptcy,  and  In  re  Rowland  and  Crankshaw 
was  expressly  approved.  The  case  so  clearly  covers  the  two  cases 
under  consideration  that  we  quote  liberally  from  the  opinion,  after 
stating  the  facts.  Such  facts  are  as  follows :  Prior  and  up  to  Au- 
gust 31,  1875,  Hayman,  Catford,  and  Pulsford  carried  on  business  as 
Hayman,  Pulsford  &  Co.  On  that  date  the  firm  was  dissolved,  and 
notice  was  published  stating  the  fact.  At  the  same  time  a  letter  was 
sent  to  each  of  the  persons  with  whom  the  firm  had  done  business, 
stating  the  fact  of  dissolution,  and  that  thereafter  the  business  would 
be  carried  on  by  Thomas  Pulsford,  under  the  style  of  Pulsford.  Son 
&  Co.  Thereafter  the  business  was  so  conducted.  Tom  Pulsford,  the 
son  of  Thomas  Pulsford,  took  an  active  part  in  conducting  the  busi- 
ness up  to  the  time  the  insolvency  occurred,  when  Thomas  Pulsford 
filed  a  petition  in  bankruptcy ;  and  on  the  suggestion  that,  on  account" 
of  the  way  the  business  had  been  conducted,  it  might  be  held  that  the 
father  and  son  were  partners,  a  petition  was  also  filed  by  them  as 
joint  traders.  The  creditors  resolved  upon  a  liquidation  by  arrange- 
ment, and  such  resolution  was  registered.  Hayman,  a  separate  credit- 
or of  the  father,  in  respect  to  matters  outside  the  firm  of  Pulsford, 
Son  &  Co.,  appealed  from  the  order  for  a  liquidation  of  the  business 
as  that  of  a  firm,  on  the  ground  that  there  was  no  partnership.  He  pre- 
vailed, and  the  registration  was  canceled,  and  the  decree  was  not  ap- 
pealed from.  Thereafter  the  father  and  son  signed  a»declaration  in  in- 
solvency, upon  which  Ravenscroft,  a  creditor,  presented  a  petition  al- 


550  RIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

leg-ing  that  they  had  treated  father  and  son  as  partners,  under  the  firm 
name  of  Pulsford,  Son  &  Co.,  on  which  an  adjudication  was  made 
against  them  by  consent.    Hayman  then  appealed  to  the  court  to  an- 
nul the  adjudication.     On  this  application,  following  In  re  Rowland 
arul  Crankshaw,  the  application  was  dismissed  on  the  ground  that, 
though  no  actual  partnership  had  subsisted  between  father  and  son, 
yet  the  son  had  been  held  out  as  a  partner  to  the  petitioning  creditor 
to  such  an  extent  as  to  enable  him  to  maintain  the  adjudication.     This 
decision  was  not  appealed  from.     Hayman  then  applied  to  the  court 
for  an  order  declaring  that  all,  or  such  portion  as  the  court  should 
think  proper,  of  the  estate  which  appeared  in  the  acts  of  the  bankrupts 
or  either  of  them  as  joint  estate,  formed  part  of  the  separate  estate  of 
the  father,  and  for  a  direction  that  the  trustee  should  treat  the  same 
accordingly  as  separate  estate  of  the  father.     Hayman  was  the  only 
separate  creditor;    that  is,  creditor  outside  those  of  the  business  of 
Pulsford,  Son  &  Co.     On  the  hearing,  the  evidence  showed  that  sub- 
stantially all  the  creditors  did  business  with  Pulsford,  Son  &  Co.  as 
a  firm  consisting  of  the  father  and  son,  though  it  appeared  that  the 
father  was  the  actual  owner  of  the  business,  and  that  there  was  no 
firm  in   fact.     Hayman's  application  was   refused,  and  he  appealed. 
On  the  hearing  of  this  appeal  in  the  Chancery  Division  of  the  High 
Court  of  Justice,  James,  L.  J.,  propounded  to  appellant's  counsel  the 
following  interrogatory:     "H  I  go  to  a  shop,   and  find  the  names 
Thompson  &  Jones  on  the  door,  and  I  go  in,  and  find  Thompson  and 
Jones  selling  goods,  am  I  not  warranted  in  believing  that  they  are 
partners  ?"  to  which  answer  was  made  in  effect :     "That  would  not 
change  the  nature  of  the  assets,  and  make  property  which  belonged  to 
the  father  in  fact  the  joint  property  of  father  and  son" — just  as  it  is 
claimed  in  this  case,  it  will  be  observed.     Appellants  contend  that  the 
fact  of  holding  out  sufficient  to  constitute  an  ostensible  firm  of  J.  B. 
Goss  &  Co.  will  not  change  the  nature  of  the  assets  so  as  to  make  the 
individual  property  of  J.  B.  Goss  joint  property,  in  equity,  of  J.  B. 
Goss  &  Co.     The  positions  are  identical.     In  the  opinion  of  the  court 
this  is  answered  by  James,  L.  J.    After  reciting  the  facts  in  Re  Row- 
land and  Crankshaw,  as  in  Lord  Cranwortli's  opinion  in  that  case,  he 
says:     "Every  point  of  that  judgment  applies  to  this  case,  with  this 
single  exception,  which  fact  is  in  favor  of  the  decision  of  the  reg- 
istrar, that,  instead  of  the  words  used  being  '&  Co.,'  which  is  an  am- 
biguous term,  and  might  mean  anybody  in  the  world,  the  words  are 
'Pulsford,  Son-&  Co.'     But  it  is  said  that  this  conclusion  will  work 
hardship  to  the  appellant,  who  is  a  creditor  of  the  father  alone.     I 
think  that  is  only  one  of  those  misfortunes  which  occur  to  persons  who 
deal  with  others  who  afterwards  become  insolvent  and  become  bank- 
rupt, having  partners.     The  hardship  would  have  been  exactly  the 
same  upon  Hayman  if  there  had  been  a  real  partnership  created  by 
a  formal  instrument.     The  same  consequences  would  then  have  hap- 
pened as  happen  where  there  is  only  an  ostensible  partnership."     It 


I 


Sec.  2)  IN    KQllTT.  551 

will  be  distinctly  noted  at  this  point  tliat  the  court  makes  no  distinction 
in  the  administration  of  estates  of  an  ostensible  and  an  actual  firm  in 
bankruptcy.  The  Lord  Justice  proceeds:  "The  rule  has  been  estab- 
lished that  joint  creditors  take  the  joint  estate,  and  separate  creditors 
take  the  separate  estate;  and  you  only  have  to  consider  what  is  joint 
and  what  is  separate  estate ;  and  you  must  apply  the  rule  independ- 
ently of  the  hardship.  The  supposed  hardships  are  those  which  it. 
may  inflict  in  any  particular  case.  We  can  only  apply  the  fixed  rule 
that  that  which  is  joint  estate  shall  go  to  the  joint  creditors,  and  that 
which  is  separate  estate  shall  go  to  t-lie  separate  creditors," 

The  reasoning  of  these  cases  is,  in  our  opinion,  unanswerable,  and 
we  deduce  therefrom  the  principle  of  law  that,  if  a  per'son  allows  an- 
other to  carry  on  business  in  such  a  way  as  to  amount  to  a  holding 
out  to  persons  generally  that  he  and  such  other  are  partners,  and  credit 
is  given  to  both  on  the  supposition  that  they  are  partners  in  fact,  the 
property  with  which  such  business  is  carried  on,  though  in  law  that 
of  such  person,  in  equity  will  be  treated  as  the  joint  property  of  such 
person  and  such  other;  and  neither  of  them,  nor  the  creditors  of  either, 
can  prove  up  in  insolvency  in  competition  with  the  creditors  who  have 
trusted  the  two  as  partners  and  the  business  as  that  of  the  two.  To 
the  same  effect  is  Van  Kleeck  v.  McCabe,  87  IMich.  509,  49  N.  W.  872, 
24  Am.  St.  Rep.  182.  Applying  the  law  thus  stated  to  the  question 
imder  consideration,  the  conclusion  is  easily  reached  that,  while  there 
are  no  firm  assets  at  law  of  the  ostensible  firm  of  J.  B.  Goss  &  Co.,  all 
the  property  used  by  J.  B.  Goss  in  conducting  the  business,  in  equity, 
is  the  joint  property  of  such  ostensible  firm,  and  to  it  all  the  creditors 
of  such  ostensible  firm  can  resort,  the  same  in  all  respects  as  if  there 
had  been  a  firm  in  fact. 

This  effectually  disposes  of  the  appeal  of  appellant  Lottie  Thayer, 
though  it  is  as  effectually  ruled  by  the  law  applicable  to  the  Davies 
appeal,  as  will  appear  by  what  follows.  Appellant  Davies  never  be- 
came a  creditor  of  J.  B.  Goss  or  of  J.  B.  Goss  &  Co.,  by  any  agreement 
to  which  he  was  a  party;  and,  while  his  appeal  presents  the  question 
of  whether  there  is  any  joint  property  to  which  he  can  resort,  such 
question  involves  a  different  question  from  the  one  discussed  as  par- 
ticularly applicable  to  the  Thayer  appeal. 

We  must  start  the  discussion  of  the  Davies  appeal  with  the  prop- 
ositions of  law — in  respect  to  which  though,  there  is  some  conflict,  they 
are  too  well  established  by  the  great  weight  of  authority  to  be  ques- 
tioned by  this  court — that  partnership  creditors  have  no  lien  on  the 
partnership  assets  independent  of  the  equity  of  the  partners,  but  must 
work  out  their  preference  over  the  individual  creditors  of  the  mem- 
bers of  the  partnership  through  the  equities  of  such  members ;  that, 
so  long  as  the  equity  of  the  individual  members  of  the  partnership 
exists  to  have  the  partnership  property  applied  to  the  partnership 
debts,  the  creditors  have  the  equity  to  compel  its  enforcement;  that  if 
one  member  sells  his  interest,  bona  fide,  to  his  copartner  or  a  stran- 


552  RIGHTS   AND    REMEDIES   OF   CUEDITOUS.     .  (Cll.    8 

ger,  without  in  any  way  retaining  his  equity  to  have  the  partnership 
creditors  paid  out  of  it,  the  joint  property  is  thereby  converted  into 
the  individual  property  of  the  purchaser.    The  question  to  be  determin- 
ed is,  in  view  of  the  facts  that  the  sale  was  made  by  Putnam  in  con- 
sideration of  the  debts  of  the  partnership  being  paid;    that  the  firm 
was  insolvent  at  the  time ;   that  the  whole  transaction  was  really  made 
by  him  to  relieve  himself  from  the  partnership  liability ;   that  the  prop- 
erty was  put  into  the  possession  of  J.  B.  Goss  fqr  the  piirpose  of  con- 
tinuing the  same  business  with  the  same  assets,  and  efifect  a  settlement 
of  the  old  partnership  affairs— air  of  which  clearly  appears,  can  it  be 
held  that  the  equitable  title  to  the  property  was  changed,  so  as  to  af- 
fect tlie  equitable  right  of  Putnam  to  have  the  creditors  of  the  old  firm 
paid  out  of  it,  or  were  the  equitable  rights  of  the  outgoing  partner  and 
the  creditors  preserved  by  reason  of  the  facts,  and  the  assets  in  the 
hands  of  J.  B.  Goss  impressed  with  a  trust  to  carry  out  the  intention 
of  the  parties?     In  discussing  these  questions,  full  effect  should  be 
given  to  the  significant  controlling  words,  in  the  rule  correctly  stated  ' 
in  Willis  v.  Satterfield,  85  Tex.  301,  20  S.  W.  155  :    "Bona  fide,  with- 
out in  any  manner  retaining  the  lien."     In  Conroy  v..  Woods,  13  Cal. 
G26,  73  Am.  Dec.  605,  it  was  held  that  where  a  sale  is  made  by  one 
partner  to  his  copartner,  and  the  consideration  for  the  sale  is  the  pay- 
ment of  the  partnership  debts,  the  sale  is  not  "bona  fide,"  within  the 
meaning  of  the  rule,  so  as  to  cut  off  the  equity  of  the  vendor  to  have 
the  property  applied  to  the  payment  of  the  partnership  debts.     Very 
few  cases  can  be  found  that  go  as  far  as  the  California  court  on  this 
subject,  except  in  the  New  Hampshire  court,  which  does  so,  holding 
that  the  creditor  has  an  equitable  interest  independent  of  the  equity  of 
the  individual  partner.     In  Ex  parte  Cooper,  1  Mont.,  D.  &  D.  358, 
and  Ex  parte  Williams,  11  Ves.  3,  it  is  held  that  where  an  outgoing 
partner  sells  bona  fide  to  his  copartner,  and  takes  for  his  consideration 
an  agreement  that  the  purchaser  shall  pay  the  debts,  no  equitable  in- 
terest in  the  property  is  retained.    To  the  same  effect  are  Stanton  v. 
Westover,  101  N.  Y.  365,  4  N.  E.  529 ;    Fulton  v.  Hughes,  63  Miss. 
61;   Dimon  v.  Hazard,  32  N.  Y.  65;   and  many  other  cases  that  might 
be  cited.    In  Darby  v.  Gilligan,  33  W.  Va.  246,  10  S.  E.  400,  6  L.  R. 
A.  740,  it  is  held  that  where  a  firm  is  insolvent,  if  a  partner  sells  out  to 
his  copartner,  and  the  purchaser  agrees  to  pay  the  firm  debts,  the  sale 
cannot  be  considered  bona  fide,  so  as  to  cut  off  the  equity  of  the  firm 
creditors  to  be  preferred ;    and  to  the  same  effect  is  Olson  v.  Morri- 
son, 29  Mich.  395.     In  the  latter  case  Olson  and  Jones  were  partners, 
Olson  sold  out  to  Morrison,  the  consideration  being  that  the  vendee 
should  pay  the  debts  of  the  firm.     It  sufficiently  appears  that  the  firm 
was  insolvent.-    The  vendee  neglected  to  comply  with  his  agreement, 
and  the  creditors,  joining  with  the  vendor,  brought  suit  to  compel  per- 
formance of  the  agreement,  and  to  subject  the  property  to  the  payment 
of  the  partnership  debts.     Held,  that  the  agreement  to  pay  the  debts 
as  consideration  for  the  transfer  was  a  sufficient- recognition  of  the  eq- 


Sec.  2)  IN    EQUITY.  553 

uitable  lien  of  the  partnership  creditors,  tracing  the  same  through  the 
equity  of  the  vendor,  to  enable  them,  joining  with  him,  to  enforce 
such  equity.  In  Menagh  v.  Whitwcll,  52  N.  Y.  1  !C,  11  Am.  Rep.  C83, 
it  was  held  that,  as  between  the  firm  and  its  creditors,  the  title  of  the 
former  to  the  joint  property  is  not  divested  by  any  separate  transfers 
to  outside  parties  for  the  individual  benefit  of  the  respective  vendors, 
and  that,  when  there  has  been  no  transfer  by  the  firm  as  such,  con- 
veying the  corpus  of  the  property,  and  it  remains  in  specie,  though 
transferred  by  the  separate  transfers  of  the  individual  members,  it  may 
yet  be  followed  and  reached  in  the  hands  of  those  claiming  under  such 
separate  transfers,  by  creditors  of  the  firm.  This  is  upon  the  theory 
that  neither  partner  separately  has  any  interest  in  the  corpus  of  the 
property ;  that  his  interest  is  limited  to  his  proportionate  share  of  what 
remains  after  a  settlement  of  all  partnership  obligations  and  an  ac- 
counting between  himself  and  his  copartner.  A  distinction  is  drawn  in 
this  case  between  a  bona  fide  sale  by  one  of  a  partnership  to  two  of 
his  copartners  without  reservation,  which,  under  the  prevailing  rule 
of  Ex  parte  Ruffin,  6  Ves.  119,  operates  to  liberate  the  assets  from 
the  partnership  liability,  and  a  sale  made  by  one  member  of  a  firm  of 
more  than  two,  to  one  of  the  partners,  or  to  an  outside  party.  In  that 
class  of  cases  the  New  York  courts  have  uniformly  held,  since  Menagh 
V.  Whitwell,  that  the  partnership  effects  are  not  liberated  from  the  part- 
nership liability.  In  this  case,  if  it  is  held  that  the  sale  was  really  to 
J.  B.  Goss,  under  the  Nev^  York  rule,  the  corpus  of  the  property  never 
passed  by  any  act  of  the  firm,  so  as  to  change  the  equitable  title  in 
respect  to  creditors  existing  at  the  time  of  the  sale.  The  trend  of 
the  New  York  cases,  since  Menagh  v.  Whitwell,  has  been  to  extend 
the  rule  which  preserves  the  equity  of  the  creditors  in  case  of  the  sale 
by  one  of  the  members  of  an  insolvent  firm,  the  purchaser  assuming  the 
partnership  obligations  in  place  of  the  outgoing  partner,  whether  such 
sale  is  to  a  copartner  or  otherwise.  This  clearly  appears  by  the  follow- 
ing, from  the  opinion  in  Bulger  v.  Rosa,  119  N.  Y.  465,  24  N.  E.  853 : 
"The  equity  of  the  firm  creditors  cannot  be  defeated  by  any  attempt- 
ed conversion  of  the  assets  of  the  insolvent  firm  into  the  individual 
assets  of  one  of  the  partners,  through  a  transfer  by  one  partner  of  his 
interest  therein  to  the  other.  In  such  a  case,  till  the  assets  come  to 
the  hands  of  a  bona  fide  purchaser,  the  same  can  be  reached  by  the 
partnership  creditors."  To  the  same  effect  are  Nordlinger  v.  Ander- 
son, 123  N.  Y.  544,  25  N.  E.  992,  and  Peyser  v.  Myers.  135  N.  Y. 
599,  32  N.  E.  699.  In  the  latter  case  there  had  been  a  change  in  the 
firm  some  time  prior  to  the  assignment  for  the  benefit  of  creditors,  the 
new  firm  not  having  made  any  express  contract  to  pay  the  old  firm 
debts.  There  were  two  sets  of  creditors,  and,  in  discussing  the  sub- 
ject of  their  equitable  rights,  the  court  said :  "The  priority  of  the  lien 
of  firm  creditors  is  not  divested  by  the  transfer  by  an  insolvent  firm  of 
the  assets  to  one  or  more  of  the  partners,  nor  can  it  be  affected  by 
any  mere  change  in  the  personnel  of  the  firm,  as  by  the  withdrawal  of 


554  RIGHTS   AND   REMEDIES  OF  CREDITORS.  (CIl.    8 

one  partner  from  the  firm  or  the  introduction  of  another."  See,  also, 
Phelps  V.  McNeely,  66  Mo.  554,  27  Am.  Rep.  378,  where  it  was  held 
that  if  a  partner  sells  out  his  interest  in  the  firm  to  his  copartner,  who 
agrees  to  pay  the  debts,  the  firm  being  at  the  time  insolvent,  the  equities 
of  the  creditors  are  preserved.  The  evidence  in  that  case  tended  to 
show  that  there  was  no  property,  other  than  that  formerly  belonging 
to  the  partnership,  out  of  which  the  firm  debts  could  be  paid;  but  it 
does  not  clearly  appear  whether  the  court  rested  its  decision  on  the 
ground  that  tliere  was  an  implied  promise  under  the  circumstances  to 
pay  the  firm  debts  out  of  the  partnership  assets,  or  on  the  ground  that 
the  insolvency  of  the  firm  impeached  the  bona  fides  of  the  transaction. 
The  court  went  further-,  and  held  that,  notwithstanding  the  vendee  of 
the  property  had  turned  the  same  out  to  secure  his  individual  creditors, 
who  had  received  it  as  security  in  good  faith,  it  could,  nevertheless,  be 
reached  by  the  partnership  creditors ;  but  this  was  subsequently  over- 
rukd  in  Re  Edwards^  Goddard  Peck  Grocery  Co.  v.  McCune,  122  Mo. 
426,  25  S.  W.  904,  29  L.  R.  A.  681. 

We  might  go  on  at  great  length,  reviewing  decisions  on  this  stib- 
ject,  and  cite  numerous  authorities  where  outgoing  partners  have  been 
held  to  retain  their  equity  to  have  the  firm  debts  paid,  and  the  rights 
of  the  creditors  to  the  assets  which  have  come  under  the  control  of 
equity  have  been  worked  out  through  the  equity  of  such  partners. 
Probably  there  are  few  questions  upon  which  there  is  such  a  conflict 
of  authority  as  the  one  under  consideration ;  but  nearly  all  are  in  har- 
mony with  the  principle  that  if  the  bona  fides  of  the  transaction  is 
impeached,  or  if  the  equity  is  retained  by  agreement,  express  or  im- 
plied, then  the  creditors  can  enforce  such  equity.  The  conflict  chiefly 
arises  in  regard  to  what  circumstances  or  facts  are  sufficient  to  impeach 
the  good  faith  of  the  transaction,  and  in  respect  to  what  is  sufficient 
to  show  a  contract  that  the  partnership  debts  shall  be  paid  out  of  the 
partnership  assets,  and  impress  a  trust  upon  such  assets  for  that  pur- 
pose. 

By  the  mere  fact  of  the  dissolution  of  a  partnership  by  one  member 
selling  out  to  his  copartner  or  to  a  stranger,  the  purchaser  or  purchas- 
ers agreeing,  as  consideration  for  the  purchase,  to  pay  the  partnership 
debts,  the  firm  being  insolvent  at  the  time,  no  presumption  of  a  bona 
fide  agreement  arises  which  will  operate  to  change  the  equitable  title 
of  the  property ;  and  such  agreement  must  clearly  appear  to  exist  in- 
consistent with  the  continuance  of  the  equitable  rights  of  the  partner, 
and,  through  him,  of  the  partnership  creditors;  else  it  is  retained. 
Lindl.  Partn.  699.  If  the  circumstances  are  such  as  to  show  that  the 
property  was  merely  transferred  for  the  purpose  of  winding  up  the  af- 
fairs of  the  concern,  there  being  no  express  agreement  that  the  property 
shall  be  exclusively  that  of  the  vendee,  it  will,  in  case  of  bankruptcy, 
be  distributed  as  joint  estate.  Id.  699,  700.  This  is  upon  the  presump- 
tion that  such  was  the  intention  of  the  parties.  The  presumptions  to 
be  indulged  in,  in  such  cases,  rather  go  to  support  an  implied  agree- 


Sec.  2)  IN    KQLITY. 


555 


ment  to  do  what  in  equity  and  good  conscience  the  parties  ought  to  do. 
In  Sedam  v.  Williams,  4  McLean,  51,  Fed.  Cas.  No.l2,G09.  and  Marsh 
V.  Bennett,  5  McLean,  117,  Fed.  Cas.  No.  9,110,  it  was  held  that  the 
equity  was  retained  to  have  the  partnership  creditors  paid  out  of  the 
partnership  assets,  and  that  such  assets  were  impressed  with  a  trust 
for  that  purpose  by  virtue  of  an  express  agreement.  In  Re  Dawson, 
59  Hun,  239,  12  N.  Y.  Supp.  781,  which  does  not  appear  to  have  been 
appealed  from  or  criticised,  it  was  held  that  where  one  member  of  a 
firm  retires,  selling  out  his  interest  to  a  third  party,  who  continues  the 
business  with  the  remaining  partner,  with  whom  he  enters  into  part- 
nership, and  the  partnership  assumes  the  debts  of  the  previous  firm, 
and  such  new  firm  becomes  insolvent,  and  makes  an  assignment  for 
the  benefit  of  creditors,  the  property  transferred  to  the  new  firm  be- 
comes charged  in  equity  with  a  trust  for  the  payment  of  the  debts  of 
the  old  firm,  which  the  outgoing  partner  may  enforce.  Such  holding 
is  certainly  equitable  and  just  when  applied  to  a  state  of  facts,  as  in 
this  case,  which  leaves  no  room  for  doubt  but  that  it  was  the  intention 
of  all  the  parties  dealing  with  the  property  to  preserve  and  administer 
the  partnersliip  assets  in  the  nature  of  a  trust  to  liquidate  the  old  cjebts; 
and  to  this  extent  we  expressly  approve  of  and  apply  it  here. 

This  does  not  in  the  least  trench  upon  the  rule  that  if  a  partner  sells 
out,  bona  fide,  his  interest  in  the  partnership  assets  and  business,  with- 
out in  any  manner  retaining  his  equity  to  have  the  partnership  creditors 
paid  out  of  such  assets,  he  waives  his  equity  in  that  regard,  but  is  per- 
fectly consistent  with  it.  If  the  agreement  was  express  that  the  debts 
shall  be  paid  out  of  the  assets,  then  the  equity  is  retained  by  express 
contract;  if  the  circumstances  of  the  transaction  show  that  the  con- 
templation of  the  parties  was  that  the  debts  should  be  so  paid,  then  the 
equity  is  retained  by  implied  agreement ;  and  the  assets  are,  in  the  ad- 
ministration of  the  affairs  of  the  purchaser  in  insolvency,  as  effectually 
impressed  with  a  trust  in  favor  of  the  vendor,  and,  through  him,  the 
creditors  of  the  old  partnership,  in  the  one  case  as  in  the  other.  The 
circumstances  involved  in  these  appeals  point  unerringly  to  the  con- 
clusion that  it  was  the  intention  of  J.  D.  Putnam,  J.  B.  Goss,  and  A.  J. 
Goss  that  the  new  concern  of  J.  B.  Goss  &  Co.  should  continue  the  old 
business  with  the  same  assets,  for  the  primary  purpose  of  winding  up 
such  business  and  liquidating  the  debts  theretofore  contracted  in  it  out 
of  the  old  assets,  so  far  as  practicable.  Hence  the  court  below,  sitting  as 
a  court  of  equity  in  the  administration  of  the  affairs  of  A.  J.  Goss  and  J. 
B.  Goss,  was  warranted  in  concluding  that  the  property  of  J.  B.  Goss  is 
impressed  with  a  trust  to  carry  out  the  intention  of  all  the  parties  con- 
cerned in  the  dissolution  of  the  old  firm,  and  formation  of  the  new  con- 
cern of  J.  B.  Goss  &  Co.;  that  the  debts  of  the  old  firm  should  be  as- 
sumed by  the  new  concern,  and  be  paid  out  of  the  property  turned 
over  to  it,  and  the  operations  of  the  business,  so  far  as  this  can  be  done 
with  due  regard  to  the  equities  of  the  creditors  who  trusted  such  new 
concern. 


556  RIGHTS  AND   REMEDIES  OF  CREDITORS.  (Cll.    8 

[After  stating  that  the  two  sets  of  creditors — those  of  J.  D.  Putnam 
&  Co.  and  of  J.  B.  Goss  &  Co. — can  all  prove  in  the  insolvency  proceed- 
ings of  J.  B.  Goss,  the  opinion  concludes:] 

This  effectually  disposes  of  all  the  questions  presented,  and  leads  to 
the  conclusion  that  neither  of  the  appellants  can  prove  pari  passu  with 
the  individual  creditors  of  A.  J.  Goss  in  his  assignment,  but  they  can 
both  prove  pari  passu  with  all  the  creditors  of  the  ostensible  firm  of 
J.  B.  Goss  &  Co.  in  the  assignment  of  J.  B.  Goss.     *     *     * 

Newsman,  J.,  in  a  dissenting  opinion,  in  which  Pinney,  J.,  concurred, 
said : 

It  may  be  true — it  is  not  necessary  to  question  it — that  Alfred  J.  Goss 
is  estopped,  as  against  this  petitioner,  to  deny  that  he  was  a  partner 
with  James  B.  Goss,  and  that  there  were,  in  fact,  partnership  assets. 
But  this  does  not  aid  the  petitioner,  nor  bring  her  nearer  to  a  remedy 
against  these  assets,  until  it  is  also  estabHshed  that  James  B.  Goss  and 
his  individual  creditors  are  bound  by  a  like  estoppel.  That  cannot 
be  established  in  this  proceeding,  because  neither  the  necessary  par- 
ties are  before  the  court,  nor  the  evidence  by  which  it  is  to  be  estab- 
lished. And  there  is  great  danger  of  doing  the  petitioner  an  irrep- 
arable wrong  if,  with  so  little  knowledge  of  the  actual  situation,  her 
remedy  is  limited  by  the  court  to  those  assets;  for,  at  the  best,  it  is 
but  a  desperate  chance.  It  is  said  that  James  B.  Goss  is  also  estop- 
ped to  deny  the  alleged  partnership  and  the  joint  ownership  of  the 
property  used  in  it.  But  the  court  has  not  listened  yet  to  James  B. 
Goss'  side  of  that  question.  It  is  assumed,  without  proof,  that  he 
permitted  Alfred  J.  Goss  to  hold  himself  out  as  a  partner,  and  the 
property  and  business  as  partnership  property  and  business.     *     *     * 

But  it  is  not  very  important  whether  James  B.  Goss  shall,  when  the 
question  is  presented,  be  held  to  be  estopped  or  not.  A  much  more 
important  question  will  be  whether  his  individual  creditors  are  estop- 
ped from  claiming  that  these  assets,  which  are  in  the  hands  of  his 
assignee  for  their  benefit,  w^ere  really  his  individual  assets.  No  one 
questions  that  they  were  his  individual  assets  in  law,  and  they  are  his 
individual  assets  in  equity,  unless  these  individual  creditors  are  estop- 
ped to  claim  them  as  such.  Now,  there  really  is  no  evidence  in  the 
case  which  shows  the  nature  of  these  debts  to  the  individual  credit- 
ors of  James  B.  Goss.  It  seems  to  be  assumed  by  the  majority  that 
they  were  all  debts  contracted  to  persons  who  gave  credit  to  an  osten- 
sible partnership;  while,  in  truth,  there  is  no  evidence  on  the  subject 
There  is  nothing  to  show  that  these  debts  are  not  all  due  to  persons 
who  dealt  with  him,  in  good  faith,  relying  upon  his  apparent  sole  re- 
sponsibility, from  the  possession  of  this  property,  and  his  sole  con- 
duct of  the  business.  Nor  does  it  appear  whether  these  debts  were 
contracted  in  the  milling  business,  or  whether  they  were  the  misfor- 
tunes of  independent  enterprises.  In  this  condition  of  the  case,  it 
certainly  cannot  be  prudent  to  decide  this  question  of  which  set  of 
creditors  have  the  superior  equity  to  these  assets.     ♦     *     * 


Sec.  2)  IN    EQUITT,  '  5j7 


SWANN  et  al.  v.  SANBORN  et  al. 

(United   States  Circuit  Courl.   Northern  District  uf  I'inrida,   1S78.     4  Woods. 
025.  Fed.  Ciis.  No.  13,675.) 

The  bill  was  filed  by  Samuel  A.  Swann  and  others,  claimmg  to  be 
creditors  of  a  partnership  which,  it  was  alleged,  carried  on  the  busi- 
ness of  manufacturing  lumber,  and  which,  it  was  alleged,  was  com- 
posed of  F.  S.  Chester,  the  bankrupt,  E.  N.  Chester,  Franklin  E. 
Town,  and  Horace  Stillman.     *     *     * 

The  prayer  of  the  bill  was  that  the  assets  of  the  late  firm  of  Ches- 
ter &  Co.,  which  had  been  returned  to  the  bankrupt  court  as  assets  of 
the  bankrupt  estate  of  F.  S.  Chester,  and  were  in  the  possession  of  his 
assignee,  might  be  adjudged  primarily  liable  for  the  debts  of  the  firm 
of  Chester  &  Co.,  and  enable  complainants  to  subject  such  assets  to 
the  payment  of  their  claims.  The  District  Court  made  a  decree  sub- 
stantially in  accordance  with  the  prayer  of  the  bill,  and  the  defend- 
ants appealed  to  the  Circuit  Court.     *     *     * 

Woods,  Circuit  Judge.  *  *  *  As  to  the  claim,  made  by  the 
bill,  that  E.  N.  Chester  and  F.  E.  Town  were  partners  in  the  firm  of 
Chester  &  Co.,  the  evidence  shows  conclusively  that  they  were  not  in 
fact  partners ;  but  it  shows  that,  with  the  knowledge  of  F.  S.  Ches- 
ter, they  held  themselves  out  as  such.  The  truth  is  that  there  was,  in 
fact,  no  such  firm.  The  property  all  belonged  to  F.  S.  Chester.  It  was 
bought  with  his  money,  and  owned  by  him  exclusively.  Now,  under 
this  state  of  facts,  which  class  of  creditors  is  entitled  to  priority  of 
payment  of  the  supposed  partnership?  F.  S.  Chester  never  reported 
that  E.  N.  Chester  and  Town  were  part  owners  of  the  mill  and  other 
property  of  Chester  &  Co.  His  exclusive  title  to  this  property  could 
not  be  divested  by  any  statements  made  in  relation  thereto  by  E.  N. 
Chester  and  Town.  H  the  firm  of  Chester  &  Co.  existed  as  to  stran- 
gers, it  was  a  firm  in  which  F.  N.  Chester  owned  all  the  property, 
and  the  other  partners  were  interested  only  in  the  business,  in  its 
gains  and  profits.  All  the  products  of  the  business — all  the  lumber 
made,  for  instance — were  liable  for  the  partnership  debts ;  but  the 
individual  property  of  one  of  the  partners,  even  though  used  by  the 
partnership  to  carry  on  its  business,  was  liable  in  the  first  instance 
for  the  individual  debts  of  the  owner.  Murrill  v.  Neill,  8  How.  414. 
'  12  L.  Ed.  1135.  If  I  am  right  upon  this  proposition,  the  prayer  of 
the  bill  that  this  property  may  be  first  subjected  to  the  payment  of 
the  partnership  debts  cannot  be  sustained.  It  is  individual,  and  not 
partnership,  property,  and  must  be  first  applied  to  the  individual  debts 
of  the  owner.     *     *     * 

The  case  is  that  Stillman  loaned  $30,000  to  F.  S.  Chester,  to  be 
used  for  the  erection  of  his  mill  and  the  carrying  on  of  the  business. 
F.  S.  Chester  was  the  only  one  of  the  three  persons  engaged  in  any 
jvay  in  the  enterprise  who  had  any  money.     The  property  used  in  tlae 


558  'RIGHTS   AND   REMEDIES   OF   CREDITORS.  (Ch.    8 

business  was  all  his  individual  property,  and  did  not  belong  to  the 
firm.  The  property  was  bought  with  money  furnished  by  Stillman, 
under  an  agreement  that  he  should  be  secured  by  mortgages  upon  it. 
He  has  mortgages  of  record  to  the  amount  of  $23,000,  which  ap- 
pears to  be  the  full  value  of  the  property.  The  assignee  of  F.  S. 
Chester  is  entitled  to  this  property ;  for  it  is  the  individual  property 
of  F.  S.  Chester,  and  cannot  be  taken  for  his  partnership  debts  until 
his  individual  debts  are  paid.  The  property  will  not  pay  these  debts. 
The  complainants'  partnership  creditors  have,  therefore,  no  claim  to 
this  property,  and  their  bill  seeking  to  subject  it  to  their  debts  must 
be  dismissed,  at  their  costs. 
Decree  accordingly. 


SECTION  3.— INSOLVENCY  OR   BANKRUPTCY— APPLICA- 
TION OF  ASSETS. 


HAWKINS  et  al.  v.  MAHONEY  et  al. 

(Supreme  Court  of  Minnesota.  1898.     71  Minn.  155,  73  N.  W.  720.) 

Start,  C.  J.  Arthur  H.  Ives  and  Amos  P.  Ireland,  partners  un- 
der the  firm  name  of  Ives,  Ireland  &  Co.,  duly  made  an  assignment 
of  all  of  their  partnership  and  unexempt  individual  property,  for  the 
benefit  of  their  creditors,  under  the  insolvent  laws  of  this  state.  The 
net  assets  of  the  partnership,  for  distribution,  amount  to  $3,151.65, 
and  the  partnership  debts  are  $19,736.34.  Ireland's  net  individual 
assets  are  $4,000;  and  his  individual  debts,  $2,997.47.  Ives'  net 
assets  are  $100,  and  his  personal  debts,  $415.40.  Included  in  the  firm 
debts  proved  is  that  of  the  Irish-American  Bank,  for  $4,078.89,  which 
is  based  upon  the  notes  of  the  firm  given  to  the  bank  for  a  loan  by 
it  to  the  firm,  in  the  sum  of  $4,000,  and  signed  by  the  firm,  and 
by  Ireland  in  his  individual  name.  There  is  also  included  in  the 
firm  debts  that  of  the  St.  Anthony  Falls  Bank,  for  $5,512.50,  which 
is  based  upon  notes  executed  by  the  firm  to  it  for  a  loan  of  $5,500, 
but  none  of  the  notes  were  signed  by  either  of  the  individual  part- 
ners. Each  of  these  banks  made  the  loan  to  the  firm  in  express^ 
reliance  upon  the  individual  property  and  credit  of  Ireland.  The 
trial  court,  by  its  order  of  distribution,  directed  the  assignee  to 
pay  the  net  assets  of  the  firm,  pro  rata,  to  the  firm  creditors,  in- 
cluding the  Irish-American  Bank;  net  individual  assets  of  Ireland, 
pro  rata,  to  his  individual  creditors,  excluding  the  firm  creditors, 
except  the  Irish-American  Bank,  which  was  included  therein  to  the 
full  amount  of  its  debt,  without  any  deduction  for  the  payment 
thereon  it  was  to  receive  by  its  dividend  from  the  firm  assets ;  and 
the   net   assets    of   Ives   to   his    individual    creditors.      The    assignee 


Sec.  3)  INSOLVENCY    OR    BANKRUPTCY.  559 

and  certain  firm  creditors  appealed  from  this  order.  The  appeals 
present  two  general  questions  for  our  decision.  They  are,  did  the 
trial  court  err  (a)  in  distributing  the  firm  assets  to  the  firm  credit- 
ors, and  the  individual  as.<;ets  to  the  individual  creditors?  (b)  in  di- 
recting a  dividend  to  be  paid  to  the  Irish-American  Bank  from  both 
funds  ? 

1.  The  trial  court  adopted  the  general  equity  rule  in  insolvency 
and  bankruptcy  for  the  distribution  of  firm  and  indivirlual  assets, 
respectively,  which  is  that,  where  there  are  both  partnership  and  in- 
dividual assets  for  distribution,  the  partnership  assets  will  be  first  ap- 
plied to  the  payment  of  partnership  debts,  and  the  individual  assets, 
in  like  manner,  to  the  payment  of  the  individual  debts  of  the  partners. 
If  there  is  a  surplus  in  cither  fund  after  paying  in  full  the  creditors  to 
whom  it  primarily  belongs,  it  is  carried  to  the  other  fund,  and  distribut- 
ed as  a  part  thereof.  The  rule  seems  to  be  limited  to  cases  where  there 
are  substantial  firm  assets  for  distribution.  This  we  do  not  decide.  The 
first  half  of  the  rule,  that  equity  gives  to  the  firm  creditors  priority  in 
the  firm  assets  over  the  creditors  of  the  individual  partners,  is  conclus- 
ively settled,  and  everywhere  accepted  as  the  law ;  but  the  other  and  re- 
ciprocal half  of  the  rule,  that  the  separate  debts  of  the  partners  are  to 
be  first  paid  from  the  individual  assets,  has  been  controverted  by  able 
courts  in  this  country,  while  those  which  have  adhered  to  it  have 
not  always  agreed  as  to  the  reasons  for  its  adoption.  The  principles 
upon  which  the  rule  rests  are  clearly  stated  in  the  dissenting  opin- 
ion of  Chief  Justice  Gibson  in  the  case  of  Bell  v.  Newman,  5  Serg.  & 
R.  (Pa.)  91,  and  the  opinion  of  Chief  Justice  Bartley  in  Rodgers 
V.  Meranda,  7  Ohio  St.  179.  The  latter  ^rote  thus  of  the  rule: 
"That  it  is,  however,  more  equal  and  just,  as  a  general  rule,  than 
any  other  which  can  be  devised,  consistently  with  the  preference  to 
the  partnership  creditors  in  the  joint  estate,  cannot  be  successfully 
controverted.  It  originated  as  a  consequence  of  the  rule  of  priority 
of  partnership  creditors  in  the  joint  estate,  and,  for  the  purposes 
of  justice,  became  necessary,  as  a  correlative  rule.  With  what 
semblance  of  equity  could  one  class  of  creditors,  in  preference  to 
the  rest,  be  exclusively  entitled  to  the  partnership  fund,  and  concur- 
rently with  the  rest  entitled  to  the  separate  estate  of  each  partner? 
The  joint  creditors  are  no  more  meritorious  than  the  separate  cred- 
itors, and  it  frequently  happens  that  the  separate'  debts  are  con- 
tracted to  carry  on  the  partnership  business."  Judge  Story,  in  his 
time,  declared  the  rule  to  be  firmly  established.  He,  however,  ques- 
tioned its  equity  and  propriety,  but  added,  "Such  as  it  is,  however, 
it  is  for  the  public  repose  that  it  should  be  left  undisturbed,  as  it 
may  not  be  easy  to  substitute  any  other  rule  which  would  uniformly 
work  with  perfect  equality  and  equity  in  the  mass  of  intricate  trans- 
actions connected  with  commercial  operations."  Story,  Partn.  §§ 
377,  382.  The  rule  was  expressly  approved  by  Chancellor  Kent, 
who  declared  it  to. rest  upon  just  and  obvious  principles  of  equity, 


5G0  RIGnXS  AND   REMEDIES  OF   CREDITORS.  (Ch.    8 

and  to  be  settled  by  a  series  of  English  and  American  decisions. 
3  Kent,  Comm.  *G5.  Prof.  Parsons  declared  it  to  be  distinctively 
settled,  and  a  simple  rule,  eminently  practical,  and  founded  upon 
obvious  principles  of  policy.  T.  Pars.  Partn.  pp.  382,  383,  What- 
ever question  there  may  have  been  as  to  this  rule  half  a  century  ago, 
it  is  now  thoroughly  and  decidedly  established  by  the  great  weight 
and  number  of  adjudged  cases,  and  must  be  followed,  unless  it  is 
contrary  to  the  letter  or  spirit  of  our  insolvency  law.  The  assignee 
claims  that  it  is  so,  in  that  it  violates  the  fundamental  principles  of 
equal  distribution  and  no  preferences,  upon  which  the  insolvency 
law  rests,  and  asks  us  to  adopt  the  Kentucky  rule,  which  is,  in  effect, 
that  where  a  firm  is  insolvent,  and  there  are  both  firm  and  individual 
assets  to  be  distributed  to  firm  and  individual  creditors,  the  partner- 
ship assets  are  to  be  distributed  exclusively  to  the  firm  creditors ; 
then  the  individual  creditors  are  to  receive  a  percentage  on  their 
claims  from  the  individual  assets,  equal  to  that  received  by  the  firm 
creditors  on  their  claims  from  the  partnership  assets ;  and  the  balance, 
if  any,  to, all  of  the  creditors,  pro  rata.  Bank  v.  Keizer,  2  Duv.  169. 
The  original  of  this  rule  seems  to  be  the  rule  adopted  in  Pennsyl- 
vania, in  Bell  v.  Newman,  5  Serg.  &  R.  77,  for  the  distribution  of 
firm  and  individual  assets,  in  a  case  where  a  surviving  partner  died, 
leaving  both  partnership  and  separate  creditors,  and  firm  and  sepa- 
rate assets  in  the  hands  of  his  administrator.  Gibson,  J,,  dissented, 
and,  in  his  opinion,  ably  vindicated  the  equity  rule,  and  tersely  stated 
the  objections  to  the  rule  laid  down  in  the  opinion  of  the  court,  in 
these  words :  "It  is  evident,  therefore,  the  rule  would  operate  un- 
equally, by  making  the  separate  creditors  share  their  fund  with  the 
joint  creditors,  where  it  happens  to  be  the  largest,  without  subjecting 
the  latter  to  share  theirs  under  like  circumstances.  It  may  be  said, 
it  is  impossible  to  put  them  on  a  footing  in  this  respect.  I  grant 
that  it  cannot  be  done  on  any  plan  of  participating  in  the  same  fund, 
but  you  precisely  put  them  on  a  footing  by  making  each  fund  bear 
the  burden  of  its  own  debts;  and,  if  that  of  the  separate  creditors 
should  happen  to  be  the  most  productive,  I  know  not  on  what  princi- 
ple of  equity  they  can  be  deprived  of  the  advantage."  Bell  v.  New- 
man was  practically  overruled  in  Black's  Appeal,  44  Pa.  5-03,  and 
the  equity  rule  adopted.  The  objections  to  the  now  discarded  rule  of 
Pennsylvania  apply  precisely  to  the  Kentucky  rule,  which  has  not, 
so  far  as  we  are  advised,  been  followed  by  any  other  court.  As  to 
the  claim  that  the  equity  rule  is  contrary  to  the  express  prohibition 
of  our  insolvency  law  as  to  preferences,  it  is  to  be  noted  that  the  equi- 
ty rule  is  the  unquestioned  rule  in  England  for  the  distribution  in 
bankruptcy  of  the  firm  and  separate  assets,  and  was  expressly  adopt- 
ed by  section  14  of  the  federal  bankruptcy  act  of  1841,  and  section 
36  of  the  act  of  1867.  This  is  significant,  for  the  prohibition  of  prefer- 
ences is  a  pronounced  feature  of  all  bankrupt  laws,  and  especially  so  of 
the  bankrupt  acts  of  1841  and  1867.     If  it  be  held  that,  the  prohibi- 


Sec.  3)  IMSOLVENCY    OR    BANKKUPTCT.  561 

tion  of  preferences  in  our  insolvency  law  abrogates  any  part  of  the 
equity  rule,  the  whole  thereof  is  annulled,  and  firm  and  individual 
assets  constitute  a  single  fund,  to  be  distributed  to  firm  and  individual 
creditors  pro  rata.  It  is  clear  that  the  law  cannot  be  so  construed, 
and  that  the  prohibition  as  to  preferences  relates  to,  and  is  directed 
against,  the  acts  of  the  insolvents.  The  same  suggestions  apply 
with  equal  force  to  the  claim  that  the  requirement  of  the  insolvency 
law  of  equality  in  the  distribution  of  the  net  assets  to  the  creditors 
abrogates  the  equity  rule.  It  is  difficult  to  see  upon  what  principle 
we  can  consistently  hold,  as  we  are,  in  effect,  asked  to  do  by  the  as- 
signee, that  the  equity  rule  is  annulled  by  the  provisions  of  the  in- 
solvent law  forbidding  preferences,  and  requiring  equality  of  dis- 
tribution, and  adopt  in  place  of  it  the  Kentucky  rule ;  for  the  lat- 
ter permits  the  firm  creditors  to  have  the  exclusive  benefit  of  the 
firm  assets,  if  they  are  greater  and  pay  a  greater  dividend  to  firm 
creditors  than  the  individual  assets  do  to  individual  creditors;  but, 
if  they  are  less,  then,  and  only  then,  the  two  classes  of  creditors  share 
equally.  The  firm  creditors  never  share  their  fund  with  the  separate 
creditors,  but  the  latter  must  share  theirs  with  the  former,  whenever 
it  is  the  largest.  If  one  of  these  rules  is  forbidden  by  the  insolvency 
law,  the  other  is,  also.  The  fact  that  the  insolvency  law  contains  no 
directions  for  marshaling  the  assets  of  insolvents  where  there 
are  different  classes  of  creditors  and  different  funds,  indicates  that 
it  was  the  intention  of  the  Legislature  to  leave  the  settled  equity  rule 
in  force.  The  insolvency  law's  requirement  of  equality  and  no  prefer- 
ences is  subordinate  to  the  settled  equities  and  priorities  of  partner- 
ship creditors  in  and  to  the  firm  assets,  and  the  correlative  equities 
and  priorities  of  the  separate  creditors  in  and  to  the  separate  assets, 
when  the  assets  are  marshaled  and  distributed  by  the  court  in  in- 
solvency proceedings.  The  direction  of  the  statute  for  the  equal  dis- 
tribution of  the  insolvent's  property  means  a  distribution  in  accord- 
ance with  the  recognized  rules  of  equity.  See  Hanson  v.  Aletcalf, 
46  Minn.  25,  48  N.  W.  441 ;  Kells  v.  McClure,  G9  Minn.  60,  71  X. 
W.  827.     *     *     * 

2.  The  claim  of  the  Irish-American  Bank  was  based  upon  promis- 
sory notes  executed  by  the  firm  of  Ives,  Ireland  &  Co.,  and  by  Ire- 
land in  his  individual  name;  and  for  this  reason  the  trial  court  per- 
mitted the  bank  to  receive  a  dividend  on  the  full  amount  of  its  claim, 
from  both  the  partnership  and  individual  funds.  The  trial  court's 
order  in  this  respect  is  claimed  to  be  erroneous,  for  the  reason  that 
the  consideration  of  the  notes  determines  the  character  of  the  debt, 
which  was  for  money  loaned  to,  and  used  by,  the  firm;  hence  it  is 
immaterial  whether  or  not  the  individual  name  of  the  partner  is  on 
the  notes,  for  with  or  without  it  they  represent  a  partnership  debt, 
for  which  he  is  liable;  consequently  the  bank  has  no  equities  superior 
to  the  other  firm  creditors.  The  question  of  double  proof  in  such 
a  cape  is  not  a  new  one.     It  was  at  one  time  the  rule  in  England  that 

GlL.r.VRT.— 3G 


562  RIGHTS   AND   REMEDIES  OP  CREDITORS.  (Ch.   8 

a  creditor  holding  a  note  signed  by  the  firm  and  an  individual  part- 
ner must,  in  bankruptcy,  elect  which  estate  he  would  prove  his  claim 
against  The  rule  is,  and  always  has  been,  otherwise  in  this  country, 
and  it  is  settled  by  a  very  decided  weight  of  authority  that  such  double 
proof  is  permissible.  T.  Pars.  Partn.  p.  390;  2  Bates,  Partn.  §  841; 
17  Am.  &  Eng.  Enc.  Law,  1310;  Emery  v.  Bank,  7  Nat.  Bankr.  Rep. 
217,  Fed.  Cas.  No.  4,446;  In  re  Bradley,  2  Biss.  515,  Fed.  Cas.  No. 
1,772;  Ex  parte  Nason,  70  Me.  363;  Roger  Williams  Nat.  Bank 
V.  Hall,  160  Mass.  171,  35  N.  E.  666.  It  is  true,  as  claimed,  that  the 
federal  bankrupt  law  provided  for  double  proof  in  certain  cases ;  but 
Judge  Clifford,  in  Emery  v.  Bank,  clearly  indicates,  independent  of 
the  statute,  that  where  a  creditor  has  taken  the  precaution,  before 
parting  with  his  money,  to  secure  an  express  written  contract  for  its 
repayment  from  both  the  firm  and  the  individual  partner,  his  right  is 
clear,  in  case  of  bankruptcy,  to  the  benefit  of  his  caution,  and  to  prove 
his  claim  against,  and  receive  a  dividend  from, 'the  fund  belonging  to 
the  partnership,  and  also  from  the  estate  of  the  individual  partner. 
This  precise  question  was  involved  in  the.  cases  of  Ex  parte  Nason 
and  Bank  v.  Hall,  supra,  and  in  each  the  rule  as  to  double  proof  was 
maintained  on  principle.  In  the  last-named  case  the  court,  after 
citing  the  authorities  in  support  of  the  rule,  concludes  thus :  "In  view 
of  the  modern  decisions,  and  the  general  agreement  of  opinion,  we 
think  it  unnecessary  to  argue  elaborately  for  the  right  of  a  creditor 
who  has  required  two  contracts,  binding  two  distinct  estates,  to  in- 
sist upon  both."  Our  conclusion  on  this  question  is  that  the  Irish- 
American  Bank  was  entitled  to  receive  a  dividend  on  its  claim  from 
both  funds.  The  trial  court,  however,  directed  a  dividend  to  be  paid 
to  it  from  both  funds,  concurrently,  on  the  full  amount  of  its  debt. 
There  are  authorities  sustaining  this  part  of  the  order  but  it  is  mani- 
festly inequitable  to  other  creditors.  When  the  bank  receives  a  divi- 
dend from  the  firm  assets,  the  primary  fund  for  the  payment  of  its 
claim,  its  debt  is  paid  pro  tanto;  and  to  permit  it  to  receive  a  divi- 
dend from  the  individual  assets,  on  the  part  of  its  debt  paid  from  the 
firm  assets,  to  the  prejudice  of  other  creditors,  is  not  just,  and  there- 
fore not  legal,  in  the  absence  of  any  statute  declaring  it  to  be  so. 
It  follows  that  the  order  appealed  from  must  be  modified  so  as  to 
permit  the  bank  to  receive  a  dividend  from  the  individual  assets  of 
Ireland  only  on  the  balance  of  its  claim  after  applying  as  a  pavment 
its  dividend  from  the  firm  assets,  and  that  this  case  must  be  remanded, 
with  direction  to  the  district  court  to  so  do.^ 

»  Mitchell  and  Canty,  JJ.,  do  uot  concur  in  permitting  double  proor. 


Sec.  3)  INSOLVENCT    OR    BANKRDPTCT.  S'"'*' 

MILLER'S  RIVER  NATIONAL  BANK  v.  JEFFERSON. 

(Supreme  Judicial  Court  of  ilassuchusetts,  1S84.     138  Miiss.  111.) 

Holmes,  J.  The  Miller's  River  National  Bank  discounted  a  draft 
of  the  firm  of  Goodman,  Schofield  &  Co.,  consisting  of  Goodman, 
Hale  and  Schofield,  who  are  now  in  insolvency  individually  and  as  a 
firm.  As  a  condition  of  making  the  discount,  the  bank  required  se- 
curity to  be  given  for  the  whole  indebtedness  of  the  firm  to  it,  in- 
cluding previous  advances,  as  well  as  the  draft.  Goodman  and 
Hale  accordingly  transferred  to  the  bank  promissory  notes  of  the  firm 
owned  by  them  respectively,  and  given  for  advances  made  by  them 
to  ihe  firm.  These  notes  were  pa\able  on  demand.  The  discount- 
ed draft  had  been  paid  be'fore  the  insolvency  proceedings  were  be- 
gun, but  some  of  the  previous  advances  had  not  been;  and  the  ques- 
tion is  whether  the  bank  can  prove  the  collateral  notes,  after  having 
already  proved  for  the  whole  amount  of  the  unpaid  advances. 

The  statutes  and  decisions  have  applied  the  maxim  that  equality 
is  equity  in  a  somewhat  mechanical  way  to  the  distribution  of  in- 
solvent estates.  But  we  know  of  no  authority  applicable  to  this  case 
that  goes  beyond  preventing  parties  from  taking  a  larger  propor- 
tion of  the  fund  than  they  or  those  whom  they  represent  may  be 
supposed  to  have  contributed  to  it.  If  the  principal  and  the  collateral 
claim  represent  two  distinct  contributions,  there  is  nothing  in  the 
general  policy  of  the  insolvent  law  opposed  to  double  proof.  If, 
for  instance,  a  stranger  to  the  firm  had  held  these  notes  for  advances 
made  by  him,  and  had  pledged  them  to  the  bank  to  secure  it  for  its 
subsequent  advance,  the  pledged  notes,  being  provable  before,  would 
not  cease  to  be  so  when  pledged,  and  the  pledgee  would  hold  any  bal- 
ance received  above  its  debt  as  trustee  for  the  pledgor. 

In  the  present  case  the  collateral  notes  represent  distinct  contribu- 
tions as  much  as  in  the  case  just  supposed — contributions  from  mem- 
bers of  the  firm,  to  be  sure,  who  are  liable  in  solidum  for  the  firm 
debts,  but  still  contributions  diminishing  their  separate  estates  and 
swelling  that  of  the  firm.  Even  in  the  hands  of  a  partner,  they  would 
be  recognized  as  debts,  and,  although  the  partner  would  not  be  al- 
lowed to  prove  them  in  competition  with  his  own  creditors,  if  there 
was  a  surplus  he  would  be  let  in,  and,  according  to  many  decisions, 
would  have  to  be  paid  in  full  before  any  dividend  could  be  paid 
in  respect  of  capital. 

This  being  so,  what  substantial  reason  is  there  why  a  holder  for 
value  should  not  receive  dividends  to  the  extent  of  his  interest,  like 
a  pledgee  of  accommodation  paper?  It  is  true  that  the  considera- 
tion which  gives  this  particular  debt  its  capacity  to  compete  with  tlie 
claims  of  other  creditors  is  the  advance  to  the  firm,  and  that  that  ad- 
vance has  already  been  proved  to  its  full  aipount.  But,  if  the  bank 
had  made  a  separate  purchase  of  these  notes,  it  could  prove  them, 


564  RIGHTS   AND   REMEDIES  OF  CREDITORS.  (Ch.    8 

although  such  a  purchase  would  add  nothing  to  the  fund  appropriat- 
ed to  the  firm  creditors.  In  this  case  the  bank  is  equally  a  holder 
for  value,  and  the  transfer  of  the  collateral  notes  was  part  of  the 
consideration  for  the  advance  to  the  firm. 

Again,  at  the  time  the  notes  were  transferred  to  the  bank,  the  bank 
could  have  maintained  an  action  upon  them.  Thayer  v.  Buffum,  11 
Mete.  398;  Richards  v.  Fisher,  2  Allen,  527.  Without  implying 
that  the  right  to  maintain  an  action  and  the  right  to  prove  in  in- 
solvency are  coextensive,  it  may  be  said  that  one  follows  from  the 
other  pretty  directly  when  the  general  policy  of  the  insolvent  laws 
has  been  satisfied. 

The  fact  that  the  notes  were  payable  on  demand  makes  no  dififer- 
ence.  Pub.  St.  1882,  c.  77,  §14,  no  more  subjects  indorsees  to  a  part- 
ner's disability  to  prove  than  it  does  to  his  disability  to  sue.  Thayer 
V.  Buffum  and  Richards  v.  Fisher,  ubi  supra. 

If  the  obstacles  to  proving  the  collateral  notes,  considered  as 
contracts  of  the  firm,  arc  overcome,  we  do  not  understand  the  de- 
fendants to  argue  that  they  present  any  further  difficulties  in  their 
aspect  of  securities,  or  to  deny  that  a  creditor  holding  security  from 
one  partner,  like  one  holding  it  from  a  stranger,  may  retain  his  se- 
curity and  prove  for  the  full  amount  of  his  debt. 

Judgment  for  the  plaintiff. 


ALLEN  V.  DANIELSON,  Assignee,  et  al. 
(Supreme  Court  of  Rhode  Island,  1S87.    15  R.  I.  480,  8  Atl.  705.) 

DuRFEE,  C.  J.  The  assignment  under  which  the  questions  in  this 
case  are  raised  conveys  all  the  property  of  the  assignors,  except  such 
as  is  exempt,  from  attachment  by  law,  to  the  assignee,  in  trust  to  sell 
and  convert  it  into  money,  and  apply  the  proceeds  to  the  payment, 
first,  of  certain  claims  entitled  or  allowed  to  be  preferred,  and  then 
"for  the  equal  benefit  of  all  our  creditors  in  proportion  to  their  re- 
spective claims."  At  ,the  time  of  the  assignment  some  of  the  general 
creditors  held  claims  which  were  secured  by  mortgage. 

The  first  question  is  whether  the  creditors  so  secured  were  en- 
titled to  dividends  on  their  full  claims  pro  rata  with  the  other  cred- 
itors. The  rule  in  bankruptcy,  both  in  England  and  in  this  country, 
where  we  have  a  bankrupt  law,  is  that  creditors  so  secured  shall  have 
dividends  only  on  the  residue  of  their  claims  after  converting  and 
applying  the  security,  or  after  deducting  its  appraised  or  agreed  val- 
ue. This  rule  has  been  applied  sometimes  in  the  settlement  of  an 
insolvent  estate  after  the  death  of  the  debtor,  or  under  his  assignment ; 
but,  according  to  the  decided  weight  of  authority,  the  rule  is  to  allow 
all  the  creditors  to  bring,in  their  claims  in  full,  and  have  dividends  ac- 
cordingly; it  being  the  duty  of  the  personal  representative  or  assignee. 


Sec.  3)  INSOLVENCY    OR    BANKRUPTCY.  565 

if  a  secured  debt  is  so  reduced  by  the  dividends  that  the  security  will 
more  than  pay  it,  to  redeem  for  tlie  benefit  of  the  creditors.  1  Story, 
Eq.  Jur.  §  504b;  Bisp.  Eq.  §  343;  Jones,  Pledges,  §  587;  Mason 
V.  Bogg,  2  Mylne  &  C.  443;  In  re  Xeres  Wine  Shipping  Co.,  L.  R. 
3  -Ch.  :71 ;  Moses  v.  Ranlet,  2  N.  H.  488 ;  West  v.  Bank,  19  Vt.  403 ; 
Walker  v.  Baxter,  26  Vt.  710;  Findlay  v.  Hosmer,  2  Conn.  350; 
Logan  V.  Anderson,  18  B.  Mon.  (Ky.)  114;  Citizens'  Bank  of  Paris 
V.  Patterson,  78  Ky.  291;  Shunk's  Appeal,  2  Pa.  304;  Miller's  Es- 
tate, 82  Pa.  113,  22  Am.  Rep.  754;  Van  Mater  v.  Ely,  12  X.  J.  Eq. 
271;  Evertson  v.  Booth,  19  Johns.  (X.  Y.)  4S6;  Jervis  v.  Smith. 
7  Abb.  Prac.  (N.  S.)  (N.  Y.)  217';  Bates  v.  Paddock,  118  111.  524, 
9  X.  E.  257,  59  Am.  Rep.  383. 

The  ground  of  decision  in  these  cases  is  that  the  creditors  are 
severally  creditors  to  the  full  amount  of  their  claims,  and  arc  there- 
fore entitled  to  dividends  to  the  full  amount;  the  security  being  re- 
garded as  something  collateral,  which  does  not  reduce  the  debt,  but 
only  secures  the  creditor  pro  tanto,  in  case  the  debtor  or  his  estate 
cannot  pay  the  debt  in  full.  And  in  the  case  at  bar  this  is  the  rule 
which  comports  with  the  language  of  the  assignment  declaring  the 
trust,  namely,  that  the  assignee  shall  apply  the  proceeds,  after  pay- 
ing the  preferred  creditors,  "for  the  equal  benefit  of  all  our  creditors, 
in  proportion  to  their  respective  claims."  not  in  proportion  to  their 
claims  less  the  value  of  arty  securities  which  they  hold. 

In  the  case  of  Re  Knowles,  13  R.  I.  90,  this  court  allowed  a  cred- 
itor under  an  assigTiment  who  ^as  secured,  and  who,  after  the  pres- 
entation of  her  claim,  had  converted  and  applied  her  security,  to 
share  with  the  other  creditors  only  to  the  extent  of  her  unpaid  residue. 
The  case  was  a  petition  for  an  opinion  on  a  case  stated,  and  was  doubt- 
less submitted  without  full  argument  or  presentation  of  authorities, 
so  that  the  court,  prepossessed  in  favor  of  the  rule  in  bankruptcy  on 
the  score  of  equality,  and  by  familiarity  with  it,  and  wishing  to  avoid 
a  diversity  of  rules,  supposing  that  there  were  two  lines  of  decision 
of  about  equal  authority  to  choose  between,  naturally,  without  the 
consideration  which  it  might  otherwise  have  bestowed,  chose  that 
line  of  decision  which  was  in  accord  with  the  rule  in  bankruptcy. 
The  case  is  not  without  respectable  support.  Amory  v.  Francis.  16 
r^Iass.  308;  Farnum  v.  Boutelle,  13  Mete.  (Mass.)  159;  Wurtz  v. 
Hart,  13  Iowa,  515.  But  we  have  no  doubt  we  should  have  decided 
the  case  differently  if  we  had  before  us  when  we  decided  it  the  same 
array  of  authorities  which  we  have  before  us  now.  The  <iucstion, 
then',  is,  shall  we  adhere  to  it  out  of  regard  for  the  maxim  stare  de- 
cisis, or  shall  we  adopt  what  we  now  consider  the  sounder  rule?  We 
have  come  to  the  conclusion  that,  considering  how  recently  the  case 
was  decided,  very  little  harm  will  come  from  overruling  it,  and  that 
by  doing  so  we  shall  not  only  establish  the  correct  rule,  but  also,  which 
iN  no  inconsiderable  gain,  establish  the  rule  which  is  generally  prev- 
alent elsewhere. 


566  RIGHTS  AND   REMEDIES  OF   CREDITORS.  (Ch.    8 

It  appears  in  tlie  case  at  bar  that. the  assignee  has  already  made  two 
dividends.  No  part  of  the  first  was  paid  to  the  secured  creditors 
when  it  was  made,  it  being  then  supposed  that  the  mortgaged  prop- 
erty would  suffice  to  pay  them  in  full.  Before  the  second  dividend 
the  mortgaged  property  was  sold,  and  the  proceeds  were  found  to  be 
insufficient,  quite  a  large  residue  of  indebtedness  remaining  unpaid. 
The  assignee,  in  making  the  second  dividend,  recognized  the  secured 
creditors,  in  accordance  with  the  rule  laid  down  in  Re  Knowles,  as  ' 
creditors  to  the  extent  of  the  unpaid  residue,  and  allowed  them  as 
such  to  share  pro  rata  with  the  other  creditors  in  the  second  dividend 
and  also  made  up  to  them  for  not  participating  in  the  first  divi- 
dend. The  assignee  now  has  more  assets  to  be  applied,  and  the  cred- 
itors who  were  secured  contend  that  they  are  entitled  to  be  paid  out 
of  said  assets  so  much  as  is  necessary  to  put  them  on  an  equality  with 
the  other  creditors,  on  the  basis  of  their  claims  in  full,  before  any 
third  dividend  is  made.     *     *     * 

Our  decision  is  that  the  creditors  who  were  secured  are  entitled  to 
receive  out  of  the  funds  in  the  hands  of  the  assignee  so  much  as  will 
put  them  in  a  par  proportionately  with  the  other  creditors,  on  the 
basis  of  their  claims  as  they  were  when  the  assignment  was  made, 
before  any  other  dividend,  provided  that  what  they  receive  shall  not 
exceed  what  remains  due  to  them  as  creditors,  if  the  assignee  has 
so  much.  If  the  assignee  happens  not  to  have  so  much,  we  do  not 
think  he  is  bound  to  make  good  the  deficiency  out  of  his  own  means, 
he  having  acted  in  good  faith  under  the  rule  as  laid  down  on  Re 
Knowles,  with  the  acquiescence  of  the  creditors,  in  making  the  for- 
mer dividends.^ 

1  "The  agreement  between  the  debtor  and  creditor  was  that  the  debt  should 
be  paid.  That  debt  was  a  definite  quantity,  and  nothing  less  than  its  full 
amount  can  be  said  to  be  the  debt.  It  is  not  altered  or  affected  in  its  amount 
because  the  creditor  may  hold  some  collateral  security.  That  Is  not  a  factor 
of  the  debt,  but  is  merely  an  incident  to  the  debt.  The  very  force  and  meaning 
of  a  collateral  security  are  in  the  idea  of  a  guaranty  of  the  performance  of 
the  principal  agreement,  which  was  to  pay  the  debt.  The  property  which  a 
creditor  holds  as  collateral  to  the  indebtedness  of  his  debtor  secures  him  to 
that  extent,  in  case  his  debt  is  not  paid  in  full  by  the  debtor  or  by  his  estate. 
As  between  the  creditor  and  his  debtor,  the  latter  could  not  compel  the  former 
to  resort  first  to  his  collaterals  before  asserting  his  claim  by  a  personal  suit. 
The  debtor  has  no  control  over  the  application  of  the  collaterals.  It  is  a  gen- 
eral rule  of  equity  that  the  creditor  is  not  bound  to  apply  his  collateral  securi- 
ties before  enforcing  his  direct  remedies  against  the  debtor.  1  Story,  Eq. 
Jur.  §  &40;  Lewis  \.  United  States,  92  U.  S.  618.  23  L.  Ed.  513.  Then  on  what 
principle  can  we  hold  that  because  the  debtor  becomes  insolvent  the  contract 
with  his  creditor  is  changed,  and  that  the  creditor  cannot,  under  those  cir- 
cumstances, enforce  his  direct  claim  against  the  debtor  until  he  has  realized 
on  his  securities?  Is  the  rule  capable  of  such  inversion?  I  cannot  see  any 
reason  in  the  proposition.  I  do  not  see  why,  in  the  absence  of  intervention  by 
positive  or  statutory  law,  the  engagements  of  parties  should  be  varied."  Per 
Grav.  J.,  in  People  v.  Remington  &  Sons,  121  N.  Y.  328,  24  N.  E.  793,  8  L.  R- 
A.  4*58  (1890). 

The  United  States  bankruptcy  law  (Act  July  1,  1898,  c.  541,  §  57h,  30  Stat. 
560  [U.  S.  Corap.  St.  1901,  p.  3443J)  provides  that  collateral  securities  shall  be 


Sec.  3)  INSOLVENCT   OR   BANKRUPTCY.  507 

HART  V.  HIATT  et  al. 
(Court  of  Appenls  of  Indian  Territory.  IS'J'.).    2  Ind.  T.  2-jr>.  48  S.  W   lOns.) 

Action  by  Hart  against  W.  T.  Hiatt  and  others  upon  a  promissory 
note  made  by  them  as  partners.  An  attachment  was  issued,  and  prop- 
erty of  the  firm,  consisting  of  agricultural  implements,  cows,  heifers, 
calves,  horses,  colts,  crop  of  oats,  and  the  crop  of  growing  wheat  on 
873  acres,  was  seized.  The  several  partners  claimed  their  statutory 
exemption  out  of  the  property  thus  attached.  The  case  was  referred 
to  a  special  commissioner,  who  found  as  a  matter  of  law  that  when 
partnership  property  is  levied  upon  under  an  attachment  the  defend- 
ant in  the  attachment  has  not  the  right  to  claim  his  exemptions, 
whether  the  debt  sued  upon  be  one  against  the  partnership  or  against 
the  individual  sued.  To  this  finding  the  defendants  excepted,  which 
exception  the  trial  court  sustained.     Plaintiff  appealed. 

TowNSEND,  J.  *  *  *  The  next  important  question  in  this  case, 
in  our  view  of  it,  is  raised  by  the  ruling  of  the  court  in  sustaining 
appellees'  exception  to  the  fourth  finding  of  the  commissioner.  Can 
a  partner  have  exemption  out  of  partnership  assets  when  the  same  is 
levied  upon  under  legal  process?  A  learned  author,  after  discuss- 
ing this  question  and  the  decisions  of  different  courts,  says:  "But 
it  will  not  be  necessary  to  enlarge  this  discussion,  first,  because  the 
subject  has  been  gone  over  in  the  preceding  subdivisions;  and,  sec- 
ond, because  the  courts  have,  by  a  very  decided  weight  of  authority 
settled  the  doctrine  that  those  statutes  do  not  contemplate  the  set- 
ting apart  of  exempt  property  out  of  partnership  assets."  Thomp. 
Homest.-  &  Exemp.  §  194.  Another  author  says:  "There  are  cases 
recognizing  the  exemption  of  partnership  property,  but  ordinarily 
the  statutes  favor  the  individual  representing  a  family,  or  the  fol- 
lower of  an  avocation ;  and  the  general  rule  is  that  partnership  prop- 
erty is  not  exempt  when  not  expressly  made  so.  *  *  *  The  ques- 
tion has  been  much  discussed,  but  it  seems  clear  that  a  partner  cannot 
claim  as  exempt  to  him  property  which  he  does  not  own.  The  firm  is 
an  artificial  person,  of  which  he  is  a  part ;  but  its  property  is  not  his. 
Therefore  there  must  be  statutory  authorization  before  he  can  rightful- 
ly claim  any  portion  of  the  partnership  property,  other  than  such  au- 
thorization, as  that  which  exempts  certain  property  to  individual  debt- 
or owners."  Wap.  Homest.  p.  90-1.     "It  does  not  appear  that,  at  the 

valued,  and  the  secured  creditor  shall  receive  a  dividoud  only  upon  the  un- 
paid balance. 

"The  statute  only  requires  the  property  to  he  renounced,  sold,  or  valued 
when  it  is  the  property  of  the  bankrupt.  If  the  t^oods  or  estjite  of  any  third 
persons  have  been  pleil^ed  for  the  bankrupt's  debt,  equity  does  not  retiuire 
that  tlie  general  creditors  shall  have  the  advantage  of  the  security.  •  •  • 
This  rule  applies  to  partnerships  when  the  estate  of  one  partner  has  been 
pledued  or  ni(U-tpa?;ed  for  a  debt  of  the  firm."  Per  Lowell.  J..  In  He  llol- 
brook.  Fed.  Cas.  No.  B.fjSS. 


568  RIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

time  of  the  attachment,  the  plaintiffs  had  dissolved  partnership,  or 
had  divided  their  joint  property,  or  had  had  a  general  settlement  and 
winding  up  of  their  business.  We  agree  with  the  plaintiHs'  counsel 
that  the  statute  is  humane  and  beneficial  in  its  purpose  and  operation, 
and  fairly  entitled  to  as  liberal  a  construction  as  can  be  given  it,  con- 
sistently witli  its  true  and  just  interpretation.  There  are  many  dif- 
ficulties, however,  in  the  way  of  applying  it  to  the  case  of  copartners 
and  joint  owners,  and  these  difiiculties  we  find  to  be  insuperable. 
Property  purchased  with  the  joint  funds  of  the  firm,  and  constituting 
a  portion  of  its  capital,  must  necessarily  be  subject  to  all  the  inci- 
dents of  partnership  property.  On  the  decease  of  one  member  of  the 
firm,  it  would  go  to  the  surviving  member,  and  he  would  have  a 
right  to  hold  it,  to  be  used  in  settling  the  affairs  of  the  concern,  and 
paying  its  debts.  In  the  case  of  numerous  partners  can  it  be  said 
that  each  would  have  the  right  to  claim,  as  exempt  from  attachment 
for  the  joint  debts  $100  worth  of  tools  &nd  implements,  and  another 
$100  worth  of  materials  and  stock ;  or  is  the  whole  firm  to  be  consid- 
ered as  one  debtor  only?  Does  the  exempted  property  in  that  case 
belong  to  the  partners  jointly,  or  does  each  take  a  separate  share? 
It  appears  to  us  that  the  statute  is  intended  to  apply  only  to  the  case 
of  a  single  and  individual  debtor.  The  exemption  which  it  gives  is 
strictly  personal.  The  statute  speaks  in  the  singular  number  through- 
out, unless  possibly  the  clause  as  to  fishermen  (Gen.  St.  c.  133,  §  32, 
cl.  9)  be  an  exception.  Its  apparent  object  is  to  secure  to  the  debtor 
the  means  of  supporting  himself  and  his  family,  by  following  his  trade 
or  handicraft  with  tools  belonging  to  himself.  It  also  provides  that 
his  family  are  to  be  secured  in  the  enjoyment  of  certain  indispensable 
comforts  and  necessaries,  out  of  his  property.  But  property  belong- 
ing to  the  firm  cannot  be  said  to  belong  to  either  partner  as  his  sepa- 
rate property.  He  has  no  exclusive  interest  in  it.  It  belongs  as 
much  to  his  partner  as  it  does  to  him,  and  cannot  in  whole  or  in  part 
be  appropriated  (so  long  as  it  remains  undivided)  to  the  benefit  of  his 
family.  It  may  be  wholly  contingent  and  uncertain  whether  any  of  it 
will  belong  to  him  on  the  winding  up  of  the  business  and  the  settle- 
ment of  his  account  with  the  firm.  The  exemption,  in  our  opinion, 
is  several,  and  not  joint.  It  applies  to  the  debtor  in  the  singular  num- 
ber, and  is  personal  and  individual  only."  Rond  v.  Kimball,  101  Mass. 
106.  In  Thurlow  v.  Warren,  82  Me.  164,  19  Atl.  158,  17  Am.  St. 
Rep.  472,  the  agreed  state  of  facts  was  as  follows:  "It  appeared 
that,  at  the  time  the  plaintiffs  were  adjudged  insolvents,  they  v^^ere 
the  sole  owners,  in  their  copartnership  capacity,  of  a  pair  of  oxen; 
that  they  were  the  owners  of  no  other  oxen,  either  as  copartners 
or  as  individuals;  and  that  they  subsequently  replevied  them  from 
their  assignee,  the  defendant,  to  whom  the  oxen  had  been  delivered 
by  the  messenger  of  the  court  of  insolvency.  It  was  agreed  that,  if 
judgment  should  be  for  the  plaintiffs,  they  were  to  recover  nominal 
damages,  with  full  costs;   and,  if  for  defendant,  he  was  to  have  judg- 


Sec.  3)  INSOLVENCY    OR    BANKRUPTCT.  500 

merit  for  $200,  with  interest  and  full  costs."  The  court  say  that,  "al- 
though in  some  jurisdictions  the  contrary  view  is  taken,  still  the  g'rcat 
weight  of  deliberate  and  well-considered  cases  hold  that  individual, 
and  not  partnership,  property  is  exempt" — citing  Pond  v.  Kimball, 
supra;  Bonsall  v.  Comly,  44  Pa.  442;  Guptil  v.  McPee,  9  Kan.  30; 
In  re  Handlin,  3  Dill.  (U.  S.)  290,  Fed.  Cas.  No.  6,018.     *     *     * 

We  think  the  appeal  was  proper,  but  that  the  judgment  of  the 
court  below  in  sustaining  the  exceptions  to  the  findings  of  the  commis- 
sioner, and  overruling  the  motion  of  appellant  to  quash  the  writs  of 
supersedeas  issued  by  the  clerk  of  the  court,  was  erroneous,  and 
the  same  is  hereby  reversed,  and  the  case  remanded  for  further  pro- 
ceedings. 


Ex  parte  SILLITOE.    Ex  parte  HUNTER.     In  re  GOODCHILDS 

&   CO. 

(In  Chancery,  before  Ixyrd  Eldou,  Cb..  1824.     1  Glyn  &  J.  374.) 

John  Goodchild,  the  elder,  John  Jackson,  William  Jackson,  John 
Goodchild.  the  younger,  James  Jackson,  and  Thomas  Jones,  carried 
on  the  business  of  bankers  at  Bishop  Wearmouth  under  the  firm  of 
Goodchilds,  Jackson  &  Co.,  and  in  London  under  the  firm  of  Jack- 
son, Goodchilds  &  Co.  That  branch  of  the  banking  business  wdiich 
was  carried  on  in  London  was  conducted  by  John  and  William  Jack- 
son, the  partners  resident  in  London.  John  and  William  Jackson  al- 
so carried  on  the  business  of  ironmongers  in  London,  under  the  firm 
of  John  &  William  Jackson,  on  their  separate  account.     *     *     * 

A  debt  arose  from  the  banking 'firm  to  the  ironmongery  firm  for 
money  procured  for  the  benefit  of  the  former  firm  on  the  credit  of 
the  indorsement  of  the  latter  firm.  All  the  partners  were  adjudged 
bankrupts.  Proof  was  tendered  against  the  assets  of  the  banking 
firm  for  the  foregoing  debt  on  behalf  of  the  ironmongery  firm.  The 
proof  was  rejected. 

This  was  an  appeal  from  a  decision  of  his  honor,  the  Vice  Chan- 
cellor, who  was  of  opinion  that  no  substantial  distinction  could  be 
made  between  a  loan  of  money  or  sale  of  goods  by  a  minor  part- 
nership to  the  aggregate  firm,  and  that  this  case  came  within  the 
principle  under  which  proof  has  been  made  by  smaller  firms,  and  by  an 
order  had  directed  that  such  sum  of  £8,222  should  be  proved  against 
the  estate  of  Goodchilds,  Jackson  &  Co.     *     *     * 

The  Lord  Chancellor.  It  appears  to  me  to  be  necessary  in  de- 
ciding this  case  to  be  well  informed  of  the  principle  upon  which  the 
question  turns,  and  the  extent  to  which  the  decisions  are  to  be  ap- 
plied, and  it  is  of  the  utmost  moment  that  the  uniformity  of  the  princi- 
ple to  be  applied  here  should  be  carefully  preserved.  We  all  know, 
"who  have  had  occasion  to  practice  in  this  court  since  the  year  179G, 


570  RIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.    8 

that  nothing  has  been  more  perplexing  tlian  the  application  of  this 
very  principle,  and,  if  there  is  anything  in  this  case  that  might  bring 
into  question  what  has  been  considered  as  settled  law,  it  is  of  the 
last  importance  that  it  should  be  reasoned  and  stated  at  large.  The 
rule  of  the  court  upon  this  point  is  founded  upon  principles  so  clear 
that  it  would  perhaps  have  been  better  tliat  it  should  never  have  been 
departed  from;  but  it  has  been  departed  from,  and  I  feel  no  in- 
clination to  diminish  or  add  to  the  exceptions.  T^^he  rule  is  that  a 
partner  in  a  firm  against  which  a  commission  of  bankruptcy  is- 
sues shall  not  prove  in  competition  with  the  creditors  of  the  firm, 
who  are  in  fact  his  own  creditors — shall  not  take  part  of  the  fund 
to  the  prejudice  of  those  who  are  not  only  creditors  of  the  part- 
nership, but  of  himself.  To  that  rulfe  there  is  an  exception,  man- 
ifestly founded  in  justice,  and  that  is,  where  a  partner  becomes 
a  creditor  in  respect  of  the  fraudulent  conversion  of  his  separate 
estate  to  the  use  of  the  partnership'  (an  exception  established  in 
Ex  parte  Kendal,  1  Rose,  71,  and  other  cases).  In  this  commer- 
cial country  it  has  become  of  great  importance  to  know  what  is  to 
be  done  in  cases  where  the  same  individual  is  to  be  considered  as 
standing  in  many  distinct  characters  as  member  of  several  firms.  If 
you  look  at  the  old  law  as  to  bills  of  exchange,  you  will  find  that  in 
older  times  it  was  found  infinitely  difficult  to  deal  with  paper  to  which 
a  man  was  party  in  more  characters  than  one.  Now,  to  meet  the  more 
complicated  nature  of  commercial  relations,  we  say  that  a  man  may 
be  half  a  dozen  men  for  the  purpose  of  binding  himself  and  benefit- 
ing others,  and  for  that  purpose  may  put  his  name  upon  bills  in  dif- 
ferent characters,  and  may  be  a  member  of  many  partnership  houses. 
These  various  relations  originally  came  upon  the  court  with  surprise, 
and  presented  great  difficulties.  T  well  remember  the  Case  of  Shake- 
shaft,  Stirrup,  and  Salisbury,  cited  in  Ex  parte  St.  Barbe,  11  Ves. 
414,  stated  6  Ves.  123,  743,  747.  There  were  four  or  five  persons 
in^a  partnership.  Some  of  them  carried  on  business  in  Liverpool,  some 
in  other  places,  and  the  credulous  world  took  it  for  granted  they 
were  different  concerns,  though  they  were  in  fact  only  so  many  wheels 
of  one  machine.  Another  relaxation  of  the  rule  was  therefore  admit- 
ted— that,  where  there  is  a  demand  arising  from  a  dealing 'by  the  part- 
nership in  a  distinct  trade,  proof  might  be  admitted;  but  then  the 
question,  what  is  a  dealing  in  a  distinct  trade?  is  always  to  be  looked  at 
with  great  care.  I  apprehend  that  the  principle  does  not  apply  more 
to  two  persons,  who  happen  to  be  constituent  members  of  a  part- 
nership of  six,  than  to  one  or  each  of  the  six,  if  one  or  each  was  a 
distinct  trader.  I  take  it  to  be  quite  clear  that  if  an  individual  part- 
ner has  nothing  more  to  say  than  this,  that  he  has  lent  £100  to  his 
partnership,  the  strict  rule  immediately  applies  to  him,  and  shuts  him 
out  from  the  benefit  of  proof.  If  it  were  sufficient  to  state  that  the 
partner  would  not  have  lent  the  ilOO  but  as  a  separate  trader,  the 
rule  is  at  an  end.    We  are  not,  therefore,  merely  to  consider  the  ques- 


Sec.  3)  INSOLVENCY    OR    BANKRUPTCY.  571 

tion  whether  John  and  William  Jackson  were  partners  ^s  ironmongers, 
but    whether    this    is   to   be   considered    a   transaction   between    trade 
and  trade;    and  in  looking  at  the  circumstances  with  a  view  to  that 
question  great  care  is  necessary  lest  we  establish  a  principle  which 
might  in  its  consequence^s  be  the  destruction  of  the  rule;    and  if  it  be 
supposed  that  Mr.  Goodchild,  or  any  individual  of  the  six,  had  been 
a  separate  trader,  coal  dealer  or  corn  dealer,  and  had  with  his  separate 
moneys  retired  a  bill  discounted  at  the  Bank  of  England,  is  it  to  be 
said  that,  because  he  is  a  separate  trader,  therefore  the  retiring  of 
tliat  bill  is  to  make  him  a  creditor  to  prove  against  the  creditors  of 
the  partnership?    And  if  that  would  not  entitle  the  individual  to  prove, 
is  there  any  distinction  between  the  case  of  one  separate  trader  and 
the  case  of  two  individuals  who  are  separate  traders  in  partnership? 
It  is  true,  you  must  look  at  the  whole  series  of  transactions ;  but  if  Mr. 
Goodchild   for  10  years  had  been  advancing  money  to  his   firm,   till 
he  had  advanced  £5,000,  if  you  please,  and  that  all  the  members  of 
the  firm  had  considered  him  as  a  creditor,  and  in  their  partnership 
books  he  had  stated  the  partnership  to  be  debtor  to  him,  still  the  same 
principle  that  would  not  permit  him  to  prove  the  £100  would  apply 
to  the  £5,000.     The  question,  therefore,  to  be  decided  here  is:    What 
is  the  principle  upon  which  it  can  be  said  that  the  rule  of  law  is  to 
be  relaxed  in  respect  of  the  dealings  of  these  two  partners,  because 
thev  were  ironmongers,  not  dealing  in  the  trade  of  ironmongers,  not 
dealing  in  their  separate  articles,  but  dealing  for  the  convenience  of 
the  general  partnership,  by  advancing  money  to  retire  bills  discounted 
by  the  Bank  of  England?    Where  is  the  distinction  in  this  case  which 
can  be  safely  drawn,  preserving  all  the  decisions,  to  prevent  the  ap- 
plication of  the  general  rule  of  law?    I  think  it  will  be  found,  by  ref- 
erence to  the  original  record  of  the  cases  that  have  been  cited,  that  in 
those  petitions   the   consideration    for   which   the   demand   accrued   is 
stated  at  length. 

January  24.  On  this  day  the  Lord  Chancellor  stated  that  he  had 
carefully  examined  all  the  cases  relating  to  this  question  of  proof  by 
partners  as  separate  traders,  in  competition  with  their  joint  creditors, 
and  that  they  were  all  cases  in  which  the  articles  of  one  trade  had 
been  furnished  to  another  trade ;  that  there  was  no  case  in  which  the 
exception  had  been  allowed  where  money  had  been  advanced  to  the 
partnership  by  one  or  more  of  the  partners ;  and  that  his  opinion  was 
the  proof  could  not  be  maintained. 

The  order  of  the  Vice  Chancellor  was  discharged. 


572  BIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.  8 

•       In  re  BUCKHAUSE. 

(United  States  District  Court  for  Massachusetts,  187-1.    2  Lowell,  331,  10  Nat 
Baiikr.  Rep.  20(J,  Fed.  Cas.  No.  2,086.) 

Lowell,  District  Judge.  *  *  *  j  understand  that  the  firm  of 
Buckhause  &  Gough,  the  bankrupts,  were,  at  the  time  of  their  bank-- 
ruptcy,  indebted  to  the  firm  o^  Gough  &  Flynn  in  a  certain  sum  for 
goods  sold  and  delivered;  and  the  question  is  whether  that  sum  can 
be  proved  as  a  debt.  Gough  was  a  member  of  both  firms,  but  Flynn 
was  not  a  member  of  the  bankrupt  firm,  and  he  ofifers  this  proof  as 
the  solvent  or  remaining  partner  of  his  late  firm,  having  the  right  to 
wind  up  its  affairs. 

It  has  for  a  long  time  been  the  law  of  England  that  proof  may  be 
made  by  one  firm  against  the  other  in  such  a  case.  The  firms  are  re- 
garded as  distinct  legal  entities,  capable  of  contracting  with  each  oth- 
er in  equity.  Story,  Partn.  391;  Lindl.  Partn.  p.  996;  Ex  parte 
Thompson,  3  Deac.  &  C.  612. 

The  English  cases  have  gone  beyond  this,  and  have  admitted  con- 
tribution between  the  joint  and  separate  estates,  whenever  there  has 
been  a  distinct  trade  carried  on,  and  the  contract  or  dealing  has  been 
between  "trade  and  trade,"  as  they  say,  though  the  partners  may  have 
been  the  same  in  both  firms,  or  though  one  firm  may  have  included 
the  other.  The  Massachusetts  courts  refuse  to  follow  these  last  de- 
cisions, or  to  permit  any  proof  between  a  firm  and  its  members;  but 
no  court  has  denied  the  right  of  proof  when  the  two  firms  had  one  or 
more  distinct  partners.  In  such  a  case  a  debt  would  exist  which,  to 
be  sure,  could  not  be  recovered  at  law,  for  a  technical  reason.  Bo- 
sanquet  v.  Wray,  6  Taunton,  597;  Story,  Eq.  §  679.  But  I  apprehend 
the  better  opinion  to  be  that  such  a  debt  can  be  recovered  in  equity, 
without  going  into  a  general  settlement  of  the  accounts  of  both  firms. 
Story,  Eq.  §  680;  Hayes  v.  Bement,  3  Sandf.  (N.  Y.)  394;  Calvit  v. 
Markham,  3  How.  (Miss.)  343.  A  learned  author  has  expressed  a 
doubt  whether  there  would  be  a  remedy  even  in  equity.  He  says: 
"In  Bosanquet  v.  Wray,  the  court  seem  to  have  thought  that  in  such 
a  case  there  might  be  a  remedy  in  equity.  It  is  not,  however,  easy  to 
see  how  such  a  remedy  could  be  worked  out,  except  as  against  the 
common  partner  by  a  dissolution  of  the  claimant  partnership.  The 
Court  of  Chancery  does  not  assume  jurisdiction  simply  to  compel 
payment  of  a  debt,  where  there  is  no  lien  or  charge  to  be  enforced; 
nor,  except  in  cases  within  its  peculiar  jurisdiction  over  trusts  and  the 
like,  does  it  give  relief,  unless  there  is,  or  at  some  time  has  been,  a 
legal  right."  Dix.  Partn.  268.  But  Story,  at  section  680,  says:  "Courts 
of  equity,  in  .such  cases,  look  behind  the  forms  of  the  transactions  to 
their  substance,  and  treat  the  different  firms,  for  the  purposes  of  sub- 
stantial justice,  exactly  as  if  they  were  composed  of  strangers,  or 
were  in  fact  corporate  companies."     It  cannot  be  denied  that,  in  sub- 


Sec.  3)  INSOLVENCY    OK    BANKRUPTCY.  573 

Stance,  a  debt  due  from  A.  &  E.  to  A.  «S:  D.  is  a  very  different  thing 
from  a  mere  overdraft  by  A.  from  funds  of  A.  &  B.  To  refuse  to 
notice  the  distinction  is  to  disrej^ard  the  credit  of  D.  altogether. 
Whether  there  be  a  remedy  in  equity  or  not,  while  the  firms  remain 
solvent,  it  seems  clear  that  there  is  a  debt  which  equity  can  recognize, 
and  which,  in  bankruptcy,  ought  to  be  entitled  to  its  share  of  divi- 
dends, in  justice  to  the  creditors  of  the  creditor  firm.  Indeed,  the 
riglit  to  sue  at  law  has  been  granted  by  statute  in  one  state.  Adams, 
Eq.  (5th  Am.  Ed.)  240,  note  1,  citing  the  laws  and  decisions  in  Penn- 
sylvania. I  have  often  decided  that  equitable  debts  may  be  proved 
under  our  bankruptcy  act,  and  I  am  not  aware  that  a  contrary  deci- 
sion has  ever  been  made.  Holding  this  to  be  a  debt  in  equity,  and 
finding  the  decisions  in  bankruptcy  in  favor  of  allowing  its  proof,  I 
admit  it,  though  without  any  intimation  that,  as  between  one  partner, 
or  any  number  of  partners,  and  the  others,  where  there  is  no  firm 
with  a  foreign  member,  the  Massachusetts  cases  may  not  express  the 
true  doctrine  of  this  country.    Debt  admitted  to  proof. 


McELROY  V.  ALLFREE. 
(Supreme  Court  of  Iowa,  1906.    131  Iowa,  518,  108  N.  W.  119.) 

This  is  a  proceeding  in  probate  for  the  allowance  of  a  claim  against 
the  estate  of  George  D.  Wood,  deceased.  Defendant  answered  by  a 
general  denial.  The  trial  court  allowed  the  claim  in  full,  and  defend- 
ant appeals. 

DekiMER,  J.  George  D.  Wood  before  his  death  was  the  cashier  of 
and  had  the  exclusive  management  of  what  was  known  as  the  Bank 
of  Colfax,  a  copartnership  composed  of  George  D.  Wood  and  Alex- 
ander Wood,  engaged  in  the  banking  business  at  the  town  of  Colfax. 
Plaintiff  is  the  receiver  of  the  copartnership,  and  defendant,  the  ad- 
ministrator of  George  D.  Wood's  estate.  It  is  claimed  that  George 
D.  Wood,  while  acting  as  cashier  and  managing  officer  of  the  partner- 
ship, which  we  shall  hereafter  call  the  bank,  wrongfully,  fraudulent- 
ly, carelessly,  and  negligently,  without  the  consent  of  his  partner,  and 
in  excess  of  his' authority,  withdrew  from  said  bank  more  than  $100,- 
000  in  money,  which  was  used  by  him  and  one  Fellows  in  grain  spec- 
ulation and  converted  to  his  and  their  own  use;  that  notes  for  the 
amount  or  a  part  thereof  were  taken  from  Fellows  who  was  then  as 
now  insolvent,  which  was  well  known  to  the  cashier,  and  that  by  rea- 
son of  said  wrong,  fraud,  and  conversion,  plaintiff  is  entitled  to  have 
the  amount  withdrawn  established  as  a  claim  against  decedent's  es- 

4-Q  ♦■/a  Jfl  !(C  ^ 

George  D.  Wood,  in  addition  to  being  liable  to  his  individual  cred- 
itors, was  also  liable  to  the  creditors  of  the  bank,  and  if  this  were  a 
case  where  a  receiver  was  seeking  to  establish  the  rights  of  firm  cred- 


574  RIGHTS   AND   REMEDIES  OF   CREDITORS.  (Ch.    8 

itors  against  assets  in  the  hands  of  the  administrator  of  George  D. 
Wood's  estate,  we  should  have  one  for  application  of  the  doctrine  of 
marshaling  assets.  But  that  is  not  the  situation  here.  Were  the  bank 
a  going  concern  and  Geo.  D,  Wood  alive,  he,  Wood,  would  personally 
owe  the  amount  of  his  abstractions  therefrom.  This  would  not  be  a 
partnership,  but  an  individual,  liabiHty  although  indirectly  partner- 
ship creditors  would  profit  therefrom.  It  is  the  liability  of  the  debtor 
that  we  should  look  to  in  order  to  determine  ^^>hether  or  not  the  doc- 
trine of  marshaling  applies.  In  the  case  given  by  way  of  illustration, 
Wood's  liability  would  be  clearly  individual  and  not  because  of  his 
membership  in  the  banking  firm.  The  fact  that  Wood  is  dead  and  that 
the  bank  is  in  the  hands  of  a  receiver  does  not  change  this  rule,  es- 
pecially where*  fraud  is  established,  as  in  this  case.  Here  the  recovery 
is  against  Wood  or  his  estate  because  of  his  personal  and  individual 
liability  for  fraud  and  the  doctrine  of  marshaling  does  not  apply. 

Counsel  for  defendant  have  cited  a  number  of  cases  in  support  of 
their  contention,  but  none  of  them  go  to  the  extent  claimed.  Indeed 
they  support  the  rule  here  announced.  It  may  be  that  if  the  bank,  in 
good  faith,  had  loaned  Geo.  D.  Wood  the  amount  of  money  which 
he  fraudulently  abstracted,  the  rule  contended  for  would  apply.  But 
that  is  not  the  situation  here.  The  testimony  plainly  shows  that  the 
money  was  not  only  negligently  and  carelessly,  but  fraudulently,  taken 
from  the  bank.  In  such  cases  no  court  of  respectability  has  held  that 
the  doctrine  of  marshaling  applies:  On  the  contrary,  beginning  with 
the  declaration  of  Lord  Thurlow  in  Ex  parte  Lodge,  1  Ves.  Jr.  166, 
And  of  Lord  Eldon  in  Ex  parte  Harris,  1  Rose,  129,  and  ending  with 
the  latest  authorities  and  text-writers  upon  the  subject,  it  is  held  that 
if  a  managing  partner  fraudulently  abstracts  money  from  the  firm, 
the  firm  or  its  representative  may  share  with  his  individual  creditors 
in  his  estate  and  its  assets,  and  in  competition  with  them.  Bates  on 
Partnership,  vol.  2  (1st  Ed.)  §  839.  And  it  is  not  necessary  to  show 
that  the  individual  private  estate  had  been  augmented  by  the  transac- 
tion. Indeed  some  of  the  cases  go  to  the  full  extent  of  holding  that, 
even  if  the  liability  be  contractual,  the  doctrine  of  marshaling  does 
not  apply.  Bird  v.  Bird,  77  Me.  499,  1  Atl.  455.  We  need  not  go  to 
that  extent  in  the  present  case.  It  is  enough  for  us  to  hold  to  the  gen- 
eral rule  that  when  one  member  of  a  firm  fraudulently  abstracts  some 
of  its  assets  a  representative  of  that  firm  may  share  pari  passu  with 
the  individual  creditors  of  the  delinquent  member.  Indeed  there  may 
be  cases  where  they  might,  under  the  doctrine  of  constructive  trust, 
take  all. 

We  have  gone  over  the  record  with  care,  and  find  no  error.  The 
judgment  is  therefore  affirmed. 


Sec.  3)  INSOLVENCY   OR   BANKRUPTCY.  575 

WALTER  et  al.  v.  HERMAN  et  al. 
(Court  of  Apponls  of  Kentucky.  1001.     110  Ky.  800,  G2  S.  W.  S.'jT.) 

WiiiTii:,  J.  On  December  5,  1898,  the  appellee  Martin  Herman  ob- 
tained an  attachment  against  William  J.  Wilmer  and  Berry  Wilmer, 
late  partners  doing  business  as  Wilmer  Eros.  On  this  attachment  two 
insurance  companies  were  served  as  garnishees.  On  December  7,  1898, 
the  appellant  the  Pease  Company  obtained  an  attachment  against  Wil- 
liam J.  Wilmer,  doing  business  as  \V.  J.  Wilmer  &  Co.,  under  which 
the  same  two  insurance  companies  were  served  as  garnishees.  By 
agreement  the  insurance  companies  paid  into  court  $1,440  in  full  of 
their  indebtedness  to  W.  J.  Wilmer  &  Co.  for  loss  by  fire  of  a  stock 
of  goods.  In  the  action  by  Herman  the  appellant  Walter  filed  a  peti- 
tion to  be  made  a  party,  alleging  that  the  firm  of  W.  J.  Wilmer  &  Co. 
was  composed  of  W.  J.  Wilmer  and  appellant  Arton  Walter,  Jr.,  and 
that  as  such  partners  they  suffered  the  loss  by  fire,  and  that  firm  was 
entitled  to  the  benefit  of  the  proceeds  paid  into  court.  He  also  pleaded 
that  the  firm  of  W.  J.  Wilmer  &  Co.,  as  thus  composed,  was  indebted 
to  the  Pease  Company  the  claim  sued  on  by  it,  as  well  as  a  claim  to 
himself  individually,  and  had  no  assets,  outside  the  insurance  proceeds, 
save  $10  or  $12  in  accounts.  Appellant  then  asked  that  the  proceeds 
of  the  insurance  be  paid  on  the  partnership  debts,  first  to  the  Pease 
Company  debt,  and  next  to  himself  as  an  individual  creditor.  An  is- 
sue was  presented  as  to  whether  Walter  was  a  member  of  the  firm  of 
W.  J.  Wilmer  &:  Co..  and  upon  trial  before  a  jury  it  was  determined 
he  was,  and  so  adjudged  by  the  court.  Subsequently  the  court  rendered 
judgment  that  Walter's  claim  of  $356.60  was  valid  against  the  firm 
of  W.  J.  Wilmer  &  Co.  Upon  reasons  and  motion  to  set  aside  the  two 
above  judgments,  the  court  declined  to  do  so.  and  held  that  the  prop- 
erty ($1,4-J0)  was  voluntarily  in  court,  as  neither  the  attachment  of 
Herman  nor  the  Pease  Company  reached  it,  as  one  was  against  W.  J. 
and  Ben  Wilmer,  partners  as  Wilmer  Bros.,  and  the  other  against 
W.  J.  Wilmer  as  W.  J.  Wilmer  &  Co.  However,  the  court  declined  to 
direct  its  receiver  to  pay  the  fund  to  ^Valter  on  his  debt  adjudged  to 
him,  or  to  the  Pease  Company  on  his  written  order.  After  further 
pleading, as  to  priority  of  .the  claims  of  Herman  over  the  Pease  Com- 
pany, the  case  was  stibmitted,  and  the  court  adjudged  that  that  of 
Herman  was  superior,  and  directed  the  payment  to  him  of  his  claim" 
in  full,  and  directed  the  remainder  to  be  paid  to  the  Pease  Company. 
The  latter  judgment,  from  which  this  appeal  is  prosecuted,  was  ren- 
dered in  January,  1900,  the  former  judgment  having  been  rendered 
prior  to  May,  1899./ 

It  is  clear  from  the  record  that  the  Pease  Company  was  a  creditor 
of  the  firm  of  W.  J.  Wilmer  &  Co.,  composed  of  Wilmer  and  Walter; 
and  as  such  firm  creditors,  outside  of  any  question  of  priority  of  at- 
tachment, that  company  is  entitled  to  be  first  paid  out  of  the  insurance 


576  EIGHTS   AND    REilEDIES   OF   CREDITORS.  (Ch.    8 

money  paid  into  court  that  was  the  sole  assets  of  that  firm,  because 
appellee  Herman  was  not  a  firm  creditor,  but  was  a  creditor  of  an 
entirely  different  firm  of  Wilmer  Bros.,  composed  of  W.  J.  and  Ben 
Wilmer.  We  are  also  of  opinion  that  the  judgment  on  the  verdict  of 
the  jury  as  to  whether  appellant  Walter  was  a  member  of  the  firm  is 
conclusive  of  that  question,  as  is  also  the  judgment  in  Walter's  favor 
for  his  debt  of  $356.60  as  against  the  firm.  Ffom  neither  of  these 
judgments  have  appeals  been  prosecuted,  and  they  therefore  stand 
unquestioned.  The  question,  then,  presented  is  as  to  the  rights  of 
Walter,  to  whom  the  firm  of  which  he  was  a  member  owed  a  debt, 
and  Herman,  an  individual  creditor  of  Wilmer.  The  rule  of  priorities 
is  thus  stated  by  Mr.  Parsons  (section  402  of  his  work  on  Partner- 
ship) :  "While  solvent  partners  cannot  prove  against  the  joidt  fund 
to  the  prejudice  of  joint  creditors,  because  they  are  liable  to  those 
creditors,  they  may  prove  against  the  joint  fund,  in  competition  with 
the  several  creditors,  to  whom  they  are  liable.  Indeed,  their  rights  are 
prior  to  those  of  the  several  creditors,  for  those  creditors  can  have 
the  right  of  their  debtor  to  the  joint  fund  only  after  all  claims  upon 
it  are  satisfied,  and  among  these  the  claims  of  the  other  partners. 
*  *  *  It  follows,  therefore,  that  the  several  creditors  of  each  one 
will  be  postponed,  so  far  as  the  joint  assets  go,  not  only  to  the  joint 
creditors,  but  to  the  claims  of  the  co-adventurers  for  balances  due  from 
their  companies  arising  out  of  the  adventure."  This  well-settled  prin- 
ciple of  partnership  is  decisive  of  the  right  of  Walter  to  the  sum  of 
$356.60,  adjudged  to  him  prior  to  any  claim  of  appellee  Herman, 
which  the  trial  court  refused.  We  are  of  opinion  that  the  judgment  ap- 
pealed from  is  erroneous,  and  it  will  be  reversed,  and  cause  remanded 
for  judgment  directing  the  payment  out  of  the  fund  in  court — the 
debt  due  the  Pease  Company  first;  then  the  debt  of  Walter;  and,  if 
any  remain,  the  share  of  Wilmer,  upon  settlement  of  the  partnership, 
to  appellee  Herman ;  and  for  proceedings  consistent  herewith. 


Ex  parte  TOPPING  et  al.     . 
(In  Chancery,  before  lyord  Cranworth,  L.  C,  18G5.    4  De  Gex,  J.  &  S.  551.) 

This  was  the  appeal  of  Charles  Topping  and  others  from  a  decision 
of  Mr.  Registrar  Winslow,  sitting  as  a  Commissioner  in  Bankruptcy, 
whereby  he  rejected  a  proof  for  £404.  lis.  6d.,  tendered  by  the  appel- 
lant Charles  Topping  on  behalf  of  the  separate  creditors  of  the  bank- 
rupt George  Levey,  against  the  separate  estate  of  the  bankrupt  Charles 
Robson. 

The  proof  was  tendered  in  respect  of  a  debt  due  to  the  bankrupt 
George  Levey  from  the  bankrupt  Charles  Robson,  to  whom,  in  the 
year  1834,  the  bankrupt  George  Levey  had,  out  of  his  own  private 
moneys,  made  an  advance  to  enable  the  bankrupt  Charles  Robson  to 


Sec.  3)  INSOLVENCT    OR    BANKRUPTCY.  577 

increase  his  business  capital.  *  *  *  The  bankrupts  were  adjadged 
bankrupts  as  copartners  in  January,  1864,  and  the  appellant  Charles 
Topping  was  one  of  the  assignees.  The  other  appellants  were  separate 
creditors  of  the  bankrupt  George  Levey. 

It  was  admitted  at  the  bar  that  the  separate  estate  of  the  bankrupt 
Charles  Robson  would  be  insolvent,  whether  the  proof  in  question  was 
admitted  or  not,  and  that  there  could  be  nothing  coming  from  that 
estate  for  the  joint  creditors.    *    *     * 

Tiiiv  Lord  Chancellor.  The  right  which,  under  an  adjudication 
of  bankruptcy  against  two  partners,  one  of  them,  who  is  a  creditor  of 
his  copartner,  has  to  prove  against  the  separate  estate  of  his  debtor, 
where  it  is  clear  that,  whether  such  proof  be  admitted  or  not,  there  will 
be  no  surplus  of  the  separate  estate  of  the  debtor  available  for  the 
purposes  of  the  joint  creditors,  must  be  considered  by  the  light  of 
certain  artificial  rules  which  are  derived  from  the  principles  of  the 
Court  of  Chancery  as  to  marshaling,  and  which  were  embodied  for  the 
first  time  in  an  order  made  in  bankruptcy  by  Lord  Loughborough  in 
the  year  1794.  By  the  effect  of  that  order  separate  accounts  are  kept 
of  the  joint  estate  and  of  the  separate  estate  of  each  partner,  and  if 
there  be  any  amount  of  joint  estate  the  joint  creditors  are  not  admitted 
to  prove  against  the  separate  estate  until  the  separate  creditors  are 
paid,  and  then  they  are  to  receive  from  the  separate  estate  the  surplus 
only  which  remains. 

The  consequence  is  that  it  has  been  held  that  one  partner  cannot 
prove  against  his  copartner,  because,  in  ordinary  cases,  that  proof  would 
diminish  the  surplus  of  the  estate  of  the  debtor  partner,  and  thereby  the 
creditor  partner,  if  admitted  to  prove,  would  come  into  competition 
with  his  own  creditors,  namely,  the  joint  creditors,  and  detract  to  the 
extent  of  the  proof  from  the  benefit  which  they  would  derive  from 
the  separate  estate.  Therefore  it  has  been  laid  down  as  a  general  rule 
that  a  partner  catinot  be  permitted  to  prove  against  the  estate  of  his 
copartner  until  the  joint  debts  are  satisfied. 

The  question  here  is  whether,  under  the  circumstances  of  this  case, 
that  rule  so  expressed  should  be  confined  within  the  limits  of  the  pur- 
pose by  reason  of  which  it  was  framed,  or  whether  it  should  be  car- 
ried out  to  the  letter  when  the  reason  or  purpose  ceases  to  have  any 
application.    *    *    * 

But  the  case  before  me  is  a  different  kind,  and  I  regard  it  as  con- 
sisting entirely  of  these  circumstances,  to  v/hich  I  mean  to  limit  my 
decision,  namely,  that  the  debt  sought  to  be  proved  by  the  partner 
against  his  copartner  is  a  debt  arising  from  an  undisputed  contract 
apart  from  the  copartnership,  and  which  was  in  existence  at  the  time 
of  the  adjudication  in  bankruptcy.  I  also  limit  my  decision  to  a  case 
where,  as  in  this  case,  by  no  possibility  can  there  be  any  surplus  of  the 
partner's  estate  against  which  proof  is  proposed  to  be  made,  whether 
the  proof  be  admitted  or  not. 

GiL.rART.— 37 


578  RIGHTS  AND   REMEDIES  OF  CREDITORS.  (Ch.   8 

Limiting,  then,  my  decision  to  a  case  so  circumstanced,  I  think  it 
reasonable  and  just  that  the  rule  should  not  be  extended  beyond  the 
reason  which  introduced  it  and  was  the  cause  of  its  being  laid  down ; 
and,  if  it  be  true  that  the  estate  of  the  partner  against  vvhich  the  proof 
is  tendered  cannot  by  possibihty  yield  a  surplus,  it  would  be  unreason- 
able and  unjust  to  refuse  the  opportunity  of  proof  being  made.    *    *    * 

In  my  judgment,  therefore,  the  proof  by  one  partner  against  the 
separate  estate  of  another  partner  ought  in  this  case  to  be  admitted. 
But,  inasmuch  as  contingencies  may  arise  which  may  render  the  sepa- 
rate estate  of  the  partner  larger  than  is  now  contemplated,  there  should 
be  added  to  the  order  a  declaration  that  the  proof  must  be  subject  to 
be  expunged  and  the  dividend  to  be  refunded  in  the  case  of  any  such 
surplus  of  the  estate  of  that  partner  occurring  for  the  benefit  of  the 
joint  creditors.    *    *    *  ^ 


MURRAY  V.  MURRAY  et  al. 

(Court  of  Chancery  of  New  York,  1821.     5  Johns.  Ch.  60.) 

The  plaintiff,  John  V.  Murray,  and  Robert  Murray,  George  W.  Mur- 
ray, and  John  R.  Wheaton,  were  partners  u^der  the  firm  name  of 
Robert  Murray  &  Co.  The  partnership  failed  while  the  plaintiff  was 
in  England  on  firm  business.  George  W.  Murray  and  Wheaton  hav- 
ing gone  to  Europe,  leaving  Robert  Murray  the  only  partner  in  this 
country,  the  latter,  by  virtue  of  a  power  of  attorney  from  his  copart- 
ners, executed  several  assignments  of  the  firm  property  to  John  B. 
Murray  and  Clark  for  the  benefit  of  certain  creditors.  Afterwards 
all  the  members  of  the  partnership,  except  the  plaintiff,  were  declared 
bankrupt  under  the  United  States  bankruptcy  law  and  received  their 
discharge.  The  plaintiff,  having  returned  to  the  United  States  and 
never  having  been  adjudged  bankrupt  in  this  country,  filed  this  bill, 
charging  that  John  B.  Murray  and  Clark  had,  by  virtue  of  the  assign- 
ment to  them,  received  large  sums  of  money,  more  than  sufficient  to 
satisfy  the  debts  directed  to  be  paid,  and  that  they  had  in  their  hands  a 
large  balance  belonging  to  the  partnership,  which  plaintiff  prayed  might 
be  turned  over  to  him,  as  the  remaining  solvent  partner.  This  cause 
was  brought  to  a  hearing  for  the  purpose  of  obtaining  the  opinion  of 
the  court  whether  plaintiff  was  entitled  to  an  account  from  the  as- 
.signees  of  the  firm  and  to  the  payment  of  the  balance  in  their  hands. 
If  the  plaintiff  was  not  so  entitled,  the  bill  was  to  be  dismissed. 

Kent,  Ch.  The  question  in  this  case,  between  the  plaintiff  and  the 
assignees  of  his  bankrupt  partner,  relates  to  the  control  and  distribu- 
tion of  the  partnership  fund.     The  plaintiff,  in  a  particular  manner, 

1  It  seems  that  the  United  States  bankruptcy  law  of  1898  (Act  .July  1,  1898, 
c.  541,  §  5g,  30  Stat  547  [U.  S.  Comp.  St.  1001,  p.  3424])  would  permit  the 
pr(K»f  of  the  claim  of  the  partnership  estate  against  the  individual  estates,  and 
vice  versa. 


Sec.  3)  INSOLVENCY    OK   BANKKDPTOT.  579 

claims  the  balance  reported  to  be  due  from  the  estate  of  John  I.  Clark, 
deceased,  to  the  house  of  Robert  Murray  &  Co.,  and  insists  that  he  is 
entitled,  in  preference  to  ilie  a.ssij;neos,  to  distribute  that  balance,  and 
to  disregard  the  settlement  which  was  made  by  those  assignees  with 
the  executor  of  Clark.    *    *    * 

It  is  admitted,  in  all  the  cases,  that  the  assignees  of  a  bankrupt  part- 
ner and  the  remaining  solvent  partner  are  tenants  in  common  in  re- 
spect to  the  partnership  funds,  and,  like  all  tenants  in  common,  one 
party  cannot  call  the  joint  property  out  of  the  hands  of  the  other. 
There  is  no  such  case.  They  are  entitled  equally  to  the  possession  in 
law.  This  was  expressly  held  in  Smith  v.  Stokes,  1  East,  3G3.  Trover 
will  not  lie  for  one  against  the  other.  It  has  also  been  held  that  the 
solvent  partner  and  the  assignees  of  the  bankrupt  cannot  sue  alone, 
and  that  they  must  unite  in  actions  at  law.  Ashhurst,  J.,  in  Graham 
V.  Robertson,  2  Term,  282 ;  Eckhardt  v.  Wilson,  8  Term.  140.  What 
right,  then,  has  the  solvent  partner  to  come  into  this  court,  to  call  the 
entire  joint  funds  out  of  the  possession  of  the  assignees,  who  are  his 
co-tenants  in  common,  and  as  such  have  an  equal  control  over  the 
joint  funds?  There  is  no  case  giving  to  either  party  the  absolute,  ex- 
clusive possession  and  distribution  of  the  entire  effects.  Neither  party 
is  strictly  entitled,  as  against  the  other,  to  anything  more  than  his  share 
of  the  surplus  after  the  partnership  debts  are  paid.  Field  v.  Taylor, 
4  Vesey,  396. 

In  this  case  there  is  no  justice  or  equity  in  the  pretension  of  the 
plaintiff.  He  admits  that  the  partnership  debts  greatly  exceed  the 
partnership  funds,  and  that  there  cannot  be  any  surplus  coming  to 
either  party.  His  sole  object,  then,  is  to  have  the  partnership  funds, 
which  have  been  or  may  be  under  the  control  of  the  assignees,  pass 
into  his  hands  for  distribution,  instead  of  having  them  distributed  by 
the  assignees;  and  he  denies  all  right  in  the  assignees  to  touch  or 
distribute  any  of  the  partnership  funds  and  wishes  to  vacate  all  that 
they  have  done.  But  it  appears  that  a  great  majority  in  interest  of  the 
joint  creditors,  and  who  have  partnership  debts  due  them  to  nearly 
SoOO.OOO.  have  come  in  and  proved  their  debts  under  the  separate  com- 
mission in  the  case  of  Robert  Murray.  These  include  almost  all  the 
debts,  except  such  as  were  provided  for  under  the  assignments  to  J.  B. 
Murray  and  Clark.  It  also  appears  that  the  assignees,  after  having  by 
suit  obtained  a  liqhidation  of  the  balance  due  from  the  estate  of  Clark, 
and  bestowed  great  care  and  efforts  towards  the  recovery  and  security 
of  that  debt,  settled  it  upon  terms  which  they  deemed  prudent  and 
just,  under  all  the  circumstances.  This  settlement  and  consequent  dis- 
charge of  the  estate  of  Clark  was  in  February,  1810 :  and  in  October 
following,  due  public  notice  having  been  given  to  the  creditors,  several 
of  them  appeared  before  the  commissioners  of  bankrupts  and  ratified 
that  settlement.  If  there  was  anything  wrong  in  the  settlement,  it  was 
for  the  creditors  to  disturb  it;  and  it  would  be  most  unreasonable  to 
permit  the  plaintiff  to  set  aside  all  that  had  been  done  by  the  assignees 


580  EIGHTS  AND   REMEDIES  OP  CREDITORS.  (Ch.   8 

under  such  a  sanction  from  the  creditors,  merely  for  the  purpose  of 
making  his  own  distribution.     There  is  no  charge  of  misconduct  in 
the  assignees.     The  whole  bill  is  a  denial  of  their  competency  to  act, 
though  every  case  on  the  subject  admits  that  assignees  of  a  bankrupt  ' 
partner  are  tenants  in  common  with  the  solvent  partner.     If  the  pre- 
tensions of  either  party  to  an  exclusive  distribution  of  the  partnership 
funds  were  to  be  examined  upon  principles  of  policy  and  equity,  the 
assignees  would  have  the  better  pretension,  in  the  view  of  this  court, 
because  the  solvent  partner  has  it  in  his  power  to  give  preferences  and 
defeat  the  equality  and  equity  of  the  bankrupt  system.     Assignees,  on 
the  other  hand,  are  bound  to  make  a  ratable  distribution  of  the  assets ; 
and,  being  trustees  under  the  control  of  this  court,  there  is  no  good 
reason  why  their  equal  rights  at  law  as  tenants  in  common  should 
sufifer  diminution  here.     They  are  tenants  in  common,  but  with  par- 
ticular equities  in  them,  as  Lord  Eldon  observed,  "vastly  beyond,  what 
tenants  in  common  have  where  no  bankruptcy  has  occurred" ;    and. 
their  claim  to  the  distribution  of  the  partnership  fund  has  been  en- 
couraged and  strengthened  by  the  decisions  in  chancery.     This  will 
appear  by  a  review  of  some  of  the  leading  chancery  cases.    *    *    * 

Upon  this  review  of  the  cases  I  am  not  able  to  perceive  any  color- 
able reason  for  the  pretension  set  up  by  the  plaintiff  to  the  exclusive 
distribution  of  the  partnership  funds.  There  would  be  much  more 
ground,  upon  the  established  doctrines  of  equity,  for  an  exclusive  right 
of  distribution  on  the  part  of  the  assignees,  since  under  their  com- 
mission the  court  is  in  the  practice  of  directing  an  account  of  the  joint 
estate  to  be  taken  and  a  distribution  of  that  estate  ratably  among  the 
joint  creditors.  The  most  that  can  be  said  is  that  the  solvent  partner 
upon  the  dissolution  of  the  partnership  by  bankruptcy,  being  a  tenant 
in  common,  may  retain  and  distribute  the  funds  in  his  possession,  and 
may,  as  was  held  in  Fox  v.  Hanbury,  Cowp.  445,  sell  those  partnership 
effects  for  a  valuable  consideration  and  without  fraud.  They  cannot 
be  called  out  of  his  possession  by  his  co-tenants,  the  assignees,  unless 
under  the  direction  of  this  court,  on  a  bill  filed  by  them  for  contribu- 
tion, or,  perhaps,  where  an  account  of  the  joint  fund  is  directed  to  be 
taken  in  bankruptcy.  But,  on  the  other  hand,  there  is  no  foundation 
in  law  or  equity  for  the  solvent  partner  to  call  to  account,  either  the 
partnership  debtors  who  have  bona  fide  settled  with  the  assignees,  or 
the  assignees  themselves,  for  the  funds  in  their  possession.  They  hold 
those  funds  by  an  equal  title  in  law  with  him  as  tenants  in  common, 
and  by  a  superior  equitable  title  as  trustees,  charged  with  the  payment 
of  both  the  joint  and  separate  debts. 

I  shall  accordingly  declare  that  the  plaintiff  has  no  right  or  title  in 
law  or  equity  to  call  the  assignees  to  account  for  the  partnership  funds, 
which  have  been  or  are  now  in  their  possession  as  such  assignees,  in 
order  to  obtain  by  decree  the  possession  of  those  funds  for  distribu- 
tion among  the  creditors  of  Robert  Murray  &  Co.,  inasmuch  as  those 
assignees  have  an  equal  right  and  title  in  law  as  tenants  in  common 


Sec.  3)  INSOLVENCY    OR    BANKRUPTCY.  581 

with  the  plalntifT,  and  a  better  right  in  equity,  to  the  possession  of 
those  funds  for  the  same  purpose  of  distribution.  ♦  *  *  And  I  shall 
direct  the  original  bill,  and  bill  of  revivor  and  supplement,  to  be  dis- 
missed, but  without  costs,  considering  the  special  circumstances  of  the 
case,  and  the  importance  of  the  points  investigated  and  discussed. 
Decree  accordingly.* 


FERN  V.  GUSHING  et  al. 

(Supreme  Judicial  Court  of  Massachusetts,  1849.    4  Cush.  3.'57.) 

Shaw.  C.  J.  This  was  a  writ  of  scire  facias  against  Daniel  Gush- 
ing and  Sewell  G.  Mack,  as  trustees.  It  appears,  by  the  answers  and 
the  facts  agreed,  that  suits  were  brought,  first  by  Francis  Vose,  and 
second  by  the  plaintiff,  Fern,  against  Whitney  &  Blair  and  the  present 
defendants  as  their  trustees.  The  actions  were  continued  in  court 
some  time,  during  which  the  defendants  accepted  an  order,  drawn  on 
them  by  Whitney  &  Blair,  to  pay  over  to  a  third  firm  the  balance  of 
funds  in  their  hands,  subject  to  prior  liens.  This  fact  has  no  material 
bearing.  The  plaintiff's  action,  though  commenced  after  that  of  Fran- 
cis Vose,  came  to  judgment  first,  and  the  plaintiff  took  out  execution 
and  placed  it  in  the  hands  of  an  officer,  who  duly  made  demand  upon 
the  defendants  for  the  funds  in  their  hands,  they  having  been  charged 
as  trustees,  and  execution  awarded  in  usual  form  against  the  goods 
and  effects  of  Whitney  &  Blair  in  their  hands.  Afterwards  judgment 
was  rendered  in  the  action  of  Francis  Vose,  and  execution  also  award- 
ed against  the  goods  and  effects  of  Whitney  &  Blair  in  the  hands  of 
the  defendants;  Vose's  being  the  first  attachment.  This  execution  was 
placed  in  the  hands  of  an  officer,  and  a  demand  made  upon  the  defend- 
ants for  the  goods  and  effects  of  Whitney  &  Blair  in  their  hands.  This 
occurred  on  the  24th  of  March,  1847.  On  the  morning  of  the  same 
day  the  first  publication  was  made  of  a  notice  issued  by  a  messenger, 
upon  a  proceeding  in  insolvency,  upon  the  application  of  Blair  alone, 
after  the  dissolution  of  the  partnership  of  Whitney  &  Blair.  It  ap- 
pears that  he  did  not  set  forth  the  insolvency  of  the  firm,  but  only  his 
own ;  and  the  warrant  and  other  proceedings  were  conducted  upon  the 
principle  of  his  several  insolvency.  The  messenger  under  this  warrant 
demanded  the  funds  in  the  hands  of  the  defendants.  Afterwards  the 
defendants  paid  over  the  whole  balance  of  the  funds  in  their  hands, 

1  The  United  States  bankruptcy  act  of  18,98  (Act  July  1,  1808,  c  541,  §  5h, 
30  Stat.  547  [U.  S.  Comp.  St.  11)01,  p.  3424]),  provides:  "In  the  event  of  one 
or  more  but  not  all  of  the  members  of  a  partnership  beinsj  adjudged  bankrupt, 
the  partnership  property  shall  not  be  administered  in  baiikruptcy,  unless  by 
consent  of  the  partner  or  partners  not  adjudged  bankrupt;  but  such  partner 
or  partners  not  adjudged  bankrupt  shall  settle  the  partnership  business  as  ex- 
peditiously as  its  nature  will  permit,  and  account  for  the  interest  of  the  part- 
ner or  partners  adjudged  bankrupt." 

Jones  V.  Newsom,  7  Biss.  (U.  S.)  321,  Fed.  Cas.  No.  7,484  (1S7G),  accord. 


582  RIGHTS   AND   REMEDIES   OF   CREDITORS.  (Ch.   8 

after  deducting  the  amount  which  they  were  allowed  by  the  court  to 
retain  for  their  costs  and  expenses  as  trustees,  on  the  execution  of 
Vose,  as  the  first  attaching  creditor. 

The  ground  on  which  the  plaintiff  seeks  to  charge  these  defendants 
as  trustees,  after  they  have  paid  over  the  entire  "fund  on  the  execution 
of  the  previous  attaching  creditor,  is  this :  That  the  plaintiff,  by  suing 
out  his  execution  against  Whitney  &  Blair  and  causing  demand  to  be 
made  of  their  effects  in  the  hands  of  the  defendants,  had  perfected  his 
lien  on  the  fund,  so  as  to  place  it  beyond  the  risk  of  being  defeated  and 
having  his  attachment  dissolved  by  any  proceedings  in  insolvency,  but 
that  Vose,  though  he  recovered  judgment  and  took  out  execution,  did 
not  have  a  demand  made  on  the  trustees  on  his  execution  until  after 
the  first  publication  of  the  notice  of  insolvency,  and  therefore  that  his 
attachment  was  thereby  defeated,  and  let  in  the  plaintiff  as  the  first 
indefeasible  lien  on  the  fund. 

This  reasoning  is  plausible,  but  we  think  not  sound,  and  not  suffi- 
cient to  give  the  plaintiff,  as  second  attaching  creditor,  a  priority  over 
Vose,  who  was  the  first. 

It  is  not  necessary  now  to  decide  what  act  by  an  attacliing  creditor 
is  a  sufficient  taking  of  the  property  in  the  hands  of  a  trustee,  so  as 
to  prevent  a  dissolution  of  the  attachment  by  insolvent  proceedings, 
whether  it  be  the  judgment,  the  issuing  of  execution,  the  delivery  of 
such  execution  to  an  officer,  or  the  demand  by  the  officer  upon  the 
trustee.     This  decision  stands  on  other  grounds. 

The  insolvent  proceedings  were  against  Blair  alone.  The  assignee 
under  these  proceedings  had  no  right  to  take  the  partnership  property, 
except  the  share  and  interest  of  the  insolvent,  after  the  payment  and 
satisfaction  of  partner^ship  debts.  The  assignment  extended  only  to 
the  interest  of  the  insolvent  partner  in  the  property  and  effects  of  the 
partnership  after  the  payment  of  partnership  debts.  Pierce  v.  Jack- 
son, 6  Mass.  244;  Allen  v.  Wells,  22  Pick.  450,  33  Am.  Dec.  "757; 
Dyer  v.  Clark,  5  Mete.  5G2,  39  Am.  Dec.  697;  Parker  v.  Phillips,  2 
Cush.  175. 

The  insolvent  proceedings,  therefore,  against  Blair,  did  not  affect 
the  partnership  property  attached  by  Vose  in  the  hands  of  the  trustees, 
who  were  indebted  to  the  firm  only;  and  the  messenger  under  these 
proceedings  had  no  right  to  the  property,  and  the  trustees  rightfully 
paid  over  the  funds  in  their  hands  on  Vose's  execution  as  the  prior  at- 
taching creditor.  Nothing  remained  to  satisfy  the  execution  of  the 
plaintiff. 

Judgment  for  the  defendants. 


Sec.  3)  l>'SOLVENCY    OK    BANlvKUi*TCY.  583 

HALSEY   V.    NORTON. 

(Snprome  Court  of  Mississippi.  1871.    4o  Miss.  7f>3,  7  .\ni    Rop   74.".) 

Action  by  Norton,  as  assignee  in  bankruptcy  of  H.  F.  Giren  and  D. 
Ar-Giren,  as  members  of  the  firm  of  Giren,  Brown  &  Co.,  against  Ifal- 
sey.     Judgment  below  for  plaintiff.     Ilalsey  appealed. 

SiMu.vLL,  J.  It  is  urged  for  the  plaintiff  in  error  that  the  judgment 
ought  to  be  reversed,  because  the  assignee,  Norton,  ought  to  have  unit- 
ed with  him  as  coplaintiff  the  solvent  partner.  It  was  said  by  the 
Chief  Baron  in  Taylor  v.  Fields,  4  Vesey,  396,  "that  the  surplus  of 
partnership  effects  is  joint  property,  and  that  the  interest  of  each  part- 
ner is  only  his  share  of  what  remains  after  the  partnership  accounts  are 
taken."  The  assignee  takes  precisely  the  position  of  the  bankrupt  as 
respects  the  joint  property.  That  interest  is  transferred  to  him  to  be 
administered  for  the  creditors.  Bankruptcy  does  not  divest  the  title 
of  the  solvent  partner.  It  dissolves  the  copartnership,  and  constitutes 
the  assignee  and  the  solvent  partner  tenants  in  common  or  joint  own- 
ers. To  stand  in  a  court  of  law,  the  plaintiff  must  have  the  entire  legal 
right.  If  the  title  be  held  by  several,  all  must  join  in  the  suit.  Eck- 
hard  v.  Wilson,  8  T.  R.  140,  and  Murray  v.  Murray,  4  Johns.  70,  are 
to  the  point  that  the  assignee  and  the  solvent  partner  must  unite  in 
a  suit  respecting  the  joint  effects  and  choses  in  action.  But  it. must 
be  manifested  that  there  is  another  person,  not  coplaintiff,  who  ought 
to,  etc.  This  may  be  by  plea  in  abatement,  or  by  nonsuit,  if  proved  on 
the  trial  (1  Chitty's  Plead.  453,  453),  or  by  demurrer,  if  it  appears  on 
the  face  of  the  declaration.  The  declaration  is  thus:  "E.  E.  Norton, 
assignee,  etc.,  of  Henry  F.  Giren  and  Dickson  A.  Giren,  as  members 
of  the  firm  of  Giren.  Brown  &  Co."  It  is  not  averred  who  composes 
the  firm,  except  these  two  bankrupts,  nor  does  it  appear  affirmatively 
that  there  were  any  other  members.  The  copartnership  name  may  be 
and  often  is  purely  artificial,  not  discovering  who  are  its  members. 
Proof  was  not  made  on  the  trial  that  any  other  person  was  a  member, 
although  objection  was  made  by  the  defendant  to  the  admission  of 
evidence  in  truth  of  the  account  on  that  ground.  If  it  was  not  ap- 
parent on  the  record  that  there  was  a  solvent  partner,  if  the  defend- 
ant proposed  to  nonsuit  the  plaintiff  or  prevent  his  recovery,  she  ought 
to  have  proved  the  existence  of  such  a  partner.  We  do  not  think  that 
the  record  presents  the  point  made  by  the  plaintiff  in  error,  so  tliat  she 
can  avail  of  it  in  this  court. 

Affirmed. 


584  BIGHTS   AND   REMEDIES   OF  CREDITORS.  (Ch.    8 


LOOMIS  V.  WALLBLOM  et  al. 

(Supreme  Court  of  .Mmiiesota.  1905.    04  Minn.  392,  102  N.  W.  1U4,  69  L.  R. 

•  A.  771.) 

Jaggard,  J.  On  November  27,  1893,  defendants,  partners  doing 
business  as  Wallblom  &  ThorscU,  executed  a  deed  of  assignment  under 
the  5tate  insolvency  law,  both  as  individuals  and  as  partners,  of  all 
their  unexempt  property,  which  was  filed  in  the  district  court  of  Ram- 
sey county.  The  National  Wall  Paper  Company  filed  and  proved  its 
claim  in  the  assignment  matter,  but  did  not  file  a  release,  and  received 
no  dividend.  In  March,  1895,  it  brought  an  action  against  Charles 
Wallblom  and  John  Thorsell,  as  copartners,  doing  business  as  Wall- 
blom &  Thorsell,  in  the  district  court  of  Ramsey  county,  alleging  in  its 
complaint  the  sale  of  goods  of  the  value  of  $254.77,  and  default  in 
payment.  There  was  no  allegation  that  the  goods  were  sold  to  the 
firm  or  purchased  for  partnership  purposes.  Default  was  made,  and 
judgment  entered  on  the  9th  day  of  April,  1895,  against  "Charles  Wall- 
blom and  John  Thorsell,  as  copartners  doing  business  as  Wallblom  & 
Thorsell,  and  each  of  them."  On' the  4th  day  of  August,  1898,  Charles 
Wallblom  filed  his  individual  petition  in  bankruptcy,  and  was  on  Au- 
gust 5th  adjudged  a  bankrupt.  The  claim  of  the  National  Wall  Paper 
Company  was  listed  as  follows:  "National  Wall  Paper  Co.,  Chicago, 
111.  $254.77.  Consideration,  goods  bought."  On  December  19,  1898, 
Charles  Wallblom  was  discharged  from  all  his  debts.  This  appellant, 
as  assignee  of  said  judgment,  thereafter  brought  this  action  to  re- 
new the  judgment  hereinbefore  set  forth.  Respondent  Wallblom  an- 
swered, setting  up  his  discharge  in  bankruptcy  as  a  defense.  The 
reply  does  not  deny  actual  notice  of  the  bankruptcy  proceedings  on 
the  part  of  the  National  Wall  Paper  Company,  but  denies  that  notice 
was  given  to  the  partnership  creditors.  It  does  not  appear  that  de- 
fendant John  Thorsell  was  served  or  appeared  in  the  proceeding.  Up- 
on the  trial  it  was  admitted  that  the  copartnership  of  Wallblom  &  Thor- 
sell ceased  to  do  business  in  1893,  and  that  the  partnership  was  dis- 
solved so  far  as  it  could  be  done  by  the  acts  of  the  partners.  The  debt 
here  sued  upon  was  not  paid  or  discharged.  The  court  found  that  no- 
tice had  been  given  to  all  creditors  whose  claims  were  scheduled,  and 
ordered  judgment  in  favor  of  Wallblom  upon  the  merits.  From  an 
order  denying  plaintiff's  motion  for  a  new  trial,  this  appeal  was  duly 
taken. 

Appellant's  assignments  of  error  involve  the  determination  of  this 
question,  namely:  "Did  the  court  err  in  holding  as  a  proposition  of 
law  that  the  individual  discharge  in  bankruptcy  of  Wallblom  released 
him  from  the  claim  here  sued  upon?" 

The  answer  to  that  question  depends,  in  the  first  place,  upon  a  con- 
struction of  the  bankruptcy  act.  The  certificate  of  discharge  recited 
that  the  bankrupt  had  conformed  to  all  the   requirements  of  law   in 


Sec.  3)  INSOLVENCY   OR   BANKRUPTCY.  585 

that  behalf.  The  court  thereby  decreed  that  the  bankrupt  "be  forever 
discharged  from  all  his  debts  and  claims  which  by  said  act  were  made 
provable  against  his  estate,  and  which  existed  on  the  4th  day  of  Au- 
gust, 1898,  on  which  day  the  petition  for  adjudication  was  filed  by 
him,  excepting  such  debts,  if  any,  as  are  by  said  act  excepted  from 
the  operation  of  a  discharge  in  bankruptcy."  There  is  no  claim  that 
the  discharge  was  invalid  by  reason  of  any  of  the  things  mentioned 
in  chapter  3,  §§  14  and  15,  of  the  bankruptcy  act  of  1808  (Act  July  1, 
1898,  c.  541,  30  Stat.  550  [U.  S.  Comp.  St.  1901,  pp.  3427,  3!28]). 
The  discharge  did  not  purport  to  forever  release  the  bankrupt  from 
all  his  debts  and  liabilities,  but  only  from  all  such  "debts  and  claims" 
as  were  by  said  bankruptcy  act  "made  provable  against  his  estate." 
That  the  debt  was  one  which  might  have  been  proved  in  bankruptcy 
proceedings  against  the  estate  of  the  individual  partner  is  evident  from 
the  whole  tenor  of  the  law,  and  especially  from  chapters  1,  3,  §§  1,  4, 
30  Stat.  544,  547  (U.  S.  Comp.  1901,  pp.  3418,  3423),  chapter  3, 
§§  4,  5,  of  that  law,  30  Stat.  547  (U.  S.  Comp.  St.  1901,  pp.  3423, 
3424).  See,  also,  section  16,  30  Stat.  550  (U.  S.  Comp.  St.  1901, 
p.  3428).  Indeed,  subdivision  "g"  of  said  section  5  expressly  pro- 
vides that  the  court  may  "permit  the  proof  of  the  claim  against  the 
individual  estates  and  vice  versa  and  may  marshal  the  assets  of  the 
partnership  estate  and  the  individual  estates  so  as  to  prevent  prefer- 
ences and  secure  the  equitable  distribution  of  the  property  of  the  sev- 
eral estates."  The  history  and  present  status  of  this  case  differentiate 
it  from  any  authority  to  which  our  attention  has  been  called,  or  which 
a  careful  search  has  enabled  us  to  find.  Collier  on  Bankruptcy  (5th 
Ed.)  p.  74,  §  5a.  The  partnership  ceased  to  do  business,  and  had  been 
dissolved  so  far  as  the  parties  could  dissolve  it,  in  1893.  Moreover, 
in  that  year,  by  general  assignment  under  the  state  insolvency  law, 
the  partners  conveyed  all  their  unexempt  individual  and  firm  assets 
to  an  assignee.  The  plaintiff  has  not  made  it  appear  that  any  such 
firm  assets  now  exist.  This  court  will  not  presume  that  they  do. 
This  case  therefore  does  not  involve  any  question  of  marshaling  assets, 
nor  of  the  right  of  the  plaintiff  against  the  firm  assets  or  the  other 
partner.  Respondent  alone  appears  to  have  been  served  with  sum- 
mons in  this  action.  The  question  here  presented  to  tliis  court  af- 
fects the  judgment  against  him  alone.  It  is  also  to  be  borne  in  mind 
that  this  is  not  an  objection  to  the  entry  of  a  decree  of  discharge,  but 
only  to  the  right  of  the  appellant  to  renew  or  extend  this  judgment. 
The  entry  of  the  judgment  materially  affected  the  nature  of  the  claim 
on  which  it  was  based,  so  far  as  these  proceedings  are  concerned. 
It  hiight  be  that  in  certain  contingencies  this  court  would  examine 
that  judgment  for  the  purpose  of  ascertaining  what  the  original  con- 
tract was.  Such  a  proposition  is,  however,  academical  in  this  case. 
When  the  judgment  was  entered  it  became  a  lien  on  any  unexempt 
real  estate  within  the  county  where  the  judgment  was  docketed  which 
belonged  to  the  defendant  and  respondent  Wallblom,  and  the  creditor 


586  RIGHTS   AND    REMEDIES   OF   CREDITORS.  (Ch.    8 

became  entitled  to  appropriate  new  rights  and  remedies  against  him 
in  consequence.  So  far  as  this  case  involves  that  judgment,  the  orig- 
inal cause  of  action  was  merged  therein.  In  McKittrick  v.  Cahoon, 
89  Minn.  383,  95  N.  W.  223,  62  L.  R.  A.  757,  99  Am.  St.  Rep.  606, 
this  court  held  that  where,  by  an  order  in  bastardy  proceedings,  the 
putative  father  of  a  natural  child  was  required  to  pay  a  monthly  stipend 
for  its  support,  and  upon  refusal  a  filial  money  judgment  was  obtained 
for  the  total  amount  due,  the  rights  of  the  person  entitled  to  recover 
under  the  order  of  filiation  were  merged  in  the  judgment,  and  the 
debt  evidenced  thereby  was  not  excepted  from  the  operation  of  the 
bankruptcy  act  of  1898  (section  17),  although  the  claim  on  which  the 
judgment  was  based,  standing  by  itself,  would  not  have  been  dis- 
charged. 

Such  a  judgment  as  the  one  here  sought  to  be  extended,  filed  in 
the  bankruptcy  proceedings,  might,  under  appropriate  conditions,  have 
been  paid  in  full  or  in  part  by  the  application  thereto  of  the  whole 
or  a  proper  part  of  the  funds  in  the  hands  of  the  respondent's  trus- 
tee in  separate  bankruptcy  proceedings.  Its  full  discharge  as  an  in- 
dividual liability  on  a  firm  debt  may  accordingly  be  had  in  bankruptcy 
proceedings.  Jarecki  Mfg.  Co.  v.  McElwaine,  5  xA.m.  Bankr.  R.  751, 
107  Fed.  249;  Curtis  v.  Woodward,  58  Wis.  4dO,  17  N.  W.  328,  46 
Am.  Rep.  647.  Collier  in  his  note  to  In  re  Freund,  1  Am.  Bankr.  R. 
p.  31,  says:  "Both  on  principle  and  by  the  weight  of  authority  it  would 
seem  to  be  law  that  a  discharge  granted  to  one  member  of  the  firm 
releases  him  from  all  his  provable  debts  and  liabilities,  both  from  those 
incurred  individually  and  from  those  incurred  as  a  member  of  the 
partnership.  The  few  cases  which  held  to  the  contrary  under  the 
former  act  seem  to  have  been  based  upon  a  misconception  of  the  ex- 
tent of  the  rights  of  an  assignee  in  the  bankrupt's  property,  and  as  to 
the  effect  upon  the  firm  of  the  bankruptcy  of  one  member."  In  Re 
Meyers  (D.  C.)  96  Fed.  408,  relied  upon  by  appellant,  upon  an  ob- 
jection to  discharge  on  the  ground  of  fraud,  there  were  independent 
and  merely  individual  proceedings  by  the  two  partners.  The  petition 
asked  for  discharge  of  both  individual  and  partnership  debts.  Brown, 
].,  said  (page  411)  :  "No  adjudication  of  the  firm  as  a  bankrupt  is 
asked,  nor  could  such  an  adjudication  be  made  without  formal  applica- 
tion therefor,  and  the  presence  of  both  partners  in  the  same  proceed- 
ings. Where  there  are  absolutely  no  firm  assets,  separate  proceedings 
may  be  valid,  and  a  discharge  of  each  partner  separately  may  possibly 
be  had,  because  the  firm  debts  are  Several  as  well  as  joint."  Appel- 
lant also  relies  largely  upon  In  re  Mercur,  122  Fed.  389,  58  C.  C.  A. 
472.  That  case  involves  an  obviously  different  state  of  facts,  and  is 
in  its  reasoning  not  of  necessity  entirely  inconsistent  with  the  rule 
here  applied: 

In  the  early  history  of  partnership  law,  the  courts  fell  into  the 
habit  of  speaking  of  a  partnership  as  "a  separate  entity."  The  inac- 
curacy and  impropriety  of  such  nomenclature  was  so  clearly  and  re- 


Sec.  3)  INSOLVENCY    OR    BANKRUPTCT.  587 

peatedly  demonstrated  as  to  lead  to  its  substantial  abandonment.  Re- 
cent decisions  on  the  marshaling  of  assets  under  the  present  bank- 
ruptcy law  have  led  to  the  undesirable  resurrection  of  the  phrase.  Its 
misleading  and  ambiguous  character  is  well  illustrated  by  the  subtle- 
ties of  appellant's  brief,  and  by  his  use  of  it  as  a  justification  for  a 
fallacious  conclusion  derived  by  unwarranted  deductions  from  a  fic- 
tion of  law.  His  argument  commands  admiration  for  its  ingenuity 
and  industry,  but  compels  the  conviction  that  its  result  would  be  a 
plain  perversion  of  the  letter  and  purposes  of  the  bankruptcy  law. 
The  learned  trial  court  properly  held  that  the  discharge  in  bankrupt- 
cy operated  as  a  full  defense.  *  *  * 
Order  aflfirmed.^ 

1  Corey  v.  Perry,  G7  Me.  140.  24  Am.  Rep.  15  (1877),  contra. 


588  TERMINATION    Or   THE    PAUTNERSHIF.  (Ch.  9 

CHAPTER  IX. 
TERMINATION  OF  THE  PARTNERSHIP. 


SECTION  1.— BY  ACT  OF  THE  PARTIES. 


HENN   V.   WALSH. 

(Vice  Chancellor's  Ck)urt  of  New  York,  1S33.     2  Ed.  Ch.  129.) 

Bill  to  dissolve  the  copartnership  and  for  an  account.  An  injunc- 
tion had  been  granted.  The  defendant  put  in  his  answer.  Cross- 
motions  now  came  before  the  court — one,  on  the  part  of  the  complain- 
ant, for  a  receiver,  and  the  other,  by  the  defendant,  to  dissolve  the 
injunction. 

The  copartnership  had  commenced  on  the  1st  day  of  May,  1833,  and 
was  to  continue  for  five  years.  By  the  agreement  between  the  copart- 
ners an  inventory  was  to  be  made  at  the  end  of-two  years,  and  if  either 
was  then  dissatisfied  he  was  to  have  liberty  to  dissolve  the  firm.  The 
complainant  had  put  into  the  concern  the  sum  of  $1,000  in  cash,  as 
his  part  of  the  capital,  and  the  goods  of  the  defendant,  with  fixtures 
belonging  to  him,  were  taken  at  a  like  sum,  after  allowing  for  debts 
which  he  owed.  The  charges  of  misconduct  in  the  bill  were  met  and 
denied  by  the  answer. 

McCouN,  V.  C.  A  partnership  agreement,  like  any  other,  is  binding 
upon  the  parties,  and  they  must  adhere  to  its  terms.  Neither  partner 
is  at  liberty  to  recede  from  it  against  the  will  of  the  other  without 
sufficient  cause.  Mere  dissatisfaction  by  one  partner  will  not  justify 
him  in  filing  a  bill  for  a  dissolution,  where  by  their  express  agreement 
it  is  to  continue  for  a  definite  term;  and  this  court  will  not  interfere 
to  dissolve  the  contract  upon  such  ground.  Here  there  was  a  five- 
year  partnership,  with  the  privilege  of  dissolving  it  at  the  end  of  two 
years.  The  complainant  has  become  dissatisfied ;  and  he  makes  various 
charges  in  his  bill,  showing  prima  facie  cause  enough  for  a  dissolu- 
tion before  the  stipulated  time.  But  his  allegations  are  positively  and 
fully  denied  in  the  answer.  As  the  matter  now  stands  the  complain- 
ant's case  fails,  and  he  would  not  be  entitled  on  the  hearing  to  a  de- 
cree for  a  dissolution — consequently  not  to  an  injunction  or  receiver  in 
the  meantime.  If  there  be  any  breach  of  covenants  by  one  partner, 
which  in  its  consequences  would  be  so  important  as  to  authorize  the 
party  complaining  to  call  for  a  dissolution  before  the  copartnership 
could  be  dissolved  by  efflux  of  time,  the  complainant  may  then  have  an 


Sec.  1)  BY    ACT   OF    THK    PAItTIES.  589 

injunction.  Gow,  135.  There  must  be  some  actual  abuse  of  the  part- 
nership property  or  of  the  rights  of  a  copartner,  and  not  a  mere  tempta- 
tion to  such  abuse,  which  will  induce  this  court  to  interfere.  Glassing- 
ton  V.  Thwaites,  1  S.  &  S.  124.    *    *     * 

The  injunction  must  be  dissolved,  and  the  motion   for  a  receiver 
denied. 


SOLOMON  V.  KIRKWOOD  et  al. 
(Supreme  Court  of  Michigau,  1884.    55  Mich.  256,  21  N.  W.  .3.36.) 

CooLEY,  C.  J.  The  plaintififs,  who  are  in  the  city  of  Chicago  dealers 
in  jewelry,  seek  to  charge  the  defendants  as  partners  upon  a  prom- 
issory note  for  $791.92,  bearing  date  of  November  9,  1882,  and  signec' 
"Hollander  &  Kirkwood."  The  note  was  given  by  the  defendant  Hol- 
lander, but  Kirkwood  denies  that  any  partnership  existed  between  the 
defendants  at  the 'date  of  the  note. 

The  evidence  given  on  the  trial  tends  to  show  that  on  July  6,  1882, 
Hollander  &  Kirkwood  entered  into  a  written  agreement  for  a  part- 
nership for  one  year  from  the  1st  day  of  the  next  ensuing  month  in 
the  business  of  buying  and  selling  jewelry,  clocks,  watches,  etc.,  and 
in  repairing  clocks,  watches,  and  jewelry,  at  Ishpeming,  Mich.  Busi- 
ness w-as  begun  under  this  agreement,  and  continued  until  the  latter 
part  of  October,  -1882,  when  Kirkwood,  becoming  dissatisfied,  locked 
up  the  goods  and  excluded  Hollander  altogether  from  the  business. 
He  also  caused  notice  to  be  given  to  all  persons  with  whom  the  firm 
had  had  dealings  that  the  partnership  was  dissolved,  and  had  the  fol- 
lowing inserted  in  the  local  column  of  the  paper  published  at  Ish- 
peming: "The  copartnership  heretofore  existing  between  Mr.  C.  H. 
Kirkwood  and  one  Hollander,  as  jewelers,  has  ceased  to  exist;  Mr. 
Kirkwood  having  purchased  the  interest  of  the  latter."  This  was  not 
signed  by  any  one. 

A  few  days  later  Hollander  went  to  Chicago,  and  there,  on  Novem- 
ber 9,  1882,  he  bought,  in  the  name  of  Hollander  &  Kirkwood.  of  the 
plaintiffs  goods  in  their  line  amounting  to  $791.92,  and  gave  to  the 
plaintiffs  therefor  the  promissory  note  now  in  the  suit.  The  note  was 
made  payable  December  15,  1882,  at  a  bank  in  Ishpeming.  Wher. 
the  purchase  was  completed,  Hollander  took  away  the  goods  in  hi> 
satchel.  The  plaintiffs  had  before  had  no  dealings  with  Hollander  & 
Kirkwood,  but  they  had  heard  there  was  such  a  firm,  and  were  not 
aware  of  its  dissolution.  They  claim  to  have  made  the  sale  in  good 
faith  and  in  the  belief  that  the  firm  was  still  in  existence.  On  the  other 
hand,  Kirkwood  claimed  that  Hollander  and  the  plaintiffs  had  con- 
spired together  to  defraud  him  by  a  pretended  sale  to  the  firm  of  goods 
which  the  plaintiff's  knew  Hollander  intended  to  appropriate  exclu- 
sivelv  tohimself;    and  he  was  allowed  to  prove  declarations  of  Hoi- 


590  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

lander  which,  if  admissible,  would  tend  strongly  to  prove  such  a  con- 
spiracy. 

The  questions  principally  contested  on  the  trial  were,  first,  whether 
the  acts  of  Kirkwood  amounted  to  a  dissolution  of  the  partnership; 
second,  whether  sufficient  notice  of  dissolution  was  given ;  and,  third, 
whether  there  was  any  evidence  to  go  to  the  jury  of  an  understanding 
between  Hollander  and  the  plaintiffs  to  defraud  Kirkwood.  The  trial 
judge,  in  submitting  the  case  to  the  jury,  instructed  them:  That  Kirk- 
wood, notwithstanding  the  written  agreement,  had  a  right  to  withdraw 
from  the  partnership  at  any  time,  leaving  matters  between  him  and 
Hollander  to  be  adjusted  between  them  amicably  or  in  the  courts; 
and  for  the  purposes  of  this  case  it  made  no  difference  whether  Kirk- 
wood was  right  or  wrong  in  bringing  the  partnership  to  an  end.  If 
wrong,  he  might  be  liable  to  Hollander  in  damages  for  the  breach  of 
his  contract.  Also,  that  when  partners  are  dissatisfied,  or  they  cannot 
get  along  together,  and  one  partner  withdraws,  the  partnership  is 
then  at  an  end  as  to  the  public  and  parties  with  whom  the  partnership 
deals,  and  neither  partner  can  make  contracts  in  the  future  to  bind 
the  partnership,  provided  the  retiring  partner  gives  the  proper  notice. 
Also,  that  if  they  should  find  from  the  evidence  that  there  was  trouble 
between  Hollander  and  Kirkwood  prior  to  the  sale  of  the  goods  and 
the  giving  of  the  note,  that  Kirkwood  informed  Hollander  in  sub- 
stance that  he  would  have  no  more  dealings  with  him  as  partner,  that 
he  took  possession  of  all  the  goods  and  locked  them  up,  and  from 
that  time  they  ceased  to  do  business,  then  the  partnership  was  dis- 
solved. Further,  that  whether  sufficient  notice  had  been  given  of  the 
dissolution  was  a  question  for  the  jury.  Kirkwood  was  not  bound  to 
publish  notice  in  any  of  the  Chicago  papers.  He  was  only  bound  to 
give  actual  notice  to  such  parties  there  as  had  dealt  with  the  partner- 
ship. But  Kirkwood  was  bound  to  use  all  fair  means  to  publish  as 
widely  as  possible  the  fact  of  a  dissolution.  Publication  in  a  news- 
paper is  one  of  the  proper  means  of  giving  notice,  but  it  is  not  abso- 
lutely essential;  and  on  this  branch  of  the  case  the  question  for  the 
jury' was  whether  Kirkwood  gave  such  notice  of  the  dissolution  as 
under  the  circumstances  was  fair  and  reasonable.  H  he  did,  then  he 
is  not  liable  on  the  note;   if  he  did  not,  he  would  still  continue  liable. 

The  judge  also  submitted  to  the  jury  the  question  of  fraud  in  the 
sale  of  the  goods.     The  jury  returned  a  verdict  for  the  defendants. 

We  think  the  judge  committed  no  error  in  his  instructions  respect- 
ing the  dissolution  of  the  partnership.  The  rule  on  this  subject  is  thus 
stated  in  an  early  New  York  case:  The  right  of  a  partner  to  dissolve, 
it  is  said,  "is  a  right  inseparably  incident  to  every  partnership.  There 
can  be  no  such  thing  as  an  indissoluble  partnership.  Every  partner 
has  an  indefeasible  right  to  dissolve  the  partnership  as  to  all  future 
contracts  by  publishing  his  own  volition  to  that  effect;  and  after  such 
publication  the  other  members  of  the  firm  have  no  capacity  to  bind 
him  by  any  contract.     Even  where  partners  covenant  with  each  other 


Sec.  1)  BY    ACT   OF   THE    PARTIES.  591 

that  the  partnership  shall  continue  seven  years,  either  partner  may  dis- 
solve it  the  next  day,  proclaiming  his  determination  for  that  purpose ; 
the  only  conscf|uence  being  that  he  thereby  subjects  himself  to  a  claim 
for  damages  for  a  breach  of  his  covenant.  The  power  given  by  one 
partner  to  another  to  make  joint  contracts  for  them  both  is  not  only 
a  revocable  power,  but  a  man  can  do  no  act  to  divest  himself  of  the 
capacity  to  revoke  it."  Skinner  v.  Dayton,  19  Johns.  (X.  Y.)  513, 
538,  10  Am.  Dec.  286.  To  the  same  effect  are  Mason  v.  Connell,  1 
Whart.  (Pa.)  381,  and  Slemmcr's  Appeal,  58  Pa.  155,  98  Am.  Dec. 
248.  There  may  be  cases  in  which  equity  would  enjoin  a  dissolution 
for  a  time,  when  the  circumstances  were  such  as  to  make  it  specially 
injurious;  but  no  question  of  equitable  restraint  arises  here.  \\'h<:n 
one  partner  becomes  dissatisfied,  there  is  commonly  no  legal  policy  to 
be  subserved  by  compelling  a  continuance  of  the  relation,  and  the  fact 
that  a  contract  will  be  broken  by  the  dissolution  is  no  argument  against 
the  right  to  dissolve.  Most  contracts  may  be  broken  at  pleasure,  sub- 
ject, however,  to  responsibility  in  damages;  and  that  responsibility 
would  exist  in  breaking  a  contract  of  partnership  as  in  other  cases. 

The  instruction  respecting*  notice  was  also  correct.  No  court  can 
determine  for  all  cases  what  shall  be  sufficient  notice  and  what  shall 
not  be.    The  question  must  necessarily  be  one  of  fact.    *    *    * 

But  we  think  the  judge  erred  in  receiving  evidence  of  Hollander's 
admissions  or  declarations  tending  to  show  fraudulent  collusion  be- 
tween him  and  the  plaintiffs.     *     *     * 

For  this  error  there  must  be  a  new  trial. 


WALKER  V.  WHIPPLE. 

(Supreme  Court  of  Michigan,  1S85.     58  Mich.  476,  25  N.  R  472.) 

Champlin,  J.  In  this  case  it  is  conceded  that  the  copartnership 
entered  into  was  not  limited  by  the  express  agreement  of  the  parties. 
It  was  therefore  determinable,  in  the  absence  of  fraud,  at  the  will  of 
either  party.  I  do  not  agree  that  a  limitation  may  be  engrafted  upon 
such  a  copartnership  agreement  by  implication  arising  out  of  the 
business  engaged  in  or  the  circumstances  of  the  case.  It  may  be  said 
that  it  is  generally  understood  that  such  contract  relations  are  not 
formed,  except  with  a  view  of  engaging  in  some  business  which  may 
require  both  time  and  capital  to  carry  out  the  object  for  which  the 
partnership  was  formed.  It  is  nevertheless  true  that,  unless  the  term 
for  which  the  partnership  is  to  continue  is  limited  or  fixed  by  the  agree- 
ment, either  party  may,  at  his  pleasure,  dissolve  the  relation.  This  is 
elementary  law.  The  defendant  exercised  his  right,  and  the  partner- 
ship was  dissolved  by  his  refusing  to  continue  the  business  further 
in  company  with  complainant.  It  does  not  concern  us  what  his  rea- 
sons or  motives  for  doing  so  were.     There  were  no  existing  engage- 


592  TERMINATION    OF   THE   PARTNERSHIP.  (Ch.  9 

ments  of  the  firm  that  have  interfered  with  the  winding  up  of  the  part- 
nership affairs.  The  whole  matter  between  the  partners  was  satis- 
factorily settled  and  adjusted  by  the  decree  appealed  from  by  com- 
plainant, except  a  claim  made  by  him,  but  which  the  court  below  dis- 
allowed, of  prospective  profits  which  complainant  claims  mij^ht  have 
been  realized,  had  the  defendant  not  dissolved  the  partnership.  The 
effect  of  allowing  such  claim  would  be  to  mulct  the  defendant  in  dam- 
ages for  doing  what  he  had  a  legal  right  to  do.  I  can  find  no  war- 
rant for  the  infliction  of  such  penalty,  and  the  results  which  would 
flow  from  the  establishment  of  such  doctrine  would  be  injurious  and 
far-reaching  in  their  consequences.  The  farthest  courts  have  gone 
in  this  direction  occurs  in  cases  where,  by  the  terms  of  the  partner- 
ship agreement,  the  time  for  its  duration  was  limited,  and  before  the 
expiration  thereof  one  of  the  parties  has  dissolved  the  partnership ; 
but  in  such  cases  there  has  been  a  breach  of  the  contract,  and  the 
damages  allowed  are  such  as  were  the  consequences  of  such  breach. 
I  think  the  decree  of  the  circuit  court  should  be  affirmed,  with  costs; 
and  it  is  so  ordered.^ 


SECTION  2.— BY  OPERATION  OF  LAW. 


PEARCE  v.  CHAMBERLAIN.     • 

(In  Chancery,  at  the  Rolls,  1750.    2  Ves.  Sr.  34.) 

Articles  between  Robert  Pliimmer  and  Daniel  Pearce  recited  that 
Plummer  had  carried  on  the  trade  of  a  brewer  at  Hoddesdon,  and  had 
employed  Pearce  as  servant  and  brewer,  who  having  behaved  himself 
faithfully,  etc.,  and  advancing  a  moiety  of  the  value  of  the  effects, 
he  took  him  into  partnership  for  9  years,  if  Pearce  should  so  long 
live ;  but,  if  he  lived  to  the  end  of  9  years,  the  partnership  should 
continue  for  any  further  term,  not  exceeding  21  years,  as  Pearce  should 
desire,  on  giving  notice,  to  contmue  it.  It  was  provided  that,  notwith- 
standing the  death  of  Plummer,  it  should  be  carried  on  by  his  repre- 
sentatives, and  that,  if  Pearce  should  give  that  notice,  he  should  not 
have  it  in  his  option  to  pay  off  the  representatives  of  Plummer  and 
carry  it  on  himself,  but  with  them. 

This  bill  was  by  the  widow  and  Representatives  of  Pearce,  against 
the  representatives  of  Plummer,  for  an  account,  and  for  liberty  to 
carry  on  the  trade  with  the  defendants. 

1  The  opinion  of  Sherwood,  J.,  holding  that  the  agreement  of  the  parties 
contemplated  the  continuation  of  the  partnership  through  the  threshing  sea- 
son, and  therefore  complainant  was  entitled  to  damages  for  the  premature 
termination  by  defendant,  is  omitted. 


Sec.  2)  BY    OPERATION    OF    LAW.  503 

For  defendants  was  cited  Godfrey  v.  Browning,  ^^arch  7,  1742, 
where  it  was  held  that  one  copartner  could  not  appoint  a  representa- 
tive to  carry  on  the  trade  after  his  decease,  otherwise  it  might  fall 
to  the  lot  of  an  infant  or  person  not  at  all  fit  to  carry  it  on,  and  Bax- 
ter V.  Burfield  (B.  R.  Paschce,  174G),  2  Stra.  1266,  where  it  was  held 
that  a  covenant  to  teach  a  boy  his  trade  was  rescinded  by  the  death 
of  the  master,  on  the  ground  that  it  was  a  bond  to  serve  pef^iinnllv, 
and  that  he  was  not  bound  to  serve  an  executor. 

For  plaintiffs:  It  might  be  so  where  there  is  a  general  pariniT- 
ship,  for  then  the  death  of  one  partner  would  determine  it,  but  not 
so  where  a  particular  term  has  been  agreed  on ;  but  if  there  was  a 
case  for  that,  it  would  not  do  here,  because  the  provision  for  the  repre- 
sentatives ought  to  be  mutual,  and  shows  they  did  not  guard  against 
an  infant's  carrying  it  on.  No  case  is  cited  to  show  that  all  partner- 
ships must  continue  or  conclude  on  the  living  or  death  of  the  prin- 
cipals. On  the  death  of  the  master  the  boy  cannot  become  apprentice 
by  a  course  of  representation,  as  then  it  might  be  to  the  most  ignorant 
person;  but  that  is  different  from  articles  of  copartnership  in  a  bene- 
ficial trade,  wherein  a  right  has  been  purchased  for  a  period  of  years. 
In  the  Case  of  Huddleston  one  party  was  a  lunatic,  who  could  not 
carry  on  the  trade;  yet  Lord  Talbot  thought  himself  bound  by  the 
articles,  and  obliged  the  other  to  carry  it  on  for  the  benefit  of  himself 
and  the  lunatic.  Vide  Saver  v.  Bennet,  1  Cox,  Ch.  Ca.  107.  Et  per 
Lord  Eldon,  C,  2  Ves.  &  B.  302,  303. 

Strange;,  M.  R.  Considering  the  whole  frame  and  design  of  the 
articles,  Pearce  was  only  admitted  in  ease  of  Plummer,  and  for  his 
skill  in  the  trade,  and,  after  that  end  was  defeated  by  his  death,  it  could 
not  be  the  intent  that  any  representative  of  him  should  have  an  op- 
portunity to  carry  it  on.  as  it  might  fall  into  such  hands  as  could  not 
be  of  service,  and  though  it  might  come  to  the  representatives  of  one, 
and  not  of  the  other,  that  is  by  express  provision  of  the  parties.  There- 
fore on  the  articles  the  plaintiff  is  not  entitled  to  a  decree  to  carry  on 
the  partnership. 

But,  as  a  general  question,  the  consequence  with  regard  to  trade 
weighs  greatly  with  me.  It  would  be  of  ill  tonsequence  in  general 
to  say  that  in  articles  of  partnership  in  trade,  where  no  provisions  for 
the  death  of  either  is  made,  they  might  subsist  for  benefit  of  an  execu- 
tor who  may  not  have  skill  therein.  The  plaintiff  could  be  of  no  use 
in  carrying  on  the  partnership.  Plummer  wanted  one  whose  knowl- 
edge he  could  confide  in.  The  plaintiff,  the  administratrix,  is  en- 
titled to  one-third ;  the  infant  to  the  other  two  shares.  Her  intestate 
might  be  indebted,  and  the  assets  wanted  to  be  distributed.  It  is 
improper,  therefore,  to  suft'er  such  a  construction,  unless  the  parties 
provide  for  it.  I  remember  that  case  in  Baxter  v.  Burfield,  2  Stra. 
1266.  It  was  an  action  against  the  surety  in  a  bond  conditioned 
for  performance  of  the  articles.  The  master,  to  whom  the  youth  was 
bound,  died.  The  executors  thought  they  might  have  some  benefit  of 
Gil.Pabt.— 38 


594  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

his  time ;  and  the  view,  therefore,  was  not  to  have  him  personally  their 
servant,  and  to  instruct  him  farther  in  the  trade,  but  to  put  that  bene- 
fit of  the  infant's  service  into  their  own  pocket.  The  court,  considering 
the  inconvenience  attending  apprentices  or  trade  in  general,  if  infants 
were  obliged  to  serve  executors  or  administrators  for  remainder  of 
the  term,  although  not  of  the  same  trade  with  the  infant,  determined 
it  for  the  defendant,  that  the  action  would  not  lie.  I  also  remember 
Huddleston's  Case,  and  am  pretty  certain  (though  not  positive)  that 
he  was  under  a  great  dejection  of  mind'i.so  that  a  commission  was 
applied  for;  but  before  that  question  came  before  the  court  he  had 
recovered  himself,  and  was  desirous  to  carry  on  the  partnership.  The 
court  said  these  were  accidents  which  could  not  be  provided  for ;  but 
that  was  no  reason,  when  he  had  brought  all  his  substance  into  trade, 
the  other  partner  should  say  that  a  temporary  disorder  intervening 
should  deprive  him  during  life  from  going  on  with  the  business,  and 
that  he  should  put  the  whole  benefit  of  the  partnership  into  his  pocket, 
without  accounting  for  it.  So  that  the  court  held  he  had  not  forfeited 
the  benefit  under  the  partnership,  but  should,  notwithstanding  that 
accident,  be  considered  as  partner.  That  case  depended  entirely  on 
that  circumstance;    and  there  was  a  prospect  of  his  recovery.^ 

1  "As  a  partner  cannot  possibly  continue  to  be  a  member  of  a  firm  after  his 
death,  any  agreement  with  his  executor,  or  other  person  having  a  beneficial 
interest  in  the  share  of  the  assets  Avhich  belong-ad  to  him,  for  the  continua- 
tion of  the  business  thereafter  with  the  surviving  partner,  is,  necessarily,  the 
formation  of  another  partnership,  the  terms  of  which,  when  not  otherwise  ex- 
pressly agreed  upon,  may  be  implied,  from  the  manner  of  conducting  the 
business,  to  be  the  same  as  those  of  the  former  partnership.  -What  is  inac- 
curately called  provision  against  the  dissolution  of  the  partnership  is  an  agree- 
ment tiiat,  if  either  party  dies,  his  property  shall  remain  in  the  firm  and  in  the 
business,  for  the  benefit  of  his  children,  or  that  his  children,  or  some  of  them, 
or  some  other  person,  shall  immediately  on  his  death  take  his  plaqe  in  the 
firm,  and  become  a  partner  in  his  stead.  All  these  agreements  and  arrange- 
ments, and  all  that  can  be  made  for  a  similar  purpose,  are,  in  fact,  only  bar- 
gains for  the  creation  of  a  new  partnership  when  the  old  one  ceases  to  exist. 
And  so,  too,  all  arrangements  or  contracts  which  mriy  be  made  between  the 
surviving  partners  and  the  representatives  or  appointees  of  the  deceased  have 
for  their  effect  only  the  formation  of  a  new  partnership,  which,  upon  some 
terms  or  other,  takes  the  stock  and  carries  on  the  business  of  the  old  one.' 
Parsons  on  Partnership.  §  343.  The  effect  cannot  be  otherwise  of  any  arrange- 
ment for  a  continuation  of  the  business,  between  the  surviving  member  of  the 
firm  and  the  executor  or  other  appointee  under  the  will  of  the  deceased  mem- 
ber, made  in  pursuance  of  the  will ;  for,  upon  the  death  of  the  partner,  his 
personal  estate,  including  his  interest  in  the  partnership,  devolves  upon  his 
executor,  and  vests  in  the  beneficiaries  of  the  will,  and  becomes  their  prop- 
erty." Per  Williams,  J.,  in  McGrath  v.  Cowen,  57  Ohio  St.  385,  401,  49  N.  E. 
338  (1898). 

In  Wild  V.  Davenport,  48  N.  J.  Law,  129,  7  Atl.  295.  57  Am.  Rep.  552  (1886), 
it  is  said:  "A  provision  in  articles  of  partnership  that,  on  the  death  of  a 
partner,  his  executor,  or  i>ersonal  representative,  or  some  other  person,  shall 
be  entitled  to  the  place  of  a  deceased  partner  in  the  firm,  with  the  capital  or 
the  deceased  in  the  firm  business,  or  some  part  of  it.  is  binding  upon  the  sur- 
viving partner  to  admit  the  executor,  personal  representative,  or  nominee  of 
the  deceased  partner,  but  does  not  bind  the  latter  to  come  in.  They  have  an 
option  to  come  in  or  not,  and  a  reasonable  time  within  which  to  elect." 


Sec.  2)  BY  orERATiox  or  law.  595 

In  liolding  that,  where  a  partnership  is  dissolved  by  the  death  of  a 
co-partner,  no  notice  of  dissolution  is  necessary,  Bigelow,  C.  J.,  in 
Marlett  v.  Jackman,  3  Allen  (Mass.)  287  (1881),  said:  "The  delectus 
personarum  lies  at  the  foundation  of  the  agreement  of  the  parties, 
and  is  one  of  the  main  considerations  on  which  it  rests.  The  personal 
qualities  of  each  member  of  a  firm  enter  largely  into  the  inducements 
which  lead  parties  to  form  a  copartnership;  and  if  the  abilities  and 
skill,  or  the  character  and  credit,  of  any  one  are  withdrawn,  the  con- 
tract between  them  is  terminated,  and  the  copartnership  is  dissolved. 
When,  therefore,  by  the  death  of  a  member  of  a  firm,  his  personal 
liability  ceases  and  his  estate  is  by  operation  of  law  absolved  from  all 
future  contracts  and  transactions  entered  into  in  the  name  of  the  firm, 
it  would  seem  to  follow,  as  a  necessary  consequence,  that  the  power 
of  the  surviving  partners  to  bind  each  other  by  new  contracts  and 
engagements  must  at  once  cease." 


RAYMOND  V.  VAUGHAN. 

(Supreme  Court  of  Illinois,  3889.     128  111.  256,  21  N.  E.  5G6,  4  L.  il.  A.  440, 

1.0  Am.  St.  Rep.  112.) 

Bill  for  accounting  brought  by  George  M.  Vaughan  against  Samuel 
B.  Raymond  in  the  circuit  court  of  Cook  county.  A  decree  was  ren- 
dered in  favor  of  complainant.  Defendant  took  a  writ  of  error  to  the 
appellate  court.  The  decree  was  afifirmed  and  defendant  brings  error 
to  this  court. 

Per  Curiam.  This  was  a  bill  filed  by  defendant  in  error,  Vaughan, 
against  Samuel  B.  Raymond,  plaintiff  in  error,  to  compel  an  account- 
ing in  respect  of  partnership  affairs  alleged  to  exist  between  them. 
The  answer  of  Raymond  expressly  admits  the  formation  of  the  co- 
partnership, as  alleged  in  the  bill,  and  its  continuance  from  Septem- 
ber 15,  1874,  to  the  20th  day  of  January,  1876.  when  the  complain- 
ant, Vaughan,  was  adjudged  insane.  It  will  therefore  be  unneces- 
sary to  discuss  the  question  of  the  partnership  further  than  may  be- 
come important  in  illustrating  other  branches  of  the  case. 

It  is  insisted  by  counsel  for  plaintiff  in  error  that,  if  the  partner- 
ship existed,  first,  that  it  was  ipso  facto  dissolved  by  the  adjudication 
of  the  insanity  of  Vaughan  by  the  county  court  of  Cook  county  on 
the  20th  day  of  January,  1876,  and  that  plaintiff  in  error,  as  conserv- 
ator of  Vaughan,  accounted  for  all  the  property  of  Vaughan,  and  all 
his  rights  and  credits  accruing  from  the  copartnership  prior  to  said 
date  in  settlement  of  Vaughan's  estate  in  said  court,  and  that,  the 
partnership  being  dissolved. ^Vaughan  has  no  claim,  legal  or  equitable, 
to  the  proceeds  of  the  partnership  business  after  such  dissolution ; 
second,  if  this  is  not  so.  that,  the  partnership  being  determinable  at  the 
will  of  either  party,  Raymond  elected  to  determine  the  partnership, 


596  TERMINATION   OF  THE   PARTNERSHIP.  CCh.  9 

and  did  terminate  it,  at  the  date  of  the  adjudication  of  insanity,  and 
that  such  dissolution  can  be  inferred  from  circumstances,  and  that 
the  circumstances  proved  show  such  election  by  him ;  third,  that  the 
discharge  by  the  county  court  of  Raymond,  as  conservator  of  Vaughan. 
upon  his  final  report  as  such  conservator,  is  a  bar  to  relief  sought  by  the 
•bill  in  this  case,  so  long  as  it  remains  unreversed ;  and,  fourth,  that, 
in  any  event,  by  a  settlement  made  between  the  parties  in  Philadelphia 
in  June,  1879,  Vaughan  received  of  Raymond  $2,500  in  full  satisfac- 
tion and  discharge  of  his  interest  in  the  business  and  profits  of  such 
copartnership. 

The  first  contention  presents  a  question  of  the  most  difficulty.  It  is 
said  in  Parsons  on  Partnership,  465 :  "There  are  not  wanting  strong 
reasons  and  high  authority  for  the  conclusion  that  insanity,  certain, 
complete,  and  hopeless,  of  itself,  and  at  once,  dissolves  the  partner- 
ship; but  we  think  the  decided  weight  of  authority  in  England  and  in 
this  country  opposes  this  conclusion,  and  holds  that  the  partnership 
continues  until  it  is  dissolved  by  decree."  Chancellor  Kent,  3  Kent, 
Comm.  58,  says:  "Insanity  does  not  work  a  dissolution  of  partner- 
ship ipso  facto.  It  depends  upon  circumstances  under  the  sound  dis- 
cretion of  the  court  of  chancery.  But,  if  the  lunacy  be  confirmed  and 
duly  ascertained,  it  may  now  be  laid  down  as  a  general  rule,  notwith- 
standing the  decision  of  Lord  Talbot  to  the  contrary,  that,  as  partners 
are  respectively  to  contribute  skill  and  industry  as  well  as  capital  to 
the  business  of  the  concern,  the  inability  of  a  partner  by  reason  of 
lunacy  is  a  sound  and  a  just  cause  for  the  interference  of  the  court 
of  chancery  to  dissolve  the  partnership,  and  have  the  accounts  taken, 
and  the  property  duly  applied."  And  the  same  author  (2  Kent,  Comm. 
645)  says:  "In  cases  of  partnerships  it  would  at  least  require  a  decree 
in  chancery  .to  dissolve  the  partnership  on  ,.the  ground  of  lunacy." 
Story,  in  his  work  on  Partnership,  §  295,  says:  "The  common  law, 
*  *  *  upon  grounds  of  public  policy  or  convenience,  holds  that  in- 
sanity does  not  ordinarily,  per  se,  amount  to  a  positive  dissolution  of 
the  partnership,  but  only  to  a  good  and  sufficient  cause  for  a  court 
of  equity  to  decree  a  dissolution."  This  writer,  however,  adds :  "We 
say  'ordinarily,'  for  where  the  insanity  has  been  positively  ascertained 
under  a  commission  of  lunacy,  or  by  the  regular  judicial  appointment 
of  a  guardian  to  the  lunatic,  it  may  deserve  consideration,  whether  it 
does  not  ipso  facto  amount  to  a  clear  case  of  dissolution  of  the  part- 
nership by  operation  of  law,  since  it  immediately  suspends  the  whole 
functions  and  rights  of  the  party  to  act  personally."  Mr.  Chief  Jus- 
tice Parker  in  Davis  v.  Lane,  10  N.  H.  161,  makes  the  same  sugges- 
tion. That  case  was,  however,  upon  the  effect  of  insanity  in  revoking 
the  power  of  an  agent  to  act  for  his  principal.  Ad!r.  Parsons  also 
seems  to  be  of  the  opinion  that  the  courts  would  hold  that  where  the 
insanity  was  determined  by  due  inquest  it  would,  per  se,  operate  as 
a  dissolution  of  the  partnership.  Both  Story  and  Parsons  refer,  in 
support  of  this  latter  suggestion,  to  the  case  of  Isler  v.  Baker,  6  Humph. 


Sec.  2)  BT    OPERATION    OF    LAW.  507 

^Tenn.)  85,  alone,  to  sustain  the  text.  That  case  holds  the  doctrine 
indicated  by  Mr.  Parsons,  but  stands,  so  far  as  we  have  been  able  to 
find,  unsupported  by  any  adjudicated  case,  and  none  are  cited  by  the 
court  in  support  of  its  conclusion.  Collier  on  Partnerships,  bk.  2,  c.  3, 
§  3;  Gow  on  Partnership,  c.  5,  §  1,  each  lay  down  the  rule  that  a  de- 
cree of  a  court  of  chancery  is  necessary  to  a  dissolution  of  the  partner- 
ship, notwithstanding  there -has  been  an  adjudication  declaring  one 
partner  a  lunatic.  In  Besch  v.  Frolich,  1  Phil.  Ch.  172,  one  of  the 
partners  had  been  adjudged  insane  upon  commission  of  lunacy.  Upon 
bill  filed  to  dissolve  the  partnership,  it  was  insisted  that  it  should  be 
decreed  dissolved  from  the  time  of  the  incapacity  of  the  insane  part- 
ner. This  the  court,  Lord  Chancellor  Cottenham  delivering  the  opin- 
ion, held  could  not  be  done,  and  says:  "That  there  are  three  consid- 
erations between  partners — the  share  of  each  in  the  capital ;  the  share 
of  each  in  the  good  will ;  and  the  labor  which  each  undertakes  to  de- 
vote to  the  business.  Your  argument  is  that  because  one  of  these  con- 
siderations, and  that,  perhaps,  the  least  valuable  of  the  three,  fails, 
you  are  entitled  from  that  time  to  take  to  yourself  the  whole  benefit 
of  the  other  two.  *  *  *  Whatever  delay  has  occurred  is  imputable 
to  the  plaintifiF  himself.  It  was  competent  for  him  to  have  filed  his  bill 
at  any  moment  since  the  time  when  his  partner  first  became  incapable 
of  attending  to  the  business."  In  Jones  v.  Noy,  2  Mylne  &  K.  12.5. 
the  partners  were  solicitors.  One  of  them.  Hardston,  became  insane, 
and  incapable  of  attending  to  business,  and  died  two  or  three  years 
afterwards.  Noy,  the  other  partner,  carried  on  the  business  one  or 
two  years,  and  then  sold  it  out.  Hardston's  executors  filed  a  bill  to 
compel  Noy  to  account  in  respect  to  the  partnership  business,  and  the 
proceeds  of  the  sale.  Sir  John  Leach,  M.  R.,  in  determinin^g  the  cause 
said :  "It  is  clear  upon  principle  that  the  complete  incapacity  of  a 
party  to  an  agreement  to  perform  that  which  was  a  condition  of  the 
agreement  is  a  ground  for  determining  the  contract.  The  insanity  of 
a  partner  is  a  ground  for  the  dissolution  of  a  partnership,  because  it 
is  immediate  incapacity,  but  it  may  not  in  the  result  prove  to  be  a 
ground  of  dissolution,  for  the  partner  may  recover  from  his  malady. 
When  a  partner,  therefore,  is  affected  with  insanity,  the  continuincf 
partner  may,  if  he  think  fit,  make  it  a  ground  of  dissolution  ;  but  in 
that  case  I  consider  with  Lord  Kenyon  that,  in  order  to  make  it  a 
ground  of  dissolution,  he  must  obtain  a  decree  of  the  court.  If  he 
does  not  apply  to  the  court  for  a  decree  of  dissolution  it  is  to  be  con- 
sidered that  he  is  willing  to  wait  to  see  whether  the  incapacity  of  his 
I>artner  may  not  prove  merely  temporary.  If  he  carry  on  the  partner- 
ship business  in  the  expectation  that  his  partner  may  recover  from  his 
insanity,  so  long  as  he  continues  the  business  with  that  expectation  or 
hope  there  can  be  no  dissolution."  See.  also,  Griswold  v.  Wadding- 
ton,  15  Johns.  (N.  Y.)  57;  Bagshaw  v.  Parker,  10  Beav.  532;  Sadler 
V.  Lee,  6  Beav.  324;  Robertson  v.  Lockie,  15  Sim.  285;  Pearce  v. 
Chamberlain,  2  Ves.  Sr.  33.    *    *    * 


598  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

The   nile   supported  by  the  decided   weight  of  authority,   and   an- 
nouncing the  correct  doctrine,  is  that  the  insanity  of  a  partner  does 
not,  per  se,  work  a  dissokition  of  the  partnership,  but  may  constitute 
sufficient  grounds  to  justify  a  court  of  equity  in  decreeing  its  disso- 
lution. But  this  doctrine  must  be  understood  and  is  appHed  by  courts 
of  equity  with  appropriate  Hmitqtions  and  restrictions;    for,  while  cur-f 
able,  temporary  insanity  will  be  sufficient^  upon  an  inquisition,  to  sus- 
tain an  adjudication  of  insanity  in  the  county  court,  the  appointment 
of  a  conservator,  and  commitment  of  the  ward  to  an  insane  asylum, 
yet  it  will  not  authorize  a  court  of  chancery  to  decree  a  dissolution  of 
a  partnership,  if  the  malady  be  temporary  only,  with  a  fair  prospect 
of  recovery  within  a  reasonable  time.     Story,  Partn.  §  297.     Under 
our  system  the  adjudication  of  insanity  may  be  had  for  the  purpose 
of  enabling  those  temporarily  insane  to  avail  themselves  of  the  facili- 
ties for  treatment  and  cure  provided  by  the  beneficence  of  the  state. 
In  such  case  the  adjudication  of  the  county  court  is  necessary  to  their 
admission  to  the  state  hospital  for  the  insane,  where,  in  theory  at  least, 
the  curable  are  admitted.     It  is  manifest  that  the  adjudication  by  the 
county  court  can  have  no  effect  in  determining  the  partnership ;    and, 
upon  bill  filed  to  dissolve  the  partnership,  it  would  have  no  other  effect 
than  to  establish  the  insanity.     Courts  of  equity  will,  as  between  the 
partners,  look  to  the  effect  produced  upon  the  partnership  relations 
and  business,  and  refuse  to  determine  the  partnership,  and  apply  its 
assets,  unless  the  insanity  materially  affects  the  capacity  of  the  part- 
ner to  discharge  the  duties  imposed  by  his  contract  relation.     A  part- 
ner embraces  the  character  both  of  principal  and  agent.     For  him- 
self, with  respect  to  the  concerns  of  the  partnership,  he  virtually  acts 
as  principal,  and  as  agent  for  his  partners.    His  power  to  act  for  them 
is  coupled  with  an  interest  in  all  that  pertains  to  the  business  of  the 
concern.    It  would  seem,  therefore,  that  if  for  any  reason  one  member 
of  the  firm  should  assume  control  and  management  of  the  business 
and  affairs  of  the  partnership,  he  should,  while  so  controlling  it,  man- 
age it  for  all,  and  in  the  interest  of  all  the  partners.     His  duty  would 
not,  perhaps,  be  strictly  that  of  a  trustee,  but  would  be  analogous  to 
it,  and  he  would  not  be  allowed  to  derive  personal  advantage  from  the 
use  of  the  partnership  assets,  or  business  or  good  will  of  the  firm.    This 
rule  is  universal  in  its  application  to  fiduciary  relations.     Bowen  v. 
Richardson,  133   Mass.   293;    Freeman  v.   Freeman,  136   Mass.   2G0 ; 
Perry,  Trusts,  §§  127,  128,  455-464.    At  any  time  after  the  insanity  of 
Vaughan,  the  continuing  partner  had,  if  he  saw  proper  to  exercise  it, 
the  right  to  apply  for  a  dissolution  of  the  partnership,  or,  as  it  was  a 
partnership  at  will,  might  have  dissolved  it  of  his  own  volition. 

There  is  much  evidence  in  the  record  tending  to  show  that  some 
time  prior  to  January  20,  1876,  Vaughan  became  deranged,  but  re- 
mained seemingly  conscious  of  his  own  incapacity  for  business.  Upon 
consultation  with  Raymond  they  went  together  to  an  asylum  near 
Chicago,  to  consult  a  physician  as  to  the  best  course  to  pursue,  and  it 


Sec.  2)  BY"    OPERATION    OF    LAW.  599 

was  agreed  and  determined  that  application  be  made  to  the  county 
court  to  Iiave  X'aughan  adjudged  insane.     Vaughan  testifies,  and  there 
is  much  in  this  record  to  corroborate  his  statement,  that  it  was  agreed 
by  Raymond,  in  view  of  his  going  to  the  asylum  to  be  treated  for  his 
malady,  that  he  (Raymond)   would  look  after  and  attend  to  the  busi- 
ness of  the  firm,  and  carry  it  on  in  his  absence.     It  is  not,  however, 
necessary  to  put  the  case  upon  that  ground,  for  it  docs  clearly  appear 
that  Raymond,  without  objection,  or  any  notice  to  any  one,  continued 
the  business  precisely  as  before,  and  the  presumption  is  that  he  did  not 
intend  a  dissolution  of  ihe  firm.    It  is  to  be  presumed,  in  the  absence  of 
evidence  showing  to  the  contrary,  that  he  waited  to  determine  whether 
the  incapacity  of  his  partner  would  prove  temporary  merely,  and  it 
became  practicable  for  him  to  resume  business.     So  long  as  he  thus 
continued  to  carry  on  the  partnership  business  without  taking  steps  to 
dissolve  the  partnership,  there  could  be  no  dissolution  or  he  be  excused 
from  afterwards  accounting  for  the  profits  actually  derived  by  him 
from  the  business  of  the  firm.    The  circumstances  relied  upon  as  show- 
ing an  election  by  Raymond  to  dissolve  the  copartnership  are  wholly 
insufficient.     On  the  contrary,  it  appears  that  these  parties  were  bro- 
kers;  that  for  a  number  of  years  prior  to  the  formation  of  this  part- 
nership Vaughan  had  represented  as  broker  in  the  wholesale  sugar 
market  in  Chicago  the  Franklin  Sugar  Refinery  of  Philadelphia,  Pa., 
whose  business  was  there  conducted  by  Harrison,  Havemeyer  &  Co. 
It  also  appears  that  Raymond  had  been  likewise  engaged  as  a  broker 
in  sugars  in  Chicago,  he  representing  two  or  more  sugar  refineries  in 
the  east,  each  of  the  parties  having  realized  considerable  sums  by  way 
of  commissions  in  the  course  of  their  business.    By  an  arrangement  be- 
tween them,  they  consolidated  their  business,  Vaughan  receiving  one- 
third,  and  Raymond  two-thirds,  of  the  profits,  and  they  were  to  share 
losses  and  expenses  in  the  same  proportion.    Each,  however,  remained 
the  broker  of  the  refineries  that  they  had  previously  represented;  that 
is,  Vaughan  represented  the  Franklin  Sugar  Refinery,  and  no  change 
was  made  in  the  agency  whatever.    After  Vaughan  was  adjudged  in- 
sane, instead  of  dissolving  the  copartnership  or  doing  any  act  show- 
ing an  intent  so  to  do,  Raymond  continued  to  carry  on  the  business 
in  all  respects  as  before.    Vaughan  still  continued  to  be  the  broker  of 
the  Franklin  Sugar  Refinery,  and  that  concern  had  no  notice  of  any 
change  in  its  brokers  at  Chicago.    It  is  shown  that  a  very  large  busi- 
ness was  done  by  Raymond,  acting  in  the  name  of  Vaughan,  as  broker 
of  said  refinery,  and  large  profits  were  received  by  him  therefrom. 
Vaughan  had  brought  the  business  of  the  Franklin   Sugar  Refinen.' 
to  the  firm.     No  confidence  had  been  reposed  by  this  principal  in  Ray- 
mond, he  at  no  time  having  acted  as  individual  broker  of  that  refinery. 
It  was  not  until  after  Vaughan's  discharge  from  the  asylum  that  ar- 
rison,  Havemeyer  &  Co.  had  any  notice  or  intimation  that  Raymond 
pretended  that  a  dissolution  of  the  firm  had  taken  place.     And  then, 
as  it  is  clearlv  shown,  to  induce  Harrison,  Havemeyer  &  Co.  to  nvike 


600  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

him  their  broker  at  Chicago,  and  to  induce  Vaughan  to  give  up  and 
surrender  the  business  in  that  city,  Raymond  paid  Vaughan  $3,500. 
Negotiations  were  had  between  these  parties  through  Mr.  Harrison, 
of  the  firm  of  Harrison,  Havenieyer  &  Co.,  and  his  testimony  leaves  no 
doubt  that  the  payment  of  said  sum  of  $2,500  by  Raymond  to  Vaughan 
was  for  a  surrender  by  Vaughan  to  Raymond  of  his  (Vaughan's) 
right  to  act  as  broker  for  the  FrankHn  Sugar  Refinery  in  the  Chicago 
market.  We  cannot  undertake  to  review  this  evidence  in  detail,  but  it 
leaves  no  question  in  our  minds  that  the  dissolution  of  the  firm  did  not 
take  place  at  any  time  prior  to  the  settlement  before  spoken  of  in  re- 
spect to  the  future  conduct  of  the  business.    *    *    * 

We  find  no  error  in  this  record,  and  the  judgment  of  the  appellate 
court  will  be  affirmed. 


GRISWOLD  et  al.  v.  WADDINGTON  et  al. 
(Supreme  Court  of  New  York,  1818.     15  Johns.  57.) 

This  was  an  action  of  assumpsit.  The  defendant  Joshua  Wadding- 
ton  was  an  American  citizen,  residing  in  New  York,  and  the  defend- 
ant Henry  Waddington  a  British  subject,  residing  in  London.  The 
defendants  had  been  in  partnership  together,  and  carried  on  their 
business  at  London  under  the  firm  of  Henry  Waddington  &  Co.,  and 
at  New  York  under  the  firm  of  Joshua  Waddington  &  Co.,  The  plain- 
tiffs were  citizens  of  the  United  States,  resident  in  New  York,  and 
the  demand  sought  to  be  recovered  in  this  action  was  a  balance  of 
account  arising  on  transactions  between  the  plaintiffs  and  Henry  Wad- 
dington, or  the  firm  of  H,  Waddington  &  Co.,  during  the  late  war 
between  this  country  and  Great  Britain,  *  *  *  ^i^q  j^j-y  found 
a  verdict  for  the  plaintiffs  for  $17,757.09,  subject  to  the  opinion  of 
the  court  on  a  case  made,  with  liberty  to  either  party  to  turn  the  case 
into  a  special  verdict,  with  power  to  the  court  to  grant  a  new  trial 
or  a  venire  de  novo.     *     *     * 

Spencer,  j.  *  *  *  Upon  the  fullest  reflection  which  I  have 
been  able  to  give  to  the  subject,  my  opinion  is  that  the  declaration  of 
war  between  the  United  States  and  Great  Britain  produced  a  suspen- 
sion during  the  war,  or,  ipso  facto,  a  dissolution  of  the  partnership 
previously  existing  between  the  defendants,  so  that  the  one  is  not  re- 
sponsible upon  the  contract,  express  or  implied;  of  the  other.  It  will 
be  perceived  that  this  proposition  assumes  the  fact  that  the  partner- 
ship between  the  defendants  had  not  become  dissolved  by  the  efflux 
of  the  time,  or  the  acts  of  either  of  the  partners,  although  this  point 
is,  in  itself,  very  questionable.  The  better  conclusion  from  the  evi- 
dence is  that  the  partnership  expired  by  its  own  limitation  during  the 
war;  and  the  existence  of  the  war  would,  at  all  events,  dispense  with 
the  public  notice  which  is,  in  general,  necessary  to  the  valid  dissolu- 
tion of  a  partnership. 


Sec.  2)  BY    OFEUATION    OF    LAW,  601 

The  case  discloses  that  the  firm  of  Henry  Waddin^on  &  Co.  con- 
sisted of  Henry  and  Joshua  Waddington;  that  Henry  is  a  British  sub- 
ject, resident  before  and  during  ihe  war  in  London,  conducting  the 
partnership  concerns  there,  whilst  the  defendant  was  resident  here. 
The  negotiations  which  gave  rise  to  the  present  suit  took  place  in  Eng- 
land, and  exclusively  with  Henry  Waddington,  during  the  late  war 
between  this  country  and  Great  Britain. 

It  was  admitted  on  the  argument,  and  so  the  fact  undoubtedly  is, 
that  the  proposition  I  have  advanced  is  neither  supported  nor  denied 
by  any  judicial  decisions  or  elementary  writer  of  the  common  law ; 
but,  if  I  mistake  not,  it  is  supported  by  the  strongest  reasons,  and  by 
necessary  analogy  with  adjudged  cases. 

The  first  inquiry  is,  what  are  objects  and  ends  of  partnerships?  They 
are  entered  into  with  the  view  that,  with  the  joint  funds,  skill,  and  labor 
of  the  several  partners,  the  interests  of  the  concern  may  be  advanced  and 
promoted.  There  may  be,  and  frequently  are,  different  inducements 
influencing  each  partner.  One  may  have  more  capital  and  credit. 
Another  may  have  more  skill,  activity,  and  experience.  The  one  may 
choose  to  be  a  dormant  and  inert  partner,  furnishing  an  equivalent 
for  the  services  and  skill  of  the  other,  and  leaving  the  business  entire- 
ly to  his  control  and  management.  But,  unexplained  as  this  partner- 
ship i?,  we  must  understand  it  to  be  a  union  with  a  view  to  the  em- 
ployment of  the  joint  capital,  labor,  and  skill  of  both  the  partners  for 
the  purposes  of  internal  and  external  commerce  between  this  country 
and  Great  Britain.  That  the  object  of  the  partnership  embraced  both 
these  objects  of  internal  and  external  trade  would  seem  to  be  unques- 
tionable from  the  local  position  of  the  partners. 

That  the  death,  insanity,  and  bankruptcy  of  one  of  the  partners 
operates  as  a  dissolution  was  not  questioned  in  the  argument :  and 
a  respectable  elementary  writer,  Mr.  Watson,  is  of  opinion  that  the 
marriage  of  a  feme  sole  partner  would  produce  the  same  consequence. 
The  cases  of  Pearce  v.  Chamberlain,  2  Ves.  33,  and  Sayer  v.  Bennet, 
Watson,  383,  and  several  other  cases  cited  by  him,  all  go  to  establish 
the  general  principle  that  death,  insanity,  or  bankruptcy,  work  a  dis- 
solution of  the  partnerships,  and  they  proceed  on  the  principle  that 
the  other  partners  are  not  bound  to  admit  the  representatives  of  a 
deceased  or  insane  partner  into  the  concern ;  the  confidence  having 
been  originally  placed  in  the  personal  skill  and  assistance  of  those 
no  longer  able  to  aflford  it. 

Let  these  principles  be  applied  to  the  present  case,  and  it  would  seem 
that  the  same  result  is  inevitable.  In  what  situation  did  the  war  put 
the  defendants,  as  regarded  each  other?  Most  undeniably  the  two  na- 
tions, and  all  their  citizens  or  subjects,  became  enemies  of  each  other, 
and  the  consequence  of  this  hostility  was  that  all  intercourse  and 
communication  between  them  became  unlawful.  This  is  not  only  the 
acknowledged  principle  of  the  law  of  nations,  but  is  also  a  part  of 
the  municipal  jurisprudence  of  every  country.     I  need  not  cite  cases 


C02  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

in  support  of  a  position  which  has  so  repeatedly  been  recognized  in 
the  EngHsh  courts,  and  in  our  own,  possessing  as  well  admiralty  as 
common-law  jurisdiction.  Another  consequence  of  the  war  was  that 
the  shipments  made  by  each  of  the  partners  would  be  liable  to  capture 
and  condemnation  by  the  cruisers  of  the  government  of  the  other; 
and  another  very  serious  evil  -attended  them :  No  debts  contracted 
in  the  partnership  name  could  be  recovered  in  the  courts  of  either 
nation ;  they  not  having,  in  the  language  of  the  law,  a  persona  standi 
in  judicio,  whilst  they  were  amenable  to  suits  in  the  courts  of  botli 
nations.  The  Hoop,  1  C.  Rob.  Adm.  201.  It  is  true,  the  same  dis- 
ability to  sue  for  debts  due  the  firm  antecedent  to  the  war  would  ex- 
ist. This  however,  does  not  weaken  the  objection.  It  remains  still 
an  important  item,  in  considering  whether  a  partnership  exists,  when 
the  new  debts  created  are  to  be  liable  to  the  same  disability.  It  ap- 
pears that  Joshua  Waddington  is  a  citizen  of  the  United  States,  and 
it  has  been  already  mentioned  that  Henry  Waddington  is  a  British- 
born  subject.  They  owed  different  allegiances,  and  it  became  part  of 
their  duty  to  lend  all  their  aid,  in  a  vigorous  prosecution  of  the  war, 
tlie  one  to  the  United  States,  and  the  other  to  Great  Britain;  and  it 
appears  to  me  that  it  would  not  comport  with  policy  or  morality  that 
the  law  should  imperiously  continue  a  connection,  when  by  /its  very 
continuance  it  would  afford  such  strong  inducements  to  a  violation  of 
that  fidelity  which  each  owes  to  his  government. 

Again,  all  communication  and  intercourse  being  rendered  unlaw- 
ful, and  it  being  a  well-established  principle  that  either  partner  may, 
by  his  own  act,  dissolve  a  partnership,  unless  restrained  to  continue 
it  for  a  definite  period  by  compact,  in.  what  manner  could  such  in- 
tentions be  manifested  during  the  war.  It  might,  indeed,  be  made 
known  to  the  public  of  one  of  the  countries,  but  it  could  not  be  notified 
to  the  public  of  the  hostile  country ;  and  thus,  unless  the  war  pro- 
duced a  dissolution,  he  would  be  responsible,  notwithstanding  he  had 
the  desire  to  dissolve  the  connection,  merely  from  inability  to  make 
known  that  determination — an  inability  produced  by  events  utterly 
uncontrollable.  When  the  objects  and  intentions  of  an  union  of  two  or 
more  individuals  to  prosecute  commercial  business  are  considered,  when 
it  is  seen  that  an  event  has  taken  place,  without  their  fault  and  beyond 
their  control,  which  renders  their  respective  nations,  and  along  with 
them  the  defendants  themselves,  enemies  of  each  other;  that  all  com- 
munication and  intercourse  has  become  unlawful ;  that  they  can  no 
longer  co-operate  in  the  conduct  of  their  common  business,  by  af- 
fording each  other  advice,  and  are  kept  hoodwinked  as  to  the  con- 
duct of  each  other ;  that  the  trade  itself  in  .which  they  were  engaged 
has  ceased  to  exist;  that,  if  they  enter  into  any  contracts,  they  are 
incapable  of  enforcing  their  performance  by  an  appeal  to  the  courts; 
that  their  allegiance  leads  them  to  support  opposite  and  conflicting 
interests — I  am  compelled  to  say  that  the  law  cannot  be  so  unjust 
as  to  pronounce  that  partnership  so  circumstanced,  when  all  its  ob- 


Sec.  2)  BY    OPERATION    OF    LAW.  603 

jccts  and  ends  are  prostrated,  shall  continue;  and  with  th(  clearest 
conviction  upon  my  mind,  and  in  analogy  to  the  cases  to  wnich  ref- 
erence has  been  made,  I  have  come  to  the  conclusion  that  th;  partner- 
ship between  the  defendants  was,  at  least,  suspended,  and  /.  incline  to 
the  opinion  that  it  was,  ipso  facto,  dissolved  by  the  war,  ind,  conse- 
quently, that  the  defendant  J.  Waddington  is  not  liabk  to  this  ac- 
tion.    *     *     * 

If  the  law  worked  a  suspension  or  dissolution  of  tht  partnership, 
every  person  dealing  with  Henry  Waddington  was  bound  io  take  notice 
of  the  fact;  and  with  the  old  dealers  of  the  firm  there  was  knowledge 
of  all  the  material  facts  which  enter  into  the  determination  of  the 
cause. 

Judgment  for  the  defcndant. 


EUSTIS  V.  BOLLES  et  al. 

(Supreme  .Tudlrlal  Court  of  Massachusetts,  ISSS.     146  y.'^as.  413,  IG  N.  E.  2S6, 

4  Am.  St  Rep.  327.) 

Contract  by  William  T.  Eustis  against  Charles  H.  Bolles,  George  F. 
Wilde,  and  Francis  D.  Hall,  to  recover  the  balance  of  a  promissory 
note.  Hearing  in  the  Supreme  Judicial  Court,  before  C.  Allen,  J.,  who 
reported  the  case  to  the  full  court. 

AIoRTON,  C.  J.  This  is  a  suit  upon  a  note  dated  January  1,  1880, 
signed  by  "B.  Callender  &  Co."  It  was  signed  and  delivered,  to  the 
plaintiff  by  B.  Callender,  and  at  that  time  the  only  parties  composing 
the  firm  were  the  said  Callender  and  the  defendants  Bolles  and  Wilde. 
The  defendant  Hall,  who  was  formerly  a  partner,  had  withdrawn  from 
the  firm  on  July  2,  1877,  and  notice  of  the  dissolution  was  given  by 
publication  in  the  Boston  Daily  Advertiser,  but  no  personal  notice 
was  given  to  the  plaintiff.  The  note  in  suit  was  given  in  renewal  of 
a  former  note  which  the  plaintiff  held  at  the  time  of  the  dissolution. 
It  further  appears  that  the  defendant  Hall,  in  December,  1877,  filed 
his  petition  in  bankruptcy,  was  adjudicated  a  bankrupt  and  thereupon, 
in  June,  1878,  received  his  discharge.  Upon  these  facts  we  are  of 
the  opinion  that  the  defendant  Hall  is  not  liable  in  this  action.  The 
only  ground  upon  which  he  could  be  held  is  that  the  plaintiff  had  no 
legal  notice'of  the  dissolution  of  the  old  firm.  If  the  firm  had  not  been 
previously  dissolved,  the  bankruptcy  of  Hall  would  have  dissolved  it. 
The  bankruptcy,  like  the  death  of,  a  partner,  dissolves  the  partnership, 
and  as  it  is  a  public,  notorious  proceeding,  all  creditors  are  bound  to 
take  notice  of  it,  and  no  further  notice  need  be  given.  The  publica- 
tion of  bankruptcy  or  insolvency  proceedings  is  legal  notice  to  all 
persons  by  which  they  are  bound.  Story,  Partn.  §§  332-336;  Ar- 
nold V.  Brown,  24  Pick.  89,  94,  35  Am.  Dec.  296 ;  Marlett  v.  Jackman, 
3  Allen,  287 ;  Butler  v.  Mullen,  100  Mass.  4.53.  The  plaintiff  was  a 
creditor  of  Hall  at  the  time  of  his  bankruptcy.     He  is  presumed  to 


604  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

have  had  notice  of  it,  and  this  is  notice  that  at  that  time  the  partner- 
ship had  been  dissolved.  It  is  as  effective  a  notice  that  the  old  copart- 
nership no  longer  existed  as  it  would  be  if  the  bankruptcy  itself  had 
worked  the  dissolution.     *     *     * 

We  are  therefore  of  opinion  that  the  defendant  Hall  is  entitled  to 
a  judgment. 

The  defendants  Bolles  and  Wilde  rely  upon  discharges  under  our 
insolvent  laws.  Their  discharges  were  obtained  under  the  statute  of 
1884:,  c.  236,  as  amended  by  the  statute  of  1885,  c.  353.  These  stat- 
utes made  a  material  change  in  our  insolvent  laws.     *     *     * 

We  are  therefore  of  the  opinion  that  the  discharges  of  the  defend- 
ants Bolles  and  Wilde  are  a  bar  to  the  plaintiff's  claim  against  them. 
Judgment  for  defendants. 


SECTION  3.— BY  JUDICIAL  DECREE, 


BARING  et  al.  v.  DIX. 
(In  Chancery,  at  the  Rolls,  Sir  Lloyd  Kenyon,  1780.    1  Cox,  Cas.  213.) 

On  a  bill  filed  by  two  partners  against  the  third,  praying  an  ac- 
count of  all  partnership  dealings,  and  that  the  partnership  might  be 
dissolved,  and  the  leasehold  premises,  on  which  the  trade  had  been 
carried  on,  might  be  sold,  it  appeared  that  the  partnership  had  been 
originally  instituted  for  the  purpose  of  spinning  cotton  under  a  pat- 
ent which  had  been  obtained  in  that  behalf,  but  that  after  several  at- 
tempts the  invention  totally  failed,  and  was  now  entirely  given  up. 
The  defendant,  Dix,  refused  to  consent  to  the  dissolution  of  the  part- 
nership, or  the  sale  of  the  leasehold  premises,  notwithstanding  it  ap- 
peared that  the  mills  must  otherwise  remain  wholly  unoccupied,  and 
the  rent  be  payable  without  any  profit  arising  to  answer  it.  And 
the  counsel  for  the  plaintiffs  apprehended  that  they  could  not  insist 
upon  the  dissolution  of  the  partnership,  or  the  sale  of  the  premises, 
against  the  consent  of  the  defendant;  but  his  honor  ordered  "that 
upon  the  defendant's  refusing  to  concur  in  the  sale  of  the  premises, 
and  the  dissolution  of  the  copartnership,  it  should  be  referred  to  the 
master  to  inquire  and  state  to  the  court  whether  the  said  copartner- 
ship business  could  now  be  carried  on  according  to  the  true  intent 
and  meaning  of  the  said  articles  of  copartnership."  And  his  honor 
declared  that,  if  the  master  should  report  that  it  could  not  be  so  car- 
ried on,  he  would  direct  the  premises  to  be  sold,  and  would  dissolve 
the  copartnership.    Reg.  Lib.  A.  1785,  fol.  393. 

N.  B. — On  the  30th  of  May  following  the  defendant,  Dix,  signi- 
fied his  consent  to  the  dissolution. 

/ 


Sec.  3)  BY  JUDICIAL   DECKEE.  605 

CASH  V.  EARNSHAW  et  al. 
(Supreme  Court  of  Illinois,  1872.     66  111.  402.) 

Scott,  J.  This  bill  was  to  dissolve  a  copartnership  entered  into 
by  the  parties  to  this  suit  on  the  2Gth  day  of  November,  1869,  for 
the  purpose  of  carrying  on  the  business  of  quarrying  stone,  and  was 
to  continue  through  the  full  period  of  five  years. 

The  ground  set  out  in  the  bill,  upon  which  the  plaintiff  seeks  re- 
lief, is  the  misconduct  of  the  partner  Emanuel  Earnshaw.  No  cause 
of  complaint  is  alleged  against  any  other  member  of  the  firm.  He 
is  charged  with  specific  acts  of  wrongful  conduct  and  general  mis- 
management of  the  business  of  the  firm.  On  account  of  the  char- 
ges in  the  bill,  plaintiff  in  error  sought  to  have  the  court,  dissolve 
the  copartnership,  appoint  a  receiver,  and  close  up  the  affairs  of  the 
firm.  The  court  below  denied  the  relief,  and  plaintiff  brings  the 
cause  to  this  court  on  error. 

It  is  not  for  every  act  of  misconduct  on  the  part  of  one  partner 
that  a  court  of  equity,  at  the  instance  of  another,  will  dissolve  the 
partnership  and  close  up  the  affairs  of  the  company.  The  court  will 
require  a  strong  case  to  be  made,  and  it  is  laid  down  as  a  general 
principle  that  a  court  has  no  jurisdiction  to  make  a  separation  be- 
tween partners  for  trifling  causes  or  temporary  grievances  involving 
no  permanent  mischiefs.     3  Kent,  60. 

Story,  in  his  work  on  Partnership,  states  the  rule  to  be  that,  to 
justify  such  an  extraordinary  interposition,  the  court  always  expects 
a  strong  and  clear  case  to  be  made  out  of  positive  and  meditated 
abuse.  For  minor  misconduct  or  grievances,  he  says,  if  they  require 
any  redress,  the  court,  ordinarily,  will  go  no  further  than  to  act  upon 
the  faulty  party  by  way  of  an  injunction.  Story  on  Partnership, 
§  288,  and  authorities  cited. 

We  have  carefully  examined  the  evidence  in  the  record,  and  we 
fail  to  discover  that  clear  and  satisfactory  proof  of  the  allegations 
in  the  bill  that  the  law  undoubtedly  requires.  Indeed,  so  far  as  we 
can  see,  there  is  no  act  on  the  part  of  Emanuel  Earnshaw  that  the 
plaintiff  in  error  can  have  any  just  cause  of  complaint,  unless  it  was 
the  failure  to  give  him  a  check  for  $500  on  the  12th  day  of  Novem- 
ber, 1870,  when  requested.  And,  if  there  was  no  explanation  to  this 
fact,  we  do  not  think  that  it  is  of  sufficient  gravity  to  justify  the  use 
of  the  extraordinary  power  by  the  court  of  equity  to  put  an  end  to 
the  entire  contract  between  the  parties.  The  contract  of  copartner- 
ship was  deliberately  entered  into  after  mature  consideration,  and 
not  without  considerable  knowledge  of  each  other's  characters  and 
fitness,  and  it  ought  not  to  be  dissolved  on  account  of  any  mere  tri- 
fling cause. 

It  is  apparent,  from  what  took  place  at  the  time,  that  Earnshaw 
did  not  intend  any  wrong  to  plaintiff  in  error  by  the  refusal  to  give 


GOG  TERMINATION    OF   THE    PARTNERSHIP,  (Ch.  9 

the  check.  The  evidence  warrants  us  in  saying  that  there  was  an 
honest  dispute  as  to  the  amount  then  due  to  him.  Plaintiff  in  error^ 
for  some  reason  satisfactory  to  himself,  did  not  choose  to  have  the 
accounts  passed  upon  at  that  time,  and  hence  the  check  was  riot  giv- 
en. It  turned  out,  however,  upon  subsequent  investigation,  that 
there  was  more  than  the  amount  demanded  due  him,  and  he  ought, 
in  fact,  to  have  the  check;  but  Earnshaw  may  have  been  honestly 
in  doubt  as  to  the  amount.  If  so,  he  ought  not  to  be  charged  with 
willful  misconduct,  and  his  contract  for  that  reason  alone  dissolved, 
and  his  business  broken  up.  The  consequences  of  the  dissolution  of 
copartnership  are  of  too  serious  a  character  to  be  justified. by  so  slight 
a  cause.  Under  the  most  unfavorable  view,  it  would  only  work  a 
temporary  inconvenience,  and  it  is  not  pretended  that  any  permanent 
injury  resulted  from  the  refusal  to  give  him  a  check  for  the  desired 
amount  on  that  day.  His  own  conduct  in  the  premises  is  not  alto- 
gether blameless,  and  he  ought  not  to  be  allowed  to  make  the  mis- 
taken judgment  of  his  partner  the  ground  for  the  dissolution  of  their 
contract. 

By  the  agreement  of  the  parties,  Emanuel  Earnshaw  was  made 
general  superintendent  of  the  affairs  of  the  company,  and  it  is  in- 
sisted that  he  made  large  sales  on  credit  to  the  injury  of  plaintiff 
in  error  as  a  member  of  the  firm.  It  was  not  provided  by  the  arti- 
cles of  copartnership  that  no  sales  should  be  made  on  a  credit.  It 
was,  however,  stipulated  that  no  sales  should  be  made  on  a  credit 
by  one  member  "against  the  express  wish  or  consent  of  two  others." 
The  evidence  tends  to  show  that  the  sales  that  were  made  on  credit, 
of  which  complaint  is  made,  were  not  recklessly  done,  but  were  deem- 
ed reasonable  sales  at  the  time.  Certainly  they  were  not  so  improv- 
idently  made  as  to  be  regarded  as  willful  misconduct  on  the  part  of 
the  superintendent.  Losses  did  occur,  but  they  were  through  mere 
error  of  judgment.  The  credits  given  were  for  short  periods,  and 
other  parties,  considered  prudent  men,  engaged  in  the  same  line  of 
business,  made  similar  sales  with  like  disastrous  results.  In  making 
the  sales  on  credit,  he  violated  no  express  agreement  of  the  parties, 
and,  inasmuch  as  it  appears  that  it  was  in  accordance  with  the  cus- 
tom of  the  trade,  we  see  no  grounds  for  just  complaint  against  the 
action  of  the  superintendent  in  this  regard.  He  seems  to  have  act- 
ed with  reasonable  prudence,  and  certainly  no  willful  conduct  can  \ 
be  imputed  to  him  that  ought  to  be  visited  with  any  serious  conse- 
quences. 

The  most  serious  cause  of  complaint  seems  to  be  in  regard  to 
making  the  Shannon  contract  in  the  first  place,  and  the  subsequent, 
agreement  with  Steele  and  McMahan  to  perform  and  complete  his 
contract  with  them.  It  is  alleged  that  by  reason  of  the  improvident 
contract  with  Shannon,  and  the  subsequent  agreement  to  complete 
the  work  on  Lake  street,  large  losses  were  incurred  through  misman- 
agement of  Emanuel  Earnshaw.     No  doubt  the  contract  with  Shan- 


Sec.  3)  BT   jrDIClAL    DECREE.  COT 

non  was  an  unfortunate  one,  but  it  was  certainly  deemed  a  good  one 
by  all  the  parties  when  made,  and,  if  he  had  been  able  to  perform  it, 
it  would  have  been  in  the  end  greatly  to  their  interest.  When  Shan- 
non failed,  Earnshaw  deemed  it  most  advantageous  for  the  interest 
of  all  concerned  that  the  company  should  assume  the  contract  and 
complete  the  work.  It  was  thought  it  would  be  a  great  saving  to  the 
company.  It  is  true  that  the  superintendent  made  the  contract  with 
Steele  and  McMahan  without  having  first  consulted  with  any  of  the 
l)artners;  but  they  certainly  all  consented  to  the  arrangement  after 
it  was  made.  Plaintiff  in  error  says  that  he  protested  against  the 
company  assuming  the  contract;  but  he  himself  superintended  the  work 
for  part  of  the  time,  and  did  other  acts  that  cannot  but  be  regarded 
as  a  ratification  of  the  act  of  the  superintendent  in  undertaking  to 
complete  the  work.  It  does  not  appear  but  -that,  under  all  the  cir- 
cumstances, it  was  the  very  best  thing  the  company  could  do,  and  per- 
haps prevented  heavier  losses  than  would  otherwise  have  been  sustained. 

It  is  hardly  necessary  to  comment  separately  on  the  other  charges 
of  misconduct.  We  do  not  find  in  all  the  record  any  cause  of  suffi- 
cient gravity,  proven  by  clear  and  satisfactory  evidence,  that  would 
justify  a  court  of  equity  to  interpose  to  put  an  end  to  the  partner- 
ship relations  between  the  parties. .  It  may  be  that  there  were  slight 
errors  in  judgment  on  the  part  of  the  superintendent;  but  no  evi- 
dence of  willful  misconduct  appears  that  would  result  in  serious  in- 
jury to  plaintiff  in  error  or  any  member  of  the  firm.  No  reason  ap- 
pears that  would  prevent  a  profitable  and  harmonious  co-operation 
between  the  several  partners  in  the  .prosecution  of  the  common  busi- 
ness of  the  firm,  and  hence  no  cause  for  dissolution ;  and  the  decree 
of  the  superior  court  is  affirmed. 

Decree  affirmed.^ 

1  "The  law  seems  to  be  well  settled  that  a  court  of  equity  will  dissolve  a 
copartnership,  wh'en  the  disafrreements  and  disputes  between  the  parties  have 
become  so  violent  and  lasting  as  to  prevent  any  beneficial  effects  from  the 
continuance  of  the  connection.  Bishop  v.  Brecldes.  1  Ploff.  Ch.  (N.  T.)  534 ; 
Collyer  on  Part.  §§  20C>.  297  ;  Story  on  Part.  §  287.  The  successful  mana.iremeut 
of  the  business  of  a  copartnership  depends  so  essentially  on  mutual  coutideuce 
and  harmony  of  views  between  the  partners  that,  when  those  are  wanting, 
co-operation  becomes  impracticable.  In  Bishop  v.  Breckl'CS  the  assistant  vice 
chancellor,  while  observing  that  it  requires  more  than  the  iwere  will  of  one 
party  to  justify  a  dissolution,  still  seemed  ,to  think  that  the  continuance  of 
the  union  should  not  be  enforced  when  dissension  had  marred  all  prospect 
of  the  advantages  contemplated  at  its  formation :  and  this  view  is  rational 
and  in  accordance  with  legal  principles,  for  it  would  seem  absurd  to  continue 
a  partnership  when  it  appeared  that  the  parties  refused  to  act  together,  or 
permit  ench  other  to  act  separately,  in  transjicting  the  business  of  the  con- 
cern."   Per  Cole,  J.,  in  Singer  v.  Heller,  40  Wis.  544,  547  (1S7G). 


608  TERMINATION    OF   THE    PARTNERSHIP.  (Ch.  9 

SMITH  V.  EVERETT. 

(Supreme  Judicial  Ck)urt  of  Massachusetts,  1879.     126  Mass.  304.) 

Bill  in  equity,  filed  June  14,  1877,  alleging  that,  in  response  to  an 
advertisement  inserted  by  the  defendant  in  a  Boston  newspaper,  stat- 
ing that  a  partner  in  business  was  wanted  with  a  capital  of  $5,000, 
the  plaintiff,  being  then  out  of  business  and  desirous  of  some  employ- 
ment, called  upon  the  defendant  for  the  purpose  of  making  inquiries 
as  to  the  advertisement;  that  at  that  and  subsequent  interviews  re- 
specting the  business  the  defendant  represented  to  the  plaintiff  that 
the  business  in  which  he  desired  a  partner  was  the  manufacture  and 
sale  of  an  article  called  "starchene,"  or  perfumed  starch  enamel, 
that  the  same  was  valuable  and  would  prove  very  profitable  to  the 
plaintiff  if  he  entered  into  it,  that  the  defendant  had  an  established 
business  in  Boston  in  the  sale  of  the  starchene  of  15  gross  bottles 
per  week,  that  the  same  would  continue  and  largely  increase,  that 
he  had  sold  60  gross  of  the  same  in  New  York,  and  had  an  establish- 
ed agency  there,  and  also  in  Albany,  and  that  the  business  in  these 
cities  was  well  established  and  prosperous;  that  by  these  representa- 
tions the  defendant  gained  the  confidence  of  the  plaintiff,  and  finally 
induced  him  to  abandon  plans  which  he  had  entertained,  and  had 
communicated  to  the  d-efendant,  of  undertaking  other  business,  and 
to  enter  into  a  partnership  with  him  for  the  manufacture  and  sale  of 
starchene,  and  to  pay  the  defendant  the  sum  of  $2,000  for  one-half 
interest,  so  called,  in  the  business,  and  to  enter  into  articles  of  copart- 
nership for  the  term  of  one  year;  that  the  plaintiff  paid  to  the  de- 
fendant the  sum  of  $2,000  in  cash  for  one-half  interest  in  said  busi- 
ness; that  the  plaintiff  had  no  means  of  ascertaining  about  the  busi- 
ness, and  the  knowledge  of  the  same  and  of  its  value  was  peculiarly 
in  the  defendant;  that  the  plaintiff,  by  the  necessity  of  the  case,  was 
obliged,  and  was  induced  by  the  defendant,  to  rely  on  these  repre- 
sentations; that  all  the  above  representations  and  statements  of  the 
defendant  were  false  and  fraudulent,  and  the  defendant  knew  them 
to  be  so. 

The  prayer  of  the  bill  was  that  the  articles  of  copartnership  might 
be  canceled,  that  an  account  be  taken  of  the  amount  paid  by  the 
plaintiff  to  the  defendant  and  his  outlays  in  said  business,  that  the 
defendant  might  be  decreed  to  repay  the  same  to  the  plaintiff,  that 
the  defendant  might  be  restrained  by  injunction  from  using  the  name 
of  the  plaintiff  in  said  business,  and  for  general  relief.  The  defend- 
ant demurred  to  the  bill,  assigning  the  following  grounds  of  demur- 
rer: (1)  That  the  plaintiff  had  a  plain,  adequate,  and  complete  reme- 
dy at  common  law.  (2)  Multifariousness.  (3)  Want  of  equity. 
Hearing  before  Endicott,  J.,  who  overruled  the  demurrer;  and  the 
defendant  appealed  to  the  full  court. 

Gray,  C.  J.     Upon  the  allegations  in  the  bill,  which  are  admitted 


Sec.  3)  BY    JUDICIAL    DECREE.  609 

by  the  demurrer,  the  defendant,  by  false  and  fraudulent  representa- 
tions as  to  the  extent  of  his  business,  induced  the  plaintiff  to  enter 
into  a  partnership  with  him  for  a  definite  period,  which  would  make 
the  plaintiff  liable  to  creditors  as  a  partner.  Against  such  liability 
by  reason  of  the  defendant's  fraud  a  court  of  law  could  afford  the 
plaintiff  no  adequate  remedy.  Eqtiity  has  therefore  jurisdiction  to 
order  the  partnership  articles  to  be  canceled,  and  to  restrain  the  de- 
fendant from  using  the  plaintiff's  name  as  a  partner;  and,  having 
obtained  jurisdiction  for  that  purpose,  may  administer  complete  re- 
lief in  the  same  suit,  by  ordering  the  defendant  to  repay  the  sums  ad- 
vanced or  expended  by  the  plaintiff  on  account  of  the  partnership. 
Pillans  V.  Harkness,  Colles,  442;  Ex  parte  Broome,  1  Rose,  G9; 
Rawlins  v.  Wickham,  3  De  G.  &  J.  301;  Jauncey  v.  Knowles,  29  L. 
J.  (N.  S.)  Ch.  95;  Story,  Part.  §§  232,  285. 
Decree  affirmed. 
Gil.Part.— 39 


610  LIMITED   PARTNERSHIPS.  (Ch.  10 

CHAPTER  X. 
LIMITED  PARTNERSHIPS. 


SECTION  1.— THEIR  ORIGIN  AND  CHARACTERISTICS. 


AMES  V.  DOWNING. 

(Surrogate's  Court  of  the  Couuty  of  New  York,  1850.     1  Bradf.  Sur.  321.) 

Bradford,  Surrogate.  *  *  *  The  testator  at  the  time  of  his 
decease  was  a  special  partner  of  Mr.  Hicks,  the  executor,  in  business 
in  this  city,  and  the  position  has  been  taken  by  the  counsel  for  the 
executor,  that  the  firm  was  not  dissolved,  but,  notwithstanding  the 
testator's  decease,  continued  imtil  the  expiration  of  the  term  limited 
for  its  duration.  The  idea  at  first  impression  is  apt  to  win  attention, 
if  not,  favor,  but  "on  closer  scrutiny  cannot,  I  think,  be  upheld.  The 
legislation  which  brought  into  existence  among  us  this  form  of  part- 
nership had  for  its  main  object  the  encouragement  of  commerce  by 
permitting  the  investment  of  capital  in  trade,  without  danger  to  the 
public  or  risk  to  the  special  partner  beyond  the  extent  of  the  amount 
invested;  and  in  determining  the  legal  consequences  incidental  to  the 
introduction  of  such  an  institution  there  seems  to  me  no  reason  for 
departing  from  the  rules  of  the  common  law  any  further  than  js  fair- 
ly and  naturally  requisite  to  give  full  effect  to  the  intent  of  the  stat- 
ute, resting  upon  the  presumption  that,  the  Legislature  having  ex- 
pressed the  points  in  which  the  common  law  was  intended  to  be  abro- 
gated, that  line  should  not  by  judicial  construction  be  extended,  ex- 
cept by  way  of  reasonable  and  necessary  inference  to  effectuate  the 
general  objects  of  the  statute.  The  special  partnership  is  by  no  means 
a  complete  anomaly.  By  the  statute  it  is  termed  a  partnership,  and 
both  as  to  the  rights  of  the  parties  to  the  contract  and  as  to  the  world 
it  is  in  itself  a  proper  partnership,  except  as  it  limits  the  liability  of 
the  special  partner  and  restricts  his  control  over  the  business  of  the 
firm.  The  members  are  partners,  and  by  slight  irregularities  may 
easily  be  turned  into  general  partners.  The  statute  terms  them 
partners.  Except  for  the  statute  they  would  be  general  partners; 
and,  from  participating  in  the  profits,  it  would  seem  to  be  a  just  con- 
sequence that  they  are  partners  in  every  sense,  subject  to  liabilities 
and  enjoying  privileges  as  partners  in  every  particular,  except  as  oth- 
erwise specially  provided.  The  common  law  regulates  the  mutual 
rights  and  duties  and  liabilities  of  partners,  and  governs  these  limited 


Seel)  THEIR    ORIGIN    AND    CIIARACTEKISTICS.  Gil 

partnerships  in  every  respect  not  excepted  out  of  the  general  rule 
by  this  statute.  The  twelfth  section  (Rev.  St.  [4lh  Ed.]  pt.  2,c.  4. 
tit.  1)  provides  that  every  alteration  which  shall  be  made  in  the  namea 
of  the  partners  shall  be  deemed  a  dissolution  of  the  partnership,  and 
the  necessary  effect  of  an  assignment  by  a  special  partner  of  his  in- 
terest in  the  firm  would  be  to  alter  the  name  of  the  special  partner 
and  tiius  to  work  dissolution.  Such  would  likewise  seem  to  be  the 
consequence  of  the  death  of  the  special  partner,  which  effects  an  alter- 
ation in  the  name,  by  operation  of  law,  through  the  medium  of  an 
administrator.  The  eighteenth  section  declares,  also,  that  the  gener- 
al partners  shall  be  liable  to  account  to  each  other  and  to  the  special 
partners  in  law  and  equity  as  other  partners  now  are  by  law ;  and 
the  twenty-fourth  section  provides  that  no  dissolution  by  the  acts  of 
the  parties  shall  take  place  previous  to  the  time  specified  for  the  dura- 
tion of  the  partnership,  without  public  notice.  There  appears  to  be 
nothing  in  the  act  incongruous  with  the  idea  that  the  partnership  is 
governed  by  the  rules  applicable  to  general  partnerships  except  in  the 
particular  cases  enumerated.  There  is  nothing  irreconcilable  with  the 
dissolution  of  the  partnership  by  operation  of  law  in  the  usual  cases. 
I  have  looked  into  the  statute  of  several  of  the  states  where  similar 
laws  have  been  enacted,  and,  while  they  all  imply  that  a  dissolution 
may  occur  by  operation  of  law,  those  of  Massachusetts,  Michigan, 
Rhode  Island,  and  Virginia  expressly  admit  of  that  mode  of  dissolu- 
tion. The  Code  of  Louisiana  declares  that  all  partnerships  shall  termi- 
nate with  the  death  of  one  of  the  partners,  and  quite  a  number  of  these 
acts  prescribe  that  in  cases  not  provided  for  the  law  relating  to  general 
partnerships  shall  govern.  Rev.  St.  Mass.  1836,  p.  306,  c.  34,  §§  11- 
13;  Civ.  Code  La.  1838,  arts.  2799,  2810,  2851;  Rev.  St.  Me.  1840,  p. 
264,  c.  45 ;  Comp.  Laws  Miss.  1824-38,  p.  839 ;  Rev.  St.  Mich.  1838,  p. 
156,  c.  5;  Rev.  St.  N.  J.  1847,  p.  872;  Laws  Pa.  1837-38,  p.  691: 
Comp.  Laws  R.  L  1844,  p.  282 ;  Code  Va.  1849,  p.  583,  c.  145 ;  Rev. 
St.  Conn.  1849,  p.  528;  Rev.  St.  Ind.  1838,  p.  429,  c.  78;  Code  Ga. 
1848,  p.  373. 

Now,  if  any  other  principle  is  admitted,  what  is  the  result?  If  the 
death  of  the  special  partner  does  not  cause  a  dissolution,  shall  that 
of  the  general  partner  have  that  effect?  If  the  death  of  the  special 
partner  does  not  dissolve  the  firm,  shall  his  executor  or  administra- 
tor be  the  partner?  If  so,  does  not  that  introduce  a  new  name  into  the 
firm?  And.  if  it  does,  then  the  executor  or  administrator  becomes  a 
general  partner,  and  if  a  general  partner,  then  he  can  dissolve  the  firm 
<Rev.  St.  [3d  Ed.]  p.  50,  pt.  2,  c.  4,  tit.  1.  §  12),  or,  on  the  other 
hand,  the  estate  he  represents  may  be  thrown  into  the  hazards  of  a 
general  partnership,  and  the  executor  or  administrator  have  to  attend 
personally  to  the  transaction  of  a  regular  partnership  business.  The 
above  statement  of  some  of  the  embarrassing  results  which  would 
flow  from  this  novel  proposition  should  induce  hesitation  and  caution 
in  admitting  it. 


612  -  LIMITED   PARTNERSHIPS.  (Ch.  10 

Xo  doctrine  is  more  universally  established  than  that  by  the  death 
of  any  one  of  the  partners  the  partnership  is  ipso  facto  dissolve!^ ; 
and  this,  not  only  as  to  the  deceased  partner,  but  also  as  between  all 
the  survivors,  and  however  numerous  the  association  may  be.  The 
reasoning  upon  which  this  result  is  attained,  as  well  as  the  rule  it- 
self, is  amply  illustrated  by  the  civilians;  the  doctrine  having  its 
foundation  in  the  civil  law,  though  it  has  been  recognized  and  adopt- 
ed to  its  fullest  extent  by  the  common  law.  The  personal  qualities, 
skill,  character,  and  credit  of  each  partner  enter  so  thoroughly  into 
every  contract  of  this  kind  that  the  law  very  wisely  considers  it  a 
personal  contract,  expiring  with  death.  Though  these  reasons  are 
not  so  apposite  to  a  special  as  to  a  general  copartnership,  yet  they  are 
measurably  applicable.  It  is  true  that  a  special  partner  has  no  con- 
trol over  the  business  of  a  firm,  and  contributes,  as  a  matter  of  duty, 
no  portion  of  his  time,  labor,  or  abilities  towards  the  management  of 
its  affairs;  but  he  may  from  tune  to  time  examine  into  the  state  and 
progress  of  the  partnership  concerns,  and  advise  as  to  their  manage- 
ment. This  brings  him  into  the  most  intimate  relations  with  the  gen- 
eral partner ;  and,  in  view  of  his  right  to  give  advice,  it  is  evident  the 
general  partner  may,  perhaps,  have  built  up  well-founded  hopes  of 
a  successful  and  thriving  trade  upon  the  experience,  wisdom,  and 
abilities  of  his  associate — expectations  sure  to  be  destroyed  by  death. 
How  often  is  it  the  case  that  a  successful  merchant,  retiring  from  the 
cares  of  active  business,  enters  into  a  partnership  of  this  kind,  where 
his  knowledge  and  sagacity  and  his  influence  are  important  induce- 
ments with  the  general  partner  to  enter  into  the  contract.  Does  a  lim- 
ited partnership  survive  the  death  of  the  special  partner?  Then  it  is 
compulsory  on  the  survivor  to  receive  into  the  partnership,  at  all 
hazards,  the  executor  or  administrator  of  the  deceased,  his  next  of  kin, 
a  creditor  or  stranger  taking  administration,  or  the  assignee  of  such 
personal  representatives ;  and  whatever  may  be  the  inconvenience  and 
hardship  of  being  thus  thrown  against  his  will  into  connection  with 
a  stranger,  or,  perchance,  with  some  one  personally  disagreeable  or 
hostile,  the  general  partner  must  submit  to  the  examination  of  the 
books,  the  visits,  and  the  advice  of  the  incomer.  Gow  on  Partn.  p. 
220,  §  3;  Collyer  (3d  Am.  Ed.)  p.  99.  The  joint-stock  companies, 
many  of  which  exist  in  England,  often  comprise  a  large  number  of 
persons,  and,  though  generally  managed  by  officers  chosen  at  elec- 
tions held  by  the  stockholders,  they  are  liable  to  the  application  of  the 
same  rules  of  law  in  regard  to  death  and  dissolution  as  general  part- 
nerships, Unless  provision  be  made  to  meet  the  case  in  the  deed  of 
settlement  or  articles  of  agreement.    Collyer,  §§  1112,  1113,  1115. 

The  system  of  limited  partnerships,  which  was  introduced  by  stat- 
ute into  this  state,  and  subsequently  very  generally  adopted  in  many 
other  states  of  the  Union,  was  borrowed  from  the  French  Code.  3 
Kent,  36;  Code  de  Commerce,  19,  23,  24.  Under  the  name  of  "la 
societe  en  commandite"  it  has  existed  in  France  from  the  time  of  the 


Sec.  1)  THEIR   ORIGIN    AND   CHARACTERISTICS.  HIP, 

Middle  Ages;  mention  being  made  of  it  in  the  most  authentic  com- 
mercial records,  and  in  the  early  mercantile  regulations  of  Marseil- 
les and  Montpclier.  In  the  vulgar  Latinity  of  the  Middle  Ages  it  was 
styled  "commenda,"  and  in  Italy  "accommenda."  In  the  statutes  of 
Pisa  and  Florence  it  is  recognized  so  far  back  as  the  year  llCU',;  al.so 
in  the  ordinance  of  Louis  le  Hutin,  of  1315,  the  statutes  of  Marseilles 
of  1253,  and  of  Geneva  of  1588.  In  the  ]\Iiddle  Ages  it  was  one  of 
the  most  frequent  combinations  of  trade,  and  was  the  basis  of  the  act- 
ive and  widely  extended  commerce  of  the  opulent  maritime  cities  of 
Italy.  It  contributed  largely  to  the  support  of  the  great  and  prosper- 
ous trade  carried  on  along  the  shores  of  the  Mediterranean,  was  known 
in  Languedoc,  Provence,  and  Lombardy,  entered  into  most  of  the 
industrial  occupations  and  pursuits  of  the  age,  and  even  traveled  un- 
der the  protection  of  the  arms  of  the  Crusaders  to  the  city  of  Jerusa- 
lem. At  a  period  when  capital  was  in  the  hands  of  nobles  and  clergy, 
who,  from  pride  of  caste  or  canonical  regulations,  could  not  engage 
directly  in  trade,  it  afforded  the  means  of  secretly  embarking  in  com- 
mercial enterprises,  and  reaping  the  profits  of  such  lucrative  pursuits, 
without  personal  risk ;  and  thus  the  vast  wealth,  which  otherwise 
would  have  lain  dormant  in  the  coffers  of  the  rich,  became  the  founda- 
tion, by  means  of  this  ingenious  idea,  of  that  great  commerce  which 
made  princes  of  the  merchants,  elevated  the  trading  class,  and  brought 
the  Commons  into  position  as  an  influential  estate  in  the  Common- 
wealth. Independent  of  the  interest  naturally  attaching  to  the  history 
of  a  mercantile  contract,  of  such  ancient  origin,  but  so  recently  intro- 
duced where  the  general  partnership,  known  to  the  common  law,  has 
hitherto  existed  alone,  I  have  been  led  to  refer  to  the  facts  just  stat- 
ed, for  the  purpose  of  showing  that  the  special  partnership  is,  in  fact, 
no  novelty,  but  an  institution  of  considerable  antiquity,  well  known, 
underst9od.  and  regulated.  Ducange  defines  it  to  be:  "Societas  mer- 
catorem  qua  uni  sociorum  tota  negotiationis  cura  commendalur  certis 
conditionibus."  It  was  always  considered  a  proper  partnership,  so- 
cietus,  with  certain  reserves  and  restrictions,  and  in  the  ordinance  of 
Louis  XIV  of  1673  it  is  ranked  as  a  regular  partnership.  In  the  Code 
of  Commerce  it  is  classed  in  the  same  manner.  I  may  add,  as  an 
important  fact,  for  the  explanation  of  a  distinction  to  which  I  shall 
shortly  advert,  that  the  French  Code  permits  a  special  partnership, 
of  which  the  capital  may  be  divided  into  shares,  or  stock,  transmis- 
sible from  hand  to  hand.  In  such  a  case,  the  death  of  the  special 
partner  does  not  dissolve  the  firm,  the  creation  of  transmissible  shares 
being  a  proof  that  the  association  is  formed  respectu  negotii,  and  not 
respectu  personarum ;  but  even  in  such  a  partnership  the  death  of  the 
general  partner  effects  a  dissolution,  unless  it  is  expressly  stipulated 
otherwise.  But,  says  M.  Troplong,  it  would  be  wrong  to  extend  the 
rule  that  a  partnership,  of  which  the  capital  is  divided  into  trans- 
missible shares,  is  not  dissolved  by  the  death  of  a  shareholder,  to  a 
special  partnership,  the  capital  of  which  is  not  so  divided.     The  stat- 


614  LIMITED   PARTNERSHIPS.  (Cll.  10 

lite  of  New  York  recog-nizes  only  the  latter  kind  of  partnership;  the 
names  of  parties  being  required  to  be  reg'istered,  and  any  change  in 
the  name  working  a  dissolution  and  turning  the  firm  into  a  general 
partnership.  Such  a  partnership  has  always  been  held  to  be  dissolv- 
ed by  the  death  of  the  special  partner.  This  partnership  remains  un- 
der the  dominion  of  the  common  law.  It  has  created  between  the 
special  and  general  partner  a  tie,  which  is  not  subjected  to  the  caprice 
of  unforeseen  changes.  It  has  produced  mutual  relations  of  confidence, 
which  the  general  partner  cannot  be  forced  to  extend  to  strangers. 
M.  Troplong,  Com.  du  Contrat  de  Societe  Civile,  etc.,  torn.  1,  preface, 
57,  §  377,  etc.;  Id.  torn.  2,  p.  368,  §  888.  The  French  jurists  gen- 
erally take  the  same  position,  defining  the  special  partnership  as  a 
proper  partnership,  and  applying  the  law  of  dissolution  by  death  to 
all.  Pothier,  Traite  du  Contrat  de  Societe,  cc.  2,  8,  §  3 ;  Merlin,  Rep- 
ertoire de  Jurisprudence,  art.  "Societe,"  §  7;  Duranton,  Droit  Fran- 
cais,  tom.  17,  1,  3,  tit.  9,  §  470.  Pardessus  discusses  the  question 
somewhat  at  length.  Droit  Commercial,  tom.  4,  pt.  5,  tit.  3,  c.  1,  §  4. 
It  might  be  thought,  he  says,  with  some  appearance  of  plausibility, 
that  the  rule  of  a  dissolution  by  death  should  be  limited  to  general  part- 
nerships, in  forming  which  the  probity  and  intelligence  of  each  mem- 
ber have  been  reciprocally  taken  into  consideration.  Indeed,  the  spe- 
cial partnership  does  not  suppose,  on  the  part  of  the  general  partners, 
any  personal  confidence  in  the  special  partners ;  and,  as  the  interests 
and  the  rights  of  the  latter  are  exclusively  limited  to  their  shares,  it 
would  seem  they  were  not  modified  by  their  decrease,  and  their  heirs, 
called  to  take  their  place,  could  have  no  right  to  insist  that  death  had 
dissolved  the  firm,  nor  the  general  partners  insist  upon  that  result. 
These  reasons,  to  question  the  general  rule,  appear,  nevertheless,  to 
yield  to  others  more  decisive.  The  persons  and  the  character  of  the 
special  partners  have  been  regarded  by  the  general  partners  when  they 
formed  this  kind  of  association.  The  special  partners  are,  m  effect, 
to  a  greater  or  less  extent,  called  to  annual  accountings,  to  meetings 
for  the  settlement  of  the  profits  and  losses,  and  to  an  examination  of 
the  state  of  affairs.  This  security,  and  a  right  to  insist  upon  a  dis- 
solution in  consequence  of  a  breach  of  the  contract,  or  to  urge  their 
claims  when  the  affairs  are  liquidated,  are  more  or  less  vigorously 
exercised.  The  difficulty  of  acting  harmoniously  with  dift'erent  per- 
sons, substituted  in  the  place  of  those  with  whom  the  original  con- 
tract was  made,  the  distrust  of  heirs,  who  have  not  the  grounds  of  es- 
teem and  confidence  which  influence  the  deceased,  and  the  impossibil- 
ity of  treating  easily  with  minors,  are  some  of  the  reasons  which  will 
not  permit  special  partnerships  to  be  excepted  from  the  general  rule. 
It  may  be  objected  that  these  reasons  apply  only  in  favor  of  the  gen- 
eral partners,  and  that  it  is  for  them  to  judge  as  to  the  continuation 
of  business  with  the  heirs.  But  the  heirs  of  the  deceased  ought  to  en- 
joy the  same  privilege.  Reciprocal  right  ought  to  result  from  a  mu- 
tual agreement.     There  is  no  solid  reason   why  the   special   partner- 


Sec.  2)  THEIR  formation  and  conduct.  C15 

ship  should  not  be  dissolved  by  the  death  of  one  of  the  partners,  ex- 
cept when  the  capital  is  divided  into  transmissible  shares,  in  which 
case  the  associates  have  consented  that  each  may  substitute  another 
in  his  place,  as  he  may  desire,  without  the  authority  of  the  others,  it 
is  natural  to  conclude  that  the  heirs  of  a  deceased  member  fill  his 
place  in  the  same  manner  as  if  he  had  assigned  his  share.  I  have 
i^iven  the  substance  of  the  reasoning  of  Pardessus,  and  the  result  he 
attains  has  not  only  the  authority  of  M.  Troplong  in  its  favor,  but 
also  that  of  other  commentators — M.  L.  IMalpeyre,  et  Jourdain,  No. 
474;  M.  Persil,  fils,  p.  344^ — while  it  does  not  appear  to  have  been 
questioned  or  doubted. 

,  It  thus  appears  that  in  the  jurisprudence  of  that  nation  whence  the 
peculiar  contract  of  special  partnership  has  been  adopted  by  us  and 
grafted  into  our  law — where  the  system  has  long  existed,  is  familiarly 
known,  and  its  nature,  qualities,  and  practical  relations  to  various 
events  and  circumstances  have  been  well  considered  under  the  light 
of  no  brief  experience — the  effect  of  the  death  of  the  special  partner 
is  to  dissolve  the  firm.  This  agrees  with  the  conclusion  I  had  attained 
upon  independent  reasoning  before  consulting  these  authorities,  and 
I  am  consequently  led  to  pronounce  the  firm  in  which  the  testator  was 
a  special  partner  dissolved  at  his  death,  and  to  hold  the  executor,  who 
was  his  general  partner,  responsible  for  the  testator's  interest  in  the 
firm  at  that  time,  upon  a  liquidation  of  the  affairs  as  if  made  then. 


SECTION  3.— THEIR  FORMATION  AND  CONDUCT. 


MANHATTAN  CO.  v.  LAIMBEER  et  al. 

(Court  of  Appeals  of  New  York,  ISSS.     lOS  N.  T.  5S2.  15  N.  E.  712.) 

Action  by  the  president  and  directors  of  the  Manhattan  Com- 
pany against  Richard  H.  Laimbeer  and  others,  as  general  pan- 
ners,  for  failure  to  record  the  certificate  of  limited  partnership  re- 
quired by  law.     Judgment  for  plaintiff,  and  defendants  appeal. 

Peckham,  J.  Unless  the  courts  below  were  right  in  holding  that 
the  filipg  of  the  certificate  with  the  county  clerk,  in  the  absence  of 
the  recording  thereof,  was  insufficient,  in  order  to  form  a  limited  part- 
nership under  the  act,  this  judgment  must  be  reversed,  because  there 
was  undoubtedly  evidence  enough  in  the  case  to  go  to  the  jury  upon 
the  question  of  fact  whether  or  not  the  certificate  and  affidavit  pro- 
vided for  in  the  act  were  filed  with  the  county  clerk,  and  the  certifi- 
cate left  with  him  for  the  purpose  of  being  recorded,  and  the  fee 
therefor  prepaid.     Enough  was  done  to  make  the  filing  of  the  papers 


616  LIMITED   PARTNERSHIPS.  (Cll.  10 

complete,  if  the  evidence  of  the  boy  was  to  be  bcheved.  A  paper  is 
said  to  be  filed  in  a  public  office  when  it  is  delivered  to  the  proper 
officer,  and  by  him  received,  to  be  kept  on  file.  1  Bouv.  Law  Diet. 
587.  It  is  not  necessary  that  the  party  handing  the  paper  to  the  of- 
ficer should  see  that  he  makes  the  proper  indorsement  or  entry. 

A  verdict  was  directed  by  the  court  in  favor  of  the  plaintiff  in  this 
action,  based  upon  the  assumption  that  the  failure  of  the  county  clerk 
to  record  the  certificate  provided  for  in  the  act,  and  which  was  to  be 
filed  and  recorded  in  his  office,  prevented  the  formation  of  a  limited 
partnership,  and  left  the  parties  who  attempted  to  form  the  partner- 
ship liable  as  general  .partners.  Under  this  holding,  the  defendant 
has  been  made  liable  to  the  extent  of  nearly  $G0,000  for  debts  incur- 
red by  the  general  partners  after  the  special  partner  had  done  all  that 
he  could  do  to  comply  with  the  terms  of  the  statute;  or,  in  other  words, 
after  the  certificate  required  by  the  statute  had  been  acknowledged, 
and  after  the  necessary  affidavit  had  been  made,  and  after  they  had 
both  been  filed  in  the  office  of  the  county  clerk,  and  after,  as  matter 
of  fact,  the  amount  of  money  required  to  be  contributed  by  the  spe- 
cial partner  had  been  paid  in  cash.  Under  such  circumstances,  to  hold 
the  defendant. liable  as  a  general  partner  for  the  failure  of  a  public 
officer  to  do  an  act,  the  doing  of  which  at  any  particular  moment  the 
defendant  had  no  power  to  compel,  works  a  very  severe  administra- 
tion of  the  statute,  and  is  a  construction  not  called  for  by  the  lan- 
guage used,  when  reasonably  interpreted,  and  is  contrary  to  what  it 
seems  to  me  is  a  fair  public  policy,  as  it  makes  one  man  liable  for  the 
default  of  another,  and  he  a  public  officer,  over  whose  actions  he  has 
no  control. 

It  is  said  that  this  special  partnership  is  a  privilege  granted,  and 
is  an  exemption  from  the  general  liability  of  partners  at  common 
law ;  and  so  the  statute  must  be  strictly  construed,  and  all  its  provi- 
sions fully  and  even  technically  complied  with,  before  such  exemp- 
tion can  be  claimed.  In  one  aspect,  of  course,  it  is  a  privilege,  be- 
cause at  common  law  no  such  partnership  could  be  formed ;  but  at 
the  same  time  the  granting  thereof  accords  with  the  policy  of  a  com- 
mercial community,  because'  it  tends  to  the  enlargement  of  business 
transactions  to  permit  men, "under  certain  reasonable  conditions,  to  do 
business  with  a  restricted  liability,  who  without  such  restriction  would 
suffer  a  portion  of  their  capital  to  remain  unemployed,  rather  than 
risk  their  whole  possessions  under  the  broad  liability  of  a  general  part- 
nership. Therefore  acts  providing  for  the  formation  of  a  limited  part- 
nership should  receive  a  reasonable  construction ;  not  such  as  to  make 
its  formation  almost  impossible,  and  not  such  that  where  the  slight- 
est and  most  innocent  (and  to  third  persons  an  entirely  harmless) 
deviation  from  the  strictest  construction  that  can  be  given  to  a  stat- 
ute shall  work  results  to  the  special  partner  of  possibly  a  most  dis- 
astrous and  utterly  ruinous  nature,  including  liability  for  enormous 
debts  incurred  by  the  general  partners,  where  the  credit  given  was 


Sec.  3)  THEIR    rORMATION    AND    CONDUCT.  ^>1'7 

not  in  the  least  based  upon  any  assumed  liability  of  the  special  part- 
ner greater  than  the  capital  he  had  contributed. 

The  earliest  statute  upon  the  subject  of  the  formation  of  limited  part- 
nerships is  that  of  the  act  of  18^2.     It  may  be  well  to  compare  the 
provisions  of  that  act  with  the  one  enacted  in  the  Revised  Statutes, 
for  the  purpose  of  seeing  whaf,  if  any,  change  has  been  made  by  the 
latter  act.     The  important  provisions  contained  in  the  act  of  1882  in 
relation  to  the  formation  of  such  partnerships  are  that,  before  such 
a  partnership  can  be  formed,  there  must  be  a  certificate  signed  by  the 
partner  containing  (1)   the  name  of  the  firm;    (2)   the  names  of  all 
the  general  and  all  the  special  partners;    (3)  the  amount  of  the  capi- 
tal furnished  by  the  special  partner;    (4)    the  period  when  the  part- 
nership is  to  commence  and  terminate.     There  is  also  to  be  an  affi- 
davit made  by  one  or  more  of  the  general  partners  stating  the  actual 
payment  in  cash  of  the  sum  advanced  by  the  special  partner.     The 
certificate  above'  mentioned  is  to  be  registered  in  a  book  to  be  kept 
for  that  purpose,  at  all  times  open  for  public  inspection,  in  the  office 
of  the  clerk  of  the  county  in  which  the  principal  business  of  the  part- 
nership shall  be  carried  on;    but  this  registry  shall  not  be  made  by 
the  clerk  of  the  county,  or  be  considered  valid,  unless  all  the  partners, 
general    and    special,    associated    together    in    any    such    partnership, 
shall   make   a   certificate  containing   the   statements   above   set   forth ; 
which  certificate  is  to  be  filed  of  record  in  the  clerk's  office.     It  is 
made  the  duty  of  the  partners  to  publish  the  terms  of  such  partner- 
ship, so  registered,  for  at  least  six  weeks  after  such  registry,  in  two 
papers.    By  the  eighth  section  of  this  statute,  it  is,  among  other  things, 
specially  made  the  duty  of  the  partners  interested  in  any  such  part- 
nership to  see  that  the  requirements  of  the  sixth,  seventh,  eighth,^  and 
twelfth  sections  of  the  act    (which  required  the  certificate  and  affi- 
davit and  registry,  etc.)    are  complied  with;    and  in  case  the  same 
shall  be  neglected,  or  a  false  registry  be  made,  all  the  parties  inter- 
ested in  such  partnership  shall  be  liable  for  all  the  engagements  there- 
of as  general  partners.     By  the  sixth  section  of  this  act,  it  is  seen 
that  the  registering  of  the  certificate  mentioned  in  the  twelfth  sec- 
tion is  to  be  made  in  a  book  to  be  kept  for  that  purpose,  at  all  times 
open  to  public  inspection,  in  the  office  of  the  clerk  of  the  count>' ; 
and  the  eighth  section  of  the  act  specially  casts  upon  the  partners 
interested  in  the  partnership  the  duty  of  seeing  that  this  registry  is 
piade,  upon  pain  of  making  all  the  partners  interested  therein  liable  for 
all  the  engagements  of  the  firm  as  general  partners.     From  the  time 
of  the  passage  of  this  act  of  1822  it  remained  substantially  in  that 
condition  until  the  adoption  of  the  Revised   Statutes,  when  the  act 
was  recast.     But  in  the  Revised  Statutes,  although  diflferent  language 
is  used  in  many  parts  of  them,  yet  the  same  general  requirements  are 
made  for  the  formation  of  such  a  partnership.     The  certificate  is  to 
be  made  as  provided  for  in  the  act  of  1822,  and  the  same  informa- 
tion is  to  be  given  in  it,  with  the  addition  that  there  is  also  to  be  stat- 


618  LIMITED   PARTNERSHIPS.  (Cb.  10 

ed  the  general  nature  of  the  business  intended  to  be  transacted  by 
the  copartnership.  This  certificate  is  to  be  acknowledged  as  provid- 
ed for  in  the  act  of  1822.  An  affidavit  is  also  to  be  made  by  one  of 
the  general  partners,  and  to  be  filed  in  the  office  of  the  county  clerk, 
stating  that  the  sums  specified  in  the  certificate  have  been  contributed 
by  each  of  the  special  partners  to  the  common  stock,  and  in  good 
faith,  and  actually  paid  in  cash.  But,  instead  of  the  simple  provision 
for  the  registering  of  the  certificate  in  a  book  in  the  office  of  the 
clerk  of  the  county,  the  Revised  Statutes  (section  6)  provide  that  the 
certificate  thus  acknowledged,  etc.,  shall  be  filed  in  the  office  of  the 
county  clerk,  and  shall  also  be  recorded  by  him,  at, large,  in  a  book 
to  be  kept  for  that  purpose,  open  to  public  inspection;  and  the  duty 
is  not  in  terms  cast  upon  the  partners  of  seeing  that  such  record  is 
made.  In  this  respect  it  seems  to  me  there  is  a  very  material  differ- 
ence in  the  requirements  of  the  two  acts.  The  act  also  provides  for  the 
publication  in  two  newspapers  of  the  terms  of  the  partnership,  as 
provided  for  in  the  act  of  1822;  and  there  are  other  provisions  in 
both  acts  relating  to  the  workings  of  the  partnership  which  are  sub- 
stantially similar,  and  in  almost  the  same  language.  The  sixth  sec- 
tion of  the  act  of  1822  provides  that,  before  any  partnership  under 
that  act  shall  be  carried  into  effect,  the  things  above  provided  for 
shall  be  done;  and  among  them  is  the  registering  of  the  certificate. 
The  duty  to  see  that  the  registry  is  made,  having  been  specifically 
and  in  plain  terms  cast  upon  the  partners,  it  might  perhaps  be  justi- 
fiable to  hold  them  liable  under  this  section  until  such  registry  is 
made.  Under  the  Revised  Statutes,  however,  the  question  is  entire- 
ly different.  It  is  true  that  the  eighth  section  states  that  no  such 
partnership  shall  be  deemed  to  be  formed  until  a  certificate  shall  be 
made,  acknowledged,  filed,  and  recorded,  nor  until  the  affidavit  shall 
have  been  filed  as  above  directed.  But  the  question  is,  what  was  the 
real  meaning  of  the  legislature  in  using  that  language,  while  leaving 
out  the  provision  making  it  the  duty  of  the  partners  to  themselves  to 
see  to  the  recording  of  the  certificate?  Did  it  mean  the  strict,  tech- 
nical, and  physical  act  of  recording  at  length  the  certificate  in  the 
book,  or  did  it  mean  what  is  usually  meant  in  using  the  word  "re- 
corded" in  the  statutes;  that  is,  until  it  shall  have  been  filed  and 
left  for  the  purpose  of  being  recorded,  or,  in  other  words,  until  all 
shall  have  been  done  by  the  individual  interested  in  the  perform- 
ance of  the  act  that  he  could  do,  and  where  the  further  act  to  be  done 
is  the  act  of  a  public  'officer,  over  whom  no  prompt  or  immediate 
control  could  be  exercised  by  the  individuals  interested,  and  for  whose 
action  or  lack  of  action  they  ought  not  to  be  suffered  to  sustain  a 
loss?     *     *     * 

All  this  difficulty  is  avoided  by  holding  what  it  seems  tq  me  is  the 
fair  and  plain  intention  of  the  legislature,  viz.,  that  when  the  parties 
have  done  all  that  they  can  do  in  the  way  of  complying  with  the  terms 
and  conditions  of  the  limited  partnership  act,  and  when  all  that  re- 


Sec.  2)  THEIR   FORMATION    AND   CONDUCT.  619 

mains  to  be  done  is  for  a  public  officer  (intrusted  with  the  care  and 
custody  of  the  papers  filed  with  him)  to  perform  the  duties  placed 
upon  him  under  the  provisions  of  the  law,  it  must  be  regarded  as  a 
compliance  by  the  parties  interested  with  the  terms  of  the  statute, 
and  the  record  must  be  assumed  to  be  made  when  the  paper  goes 
for  the  purpose  of  record  out  of  the  control  of  the  individual  into 
the  control  of  the  public  officer.  It  is  said  that  the  same  reasoning 
would  apply  to  the  publication  in  the  newspapers  of  the  terms  of  the 
partnership  as  provided  for  by  the  act.  But  it  seems  to  me  an  entire- 
ly different  principle  applies  there.  The  duty  of  making  the  publica- 
tion is  cast  upon  the  partners;  and  there  is  no  obligation  on  the 
part  of  the  publisher  of  the  paper,  as  there  is  on  the  part  of  the  pub- 
lic officer,  to  do  anything.  Again,  it  is  matter  of  private  contract 
between  the  partners  and  the  publishers  of  the  newspapers;  and  in 
that  way  it  is  within  the  power  of  the  partners  to  see  to  it  that  the 
publication  is  made  within  the  time  required  in  the  statute,  and  that 
it  correctly  states  the  terms  of  such  partnership.  However,  the  effect 
of  a  failure  to  publish  is  not  now  before  us.  *  *  * 
Judgment  reversed.     New  trial  granted.^ 


LTNEWEAVER  v.  SLAGLE. 

(Court  of  Appeals  of  Maryland,  ISSG.     C4  Md.  465,  2  Atl.  G93,  54  Am.  Rep.  77.5.1 

Miller,  J.  Several  questions  arise  on  this  appeal,  and  present, 
for  the  first  time  in  this  court,  the  construction  of  certain  sections 
of  article  72  of  the  Code,  relating  to  "limited  partnerships."  The 
suit  was  brought  by  the  appellee  against  Luther  W.  Hopkins,  Charles 
T.  Matthews,  and  David  W.  Slagle,  as  partners,  doing  business  under 
the  firm  name  of  Hopkins,  Matthews  &  Co.  This  firm  failed,  and 
made  an  assignment  for  the  benefit  of  its  creditors  on  the  29th  of 
April,  1884.  The  cause  of  action  sued  on  was  a  promissory  note  for 
$404,  signed  in  the  firm  name,  dated  the  1st  of  April,  1884,  and  pay- 
able, at  30  days,  to  the  order  of  Lineweaver  &  Co.,  of  which  latter 
firm  the  plaintiff  was  the  surviving  partner.  There  was  no  contro- 
versy as  to  the  liability  of  Hopkins  and  Matthews,  but  Slagle  set  up 
the  defense  that  he  was  a  special  partner,  and  the  effort  of  the  plain- 
tiff was  to  hold  him  responsible  as  a  general  partner. 

At  the  trial  several  exceptions  were  taken  by  the  plaintiff  to  the 
rulings  of  the  court,  which  present  the  real  subjects  of  dispute,  and 
these  have  been  argued  by  counsel  with  much  zeal  and  ability.  The 
testimony  shows  that  on  the  loth  of  March,  1880,  these  three  par- 
ties, Hopkins,  Matthews,  and  Slagle,  formed  a  partnership,  under 
the  firm  name  of  Hopkins,  Matthews  &  Co.,  to  carry  on  a  general 

1  The  dissenting  opinion  of  Gray,  J.,  in  which  Paiger,  C.  J.,  coiRurred,  is 
omittod. 


620  ltjMITed  partnerships.  (Cli.  10 

commission  business  in  the  city  of  Baltimore,  in  which  Slagle  be- 
came a  special  partner,  and  contributed  $5,000  capital.  This  partner- 
ship, by  its  terms,  commenced  on  the  loth  of  March,  1880.  and  end- 
ed on  the  14th  of  March,  1882,  and  in  regard  to  its  due  formation 
no  question  arises.  It  is  conceded  that  all  the  requisites  and  formal- 
ities required  and  prescribed  by  article  72  of  the  Code  were  duly 
followed  and  complied  with.  In  this  firm  Slagle  was  unquestionably 
a  special  partner  merely,  and  not,  therefore,  liable  for  its  debts  be- 
yond the  $5,000  which  he  had  contributed  to  its  capital.  On  the  15th 
of  March,  1883,  the  day  succeeding  that  limited  for  the  duration  of 
this  partnership,  the  same  parties  executed  and  acknowledged  the  fol- 
lowing certificate:  "Be  it  remembered,  and  it  is  hereby  certified, 
that  wq,  Luther  W.  Hopkins  and  Charles  T.  Matthews,  as  general 
partners,  and  David  W.  Slagle,  as  special  partner,  and  all  residing 
in  the  city  of  Baltimore,  in  the  state  of  Maryland,  have  formed  and 
entered  into  a  limited  partnership  under  the  name  or  firm  of  Hopkins, 
Matthews  &  Co.,  and  intend  to  transact  a  general  commission  busi- 
ness in  the  city  of  Baltimore.  The  said  David  W.  Slagle  has  con- 
tributed $10,000  to  the  capital  of  the  firm,  and  the  partnership  is  to 
commence  on  the  15th  day  of  March,  1883,  and  is  to  terminate  on  the 
28th  day  of  February,  1885." 

This  certificate  was  duly  recorded,  and  the  "terms  of  the  partner- 
ship" duly  published  in  the  newspapers ;  and  it  has  been  contended  by 
counsel  for  the  appellee  that  this  partnership  is  to  be  regarded  as  a 
renewal  or  continuance  of  the  one  which  it  succeeded.  But  we  think 
it  clear  that  this  position  cannot  be  sustained.  The  law  has  made 
special  provisions  for  such  "renewal  or  continuance,"  and,,  where  that 
is  the  object  to  be  accomplished,  these  provisions  must  be  followed. 
By  section  9  it  is  declared  that  "every  renewal  or  continuance  of  such 
partnership  beyond  the  time  originally  fixed  for  its  duration  shall  be 
certified,  acknowledged,  and  recorded, .  and  an  affidavit  of  a  general 
partner  be  made  and  filed,  and  notice  be  given  in  the  manner  herein 
required  for  its  original  formation ;  and  every  such  partnership  which 
shall  be  otherwise  renewed  or  continued  shall  be  deemed  a  general 
partnership."  And  by  section  10  it  is  pro\^ided  that  every  alteration 
which  shall  be  made  in  the  names  of  the  partners,  in  the  nature  of 
the  business,  or  in  the  capital  or  shares  thereof,  or  in  any  other  mat- 
ter specified  in  the  original  certificate,  shall  be  deemed  a  dissolution 
of  the  partnership;  and  every  such  partnership,  which  shall  in  any 
manner  be  carried  on  after  any  such  alteration  shall  have  been  made, 
shall  be  deemed  a  general  partnership,  unless  renewed  as  a  special 
partnership  under  the  provisions  of  the  last  preceding  section. 

The  necessities  of  this  case  do  not  require  us  to  decide  what  must 
be  the  form  of  the  certificate  for  "renewal  or  continuance"  under  these 
sections.  It  is  sufficient  to  say  that  the  change  in  the  amount  of  the 
capital  to  be  contributed  by  the  special  partner  from  $5,000  to  $10,- 
000  makes  this,  in  legal  contemplation,  a  new  partnership,  and  not 


Sec.  2)  THEIR    FOKMATION    AND    CONDUCT.  621 

a  renewal  or  continuance  of  an  old  one;  and  such  would  naturally 
be  the  conclusion  reached  by  any  one  who  might  read  this  certificate 
on  the  records,  or  see  in  the  newspapers  the  publication  of  the  "terms 
of  the  partnership"  in  conformity  therewith.  From  the  information 
thus  derived  no  one  could  for  a  moment  suppose  that  it  was  the  in- 
tention of  the  parties  to  renew  or  continue  an  old  firm.  We  are 
therefore  clearly  of  opinion  that  Slavic's  right  to  hold  the  position 
of  a  special  partner  in  this  partnership  is  in  no  wise  aided  or  affected 
by  the  fact  that  he  was  such  in  the  old  one.  So  far  as  his  rights  in 
this  respect  are  concerned,  they  must  be  treated  and  dealt  with  as 
if  this  certificate  was  in  fact,  as  it  is  in  law,  the  formation  of  a  new 
and  original  partnership. 

The  ne.xt  question  is,  did  Slagle  contribute  and  pay  the  $10,000,  as 
the  law  requires,  so  as  to  entitle  him  to  the  status  and  immunity  of  a 
special  partner?  In  various  sections  of  this  article  it  is  provided  that 
the  special  partner  "shall  contribute  in  actual  cash  payments  a  specific 
sum  as  capital  to  the  common  stock";  that  a  certificate  shall  be  ex- 
ecuted, acknowledged,  and  recorded,  which  shall  state,  among  other 
things,  "'the  amount  of  capital  which  each  special  partner  shall  have 
contributed  to  the  common  stock" ;  that  at  the  time  of  filing  this  cer- 
tificate there  shall  also  be  filed  an  affidavit  of  one  or  more  of  the  gen- 
eral partners,  "stating  that  the  sums  specified  in  the  certificate  to  have 
been  contributed  by  each  of  the  special  partners  to  the  common  stock 
have  been  actually  and  in  good  faith  paid  in  cash" ;  that,  "if  any 
false  statement  shall  be  made  in  .such  certificate  or  affidavit,  all  the 
persons  interested  in  such  partnership  shall  be  liable  for  all  the  en- 
gagements thereof  as  general  partners" ;  and  that  "the  partners  shall 
publish  the  terms  of  the  partnership,  when  registered,  for  at  least 
six  weeks,  immediately  after  such  registry,  in  two  newspapers,  to  be 
designated  by  the  clerk  of  the  court  in  which  such  registry  shall  be 
made."  These  are  some  of  the  conditions  which  the  legislature  has 
seen  fit  to  attach  to  the  privilege  of  participating  in  the  profits  of  a 
partnership  without  absolute  liability  for  its  debts.  One  of  the  ob- 
jects they  are  intended  to  attain  is  notice  to  the  public  of  the  exact 
terms  of  the  partnership,  so  that  those  who  deal  with  it  may  do  so 
advisedly.  Another,  and  the  most  important,  is  that  the  contribution 
by  the  special  partner  shall  be  made  in  actual  cash.  This  also  has  in 
view  the  protection  of  the  public.  "Tts  object  is  to  ]^rovide  a  fund 
on  the  day  the  company  is  formed,  to  be  thereafter  subject  to  no  con- 
tingencies or  losses  except  those  which  come  from  the  proper  busi- 
ness of  the  partnership"  (Haggerty  v.  Foster,  103  Mass.  19)  ;  and 
wherever  the  question  has  arisen  the  courts  have  uniformly  exacted 
a  strict  compliance  with  this  condition.  The  contribution  cannot  be 
made  partly  in  cash  and  partly  in  goods,  credits,  or  assets  of  another 
firm  taken  at  a  valuation,  nor  will  government  bonds  or  any  other 
class  of  commercial  securities,  no  matter  how  valuable  they  may  be, 
or  how  easily  convertible  into  money,  be  accepted  as  a  substitute  for 


622  LIMITED    PARTNERSHIPS.  (Ch.  10 

the  "actual  cash  payments"  which  the  statute  requires.  Haviland  v. 
Chace,  39  Barb.  (N.  Y.)  283;  Pierce  v.  Bryant,  5  Allen  (Mass.)  91; 
Haggerty  v.  Foster,  103  Mass.  17;  Richardson  v.  Hogg,  38  Pa.  153; 
In  re  Merrill,  12  Blatchf.  (U.  S.)  221,  Fed.  Cas.  No.  9,4G7 ;  Van 
Ingen  v.  Whitman,  62  N.  Y.  513. 

Nor  is  it  material  that  the  parties  may  have  acted  in  good  faith, 
and  have  honestly  intended  to  comply  with  the  law,  and  have  honestly 
supposed  the  transaction  did  gratify  the  statute ;  for,  as  was  said  by 
Folger,  J.,  in  the  case  last  cited :  "The  statement  of  the  amount  of 
the  cash  payment  is  required,  so  that  the  public  may  guage  thereby 
the  extent  of  its  dealings  with  the  firm.  The  affidavit  is  called  for 
that  the  public  may  have  reliance  upon  the  existence  of  the  fact  ol 
payment.  The  statute  is  thwarted,  the  public  is  misled  and  deceived, 
as  much  when  .there  is  an  unijntentional  untruth  as  when  there  is  an 
intentional  one.  This  statute  does  not  set'  out  to  deal  with  motives, 
but  with  acts  and  their  results ;  and  it  guards  the  public,  not  by  re- 
quiring good  intentions,  but  a  certain  act  done  in  a  certain  mode,  and 
a  true  statement  that  it  has  been  thus  done."  To  the  same  effect  is 
the  decision  in  the  ^Massachusetts  case  (Haggerty  v.  Foster,  103  Mass. 
17),  where  it  was  held  that  government  bonds  could  not  be  regarded 
as  equivalent  to  cash  within  the  meaning  of  the  statute.  "It  is  wholly 
immaterial,"  say  the  court,  "that  the  transaction  at  the  time  v/as  hon- 
estly intended  and  understood  by  the  parties  to  be  sufficient;  that  the 
securities  actually  transferred  afforded  the  means  by  which  their  cash 
value  was  in  fact  subsequently  realized,  or  that  creditors  were  not 
actually  defrauded.  The  statute  is  plain  and  explicit.  The  use  of 
the  phrase  'actual  cash  payment'  is  emphatic  and  significant.  It  is 
wisely  intended  to  exclude  a  construction  by  which  commercial  se- 
curities of  any  description  may  be  regarded,  by  the  aid  of  mercantile 
usage,  as  substantially  equivalent  to  cash,  and  to  remove  from  all 
parties  the  temptation  to  evade  its  requirements  in  this  respect.". 

This  brings  us  to  an  examination  of  the  facts  attending  the  alleged 
contribution  and  payment  of  the  $10,000.  The  proof  shows  that  on 
the  15th  of  March,  1882,  the  day  on  which  the  certificate  was  signed, 
and  about  10  o'clock  a.  m.,  Slagle  gave  to  the  firm  of  Hopkins,  Mat- 
thews &  Co.  a  certified  check^on  the  Citizens'  National  Bank  for  $10,- 
000,  which  was  soon  afterwards  deposited  by  the  firm,  and  passed 
to  its  credit;  that  in  a  few  hours,  and  on  the  same  day,  between  2  and 
3  o'clock  p.  m.,  the  firm  gave  Slagle  its  check  on  the  same  bank  for 
$6,500 ;  and  that  three  days  afterwards  the  firm,  by  another  check, 
paid  him  the  sum  of  $1,119.16.  There  is  further  proof  to  show  that 
the  old  firm  kept  their  account  in  the  same  bank,  and  on  the  15th  of 
March,  1882,  and  prior  to  the  deposit  of  Slagle's  check,  that  account 
was  overdrawn  to  a  small  amount ;  and  that,  on  that  day  and  the 
next,  neither  the  old  firm  nor  the  new  one,  nor  Hopkins  and  Matthews, 
the  general  partners  in  both,  had  any  money  in  bank  out  of  which 
the  $6,500  check  could  be  paid,  save  that  which  was  derived   from 


Sec.  2)  THEIR    FORMATION    AND   CONDUCT.  C23 

Slagle's  check  for  $10,000.  Assuming,  then,  that  these  were  the  facts, 
or  that  a  jury  would  so  find  from  the  evidence,  the  transaction  amount- 
ed simply  to  this,  that  Slagle  on  the  morning  of  the  loth  of  March, 
18S2,  paid  in  his  $10,000,  and  a  few  hours  afterwards,  on  the  same 
day,  $G,500  of  the  same  money  was  paid  back  to  him.  Now,  we  take 
it  to  be  too  plain  for  argument  that  this  was  not  such  a  "contribution" 
of  $10,000  to  the  common  stock  of  the  firm,  that  day  formed,  as  the 
law  requires.  In  no  legitimate  sense  of  the  word  can  the  paying  of 
money  one  hour,  and  receiving  it  back  the  next,  be  said  to  be  a  "con- 
tribution" of  it  for  any  purpose  whatever.  We  hold  it  to  be  clear 
that,  to  gratify  the  statute,  the  special  partner  must  pay  his  money 
into  the  common  stock,  and  leave  it  there  to  the  risks  of  the  business. 
The  payment  and  devotion  of  the  money  to  the  business  of  the  firm 
must  be  actual  and  absolute,  not  apparent  and  illusory.  If  the  terms 
referred  to  leave  any  doubt  that  this  is  what  the  statute  means,  that 
doubt  must  be  removed  by  the  thirteenth  and  fourteenth  sections,  in 
which  it  is  expressly  declared  that  "no  part  of  the  sum  which  any  spe- 
cial partner  shall  have  contributed  to  the  capital  stock  shall  be  with- 
drawn by  him,  or  paid  or  transferred  to  him  in  the  shape  of  dividends, 
profits,  or  otherwise,  during  the  continuance  of  the  partnership,"  and 
if,  by  payment  of  interest  or  profits,  his  capital  shall  be  reduced,  he 
"shall  be  bound  to  restore  the  amount  necessary  to  make  good  his 
share  of  capital,  with  interest,"     *     *     * 

In  our  opinion,  the  requirement  that  the  special  partner  shall  "con- 
tribute" a  specific  sum  "in  actual  cash"  was  made  by  the  legislature 
for  the  very  purpose  of  preventing  such  transactions.  The  statement, 
therefore,  in  the  certificate  and  affidavit  that  Slagle  had  made  this 
contribution  of  $10,000  was.  in  legal  contemplation,  "a  false  state- 
ment," no  matter  in  what  good  faith  or  with  what  honest  intentions  he 
and  his  associates  may  have  acted.  It  follows  from  what  has  been 
said  that  the  court  was  right  in  rejecting  the  defendant's  fifth  prayer, 
but  wrong  in  granting  the  third  in  lieu  of  it,  and  also  in  rejecting  the 
plaintiff's  second  and  fifth  prayers. 

The  defendant's  fourth  prayer,  as  we  read  it.  simply  asserts  the 
proposition  that  payment  by  a  certified  check  on  a  bank  in  good 
standing,  and  which  the  bank  actually  pays,  is  a  good  mode  of  pay- 
ment under  the  law  of  hmited  partnership,  and  that  the  mere  fact 
that  a  special  partner  has  paid  his  contribution  by  such  a  check  does 
not  make  him  a  general  partner.  Taking  this  to  be  the  sole  effect  of 
that  prayer,  we  have  no  fault  to  find  with  it.  When  a  bank  certifies 
a  check  to  be  good,  it  is  bound  to  pay  it  when  presented  by  the  payee 
(if  he  be  other  than  the  drawer),  or  by  any  subsequent  holder;  and, 
if  a  check  be  given  bona  fide  on  a  banker  having  funds  to  pay  it,  it 
is  in  this  state  prima  facie  payment,  if  accepted  as  cash.  Moses  v. 
Bank,  34  Md.  581 ;   Woodville'  v.  Reed,  26  Md.  190. 

The  case  also  presents  another  question  which  involves  the  construc- 
tion of  the  fifteenth,  sixteenth,  and  seventeenth  sections.  In  section 
15   there  is  a  provision  that  "every  sale,   assignment,  or  transfer  ot 


624  LIMITED    PARTNERSHIPS.  (Ch.  10 

anv  property  or  effects  of  such  partnership,  made  by  such  partnership 
when  insolvent  or  in  contemplation  of  insolvency,  or  after  or  in  con- 
templation of  the  insolvency  of  any  partner,  with  intent  of  giving  a 
preference  to  any  creditor  of  such  partnership,  shall  be  void  as  against 
the  creditors  'of '  such  partnership."     Section  16  declares  that  "every 
such  sale,  assignment,  or  transfer  of  any  of  the  property  of  a  general 
or  special  partner  when  insolvent,  or  in  contemplation  of  insolvency, 
or  after  or  in  contemplation  of  the  insolvency  of  the  partnership,  with 
intent  of  giving  to  any  creditor  of  his  own  or  of  the  partnership  a 
preference   over  the   creditors   of  the   partnership,   shall   be  void   as 
against  the  creditors  of  the  partnership."     And  by  section  17  it  is 
provided  that  "every  special  partner  v/ho  shall  violate  any  of  the  pro- 
visions of  the  two  last  preceding  sections,  or  who  shall  concur  in  or 
assent  to  any  such  violation  by  the  partnership,  or  by  any  individual 
partner,  shall  be  liable  as  a  general  partner."     It  appears  from  the 
proof  that  on  the  24th  of  April,  1884,  only  five  days  before  the  firm 
failed.  Hopkins  and  Matthews  conveyed  a  house  and  lot,  which  be- 
longed to  the  firm,  and  stood  in  their  names,  to  the  firm  of  Charles 
W.  Slagle  &  Co.,  of  which  the  appellee  was  a  member,  for  the  con- 
sideration of  $2,485.62,  of  which  $1,985.62  consisted  of  loans,  with 
interest  thereon,  previously  made  by   Slagle  &  Co.   to  the  grantors, 
[n  reference  to  this  transaction  the  appellant  insists  that  if,  at  the 
time  this  deed  was  made,  the  firm  and  Hopkins  and  Matthews  were 
in  fact  insolvent  or  unable  to  pay  all  their  debts  as  they  fell  due  in 
the  regular  course  of  business;    and  if  Hopkins  and  Matthews  knew 
the  true  condition  of  the  firm,  or  could,  by  the  exercise  of  reasonable 
diligence,  have  discovered  it;    and  if  Slagle  also  knew  the  true  con- 
dition of  the  firm,  and  of  Hopkins  and  Matthews,  or  could  have  dis- 
covered it  by  the  exercise  of  reasonable  diligence  without  interfering 
with  the  conduct  of  the  firm's  business — then  the  deed  was  made  with 
the  intent  to  prefer  the  grantees  therein;    and,  having  been  made  to 
Slagle  himself  and  others,  it  must  be  presumed  to  have  been  made  with 
his  concurrence,  and  he,  therefore,  by  virtue  of  this  seventeenth  sec- 
tion, became  liable  as  a  general  partner.     This  is  the  substance  of 
the  plaintiff's  seventh  prayer.     The  legal  proposition  asserted  is  that 
upon  the  facts  stated  the  law  presumes  the  intent  to  prefer,  and  that 
such  intent  need  not  be  proved  as  an  independent  fact.     This  prayer 
was  granted,  and,  in  our  opinion,  this  ruling  correctly  construes  these 
sections  of  the  statute.     If  a  man  is  actually  insolvent,  and  knows  it, 
or  by  the  exercise  of  reasonable  diligence  could  know  it,  and  deliber- 
.  atelv  conveys  a  portion  of  his  property  to  one  of  his  creditors,  and 
therebv  pays  in  full  that  creditor's  claim,  the  necessary  effect  is  to 
prefer  that  creditor,  and  from  such  an  act  the  law  conclusively  pre- 
sumes the  intent  to  prefer.     *     *     * 

Judgment  reversed,  and  new  trial  awarded,* 

1  The  statutes  of  a  few  states  permit  the  contribution  to  capital  to  be  hi  cash 
or  property:  First  Nat.  Rank  v.  Creveling,  177  Pa.  270,  35  Atl.  595  (189G); 
Holliflar  v.  Paper  Co..  3  Coin.  342  (1877). 


Sec.  2)  THEIR    FORilATION    AND    CONDUCT.  625 

COLUMBIA  LAND  &  CATTLE  CO.  v.  DALY.     SAME  v. 

MURKIXS. 

(Supreme  Court  of  Kausas,  1S91.    4G  Kuu.  504,  2C.  Pac.  ]0-i2.) 

HoRTON,  C.  J.  The  same  questions  are  presented  in  both  cases, 
and  therefore  we  consider  them  to.Gfether.  The  Columbia  Land  & 
Cattle  Company  is  a  corporation  organized  under  the  laws  of  Colorado. 
In  the  first  case  Thomas  Daly  brought  his  action  against  that  cor- 
poration to  recover  the  value  of  certain  goods,  wares,  and  merchandise 
alleged  to  have  been  purchased  by  D.  B.  Powers,  as  a  "special  part- 
ner" of  the  corporation,  and  also  for  the  amount  of  certain  sight 
drafts  made  by  D.  B.  Powers  upon  H.  S.  Halley,  the  general  manager 
of  the  corporation.  The  total  amount  of  these  claims  is  $529.70.  In 
the  second  case  Joseph  Murkins  brought  his  action  against  the  cor- 
poration and  D.  B.  Powers,  the  "special  partner,"  to  recover  $224. .00 
for  use  of  a  pasture.  The  corporation  in  both  cases  filed  verified 
answers  containing  general  denials,  and  also  denials  that  D.  B.  Powers 
was  a  "special  partner"  or  any  other  partner  of  the  corporation.  There 
was  no  further  appearance  on  the  part  of  the  corporation,  and  judg- 
ment was  rendered  against  it  for  the  several  amounts  claimed.  The 
case  is  brought  here  by  the  corporation  upon  the  ground  that,  under 
the  pleadings,  the  plaintiffs  below  were  not  entitled  to  recover.  Both 
of  the  petitions,  as  amended,  allege  that  D.  B.  Powers  is  a  "special 
partner"  of  the  corporation,  and  as  such  partner  made  the  corpora- 
tion liable  for  the  amount  sued  for.  A  pleading  is  always  construed 
most  strongly  against  the  pleader,  and  the  allegation  in  the  amended 
petitions  concerning  D.  B.  Powers,  as  a  "special  partner,"  under  the 
provisions  of  paragraph  3992,  Gen.  St.  1889,  renders  the  petitions 
fatally  defective:  "A  special  partner  may,  from  time  to  time,  examine 
into  the  state  and  progress  of  the  partnership  concerns,  and  may  ad- 
vise as  to  their  management;  but  he  shall  not  transact  any  business  on 
account  of  the  partnership,  nor  be  employed  for  that  purpose  as  agenl 
attorney,  or  otherwise.  If  he  shall  interfere,  contrary  to  these  provi- 
sions, he  shall  be  deemed  a  general  partner."  Gen.  St.  1868,  c.  74, 
§  16.  The  corporation  could  not  be  made  liable  upon  the  contract  or 
purchase  of  D.  B.  Powers  as  a  "special  partner."  He  had  no  author- 
ity, under  the  allegations  of  the  amended  petitions  and  the  statutes, 
to  bind  the  corporation  or  partnership ;  therefore,  upon  the  amended 
petitions,  the  plaintiff's  below  were  not  entitled  to  recover.     *     ♦     * 

The  judgments  will  be  reversed,  and  the  causes  remanded. 
Gil.Pabt. — 40 


020  LIMITED   PARTNERSHIPS.  (Ch.  10 


JAFFE  V.  KRUM. 
(Supreme  Court  of  Missouri,  ISSG.    S8  Mo.  669.) 

Black,  J.  The  agreed  facts  show  that  O.  M.  Jafife  and  William 
Robertson  made  a  limited  partnership  under  the  statute  of  this  state, 
the  business  to  be  conducted  under  the  name  of  William  Robertson; 
Jatfe  being-  the  special  partner.  All  the  statutory  prerequisites  were 
complied  with.  The  special  partner  thereafter  advanced  to  the  firm 
$15,503.96  as  a  loan,  having  previously  paid  in  his  entire  contribution, 
as  agreed  upon  in  the  written  partnership  agreement.  Thereafter  the 
partnership  became  insolvent,  and  Robertson,  for  the*  firm,  made  a 
deed  of  voluntary  assignment.  Jaffe,  who  had  his  demand  allowed 
by  the  assignee,  now  claims  to  be  entitled  to  share  pro  rata  with  the 
other  creditors  as  to  his  demand  arising  from  the  loan.  The  assignee, 
denied  to  him  this  right,  and  so  did  the  trial  court. 

The  general  scope  of  the  statute  with  respect  to  limited  partnerships 
is  to  provide  how  they  may  be  formed,  to  exempt  the  special  partner 
from  personal  hability  for  the  debts,  to  deprive  him  of  all  power  to 
manage  the  affairs,  and  to  determine  when  and  under  what  circum- 
stances he  shall  be  held  as  a  general  partner.  Section  3409  is  as  fol- 
lows: "If  the  partnership  becomes  insolvent,  no  special  partner  shall 
be  paid  as  a  creditor  of  the  firm,  or  receive  the  benefit  of  any  lien 
in  his  favor  as  such  until  the  other  creditors  of  the  firm  are  satisfied." 
The  common  law  determines  the  rights  and  liabilities  of  partners  in 
general,  and  that  law  governs  in  those  limited  partnerships  where  no 
contrary  provision  is  made  by  the  statute.  Marshall  v.  Lambeth,  7 
Rob.  (La.)  471;   Ames  v.  Downing,  1  Bradf.  Sur.  (N.  Y.)  326. 

Now  there  is  no  room  for  doubt  as  to  what  the  section  of  the  statute 
above  quoted  means.  In  case  of  insolvency  of  the  partnership  it  ex- 
cludes, or  rather  postpones,  the  special  partner  as  a  creditor  until  the 
other  creditors  are  satisfied.  Advances  made  by  him  to  the  partner- 
ship by  way  of  a  loan  are  clearly  within  its  terms.  It  cannot  be  con- 
fined in  its  operation  to  the  advances  made  by  way  of  contribution 
to  the  capital  under  the  articles  of  partnership.  That  would  render 
the  section  wholly  useless,  for  without  it  there  is  nothing  in  the  statute 
which  would  permit  the  special  partner  to  share  with  the  other  cred- 
itors as  to  his  part  of  the  capital  invested.  The  whole  scope  of  the 
act  is  to  the  effect  that  he  subjects  that  to  the  hazards  of  the  enter- 
prise. The  lawmakers  have  used  Emphatic  language,  and  we  have 
nothing  to  do  but  abide  by  their  words.  Other  courts  have  reached 
the  same  conclusion  upon  statutes  in  substance  the  same  as  the  one 
under  consideration.  White  v.  Hackett,  20  N.  Y.  179 ;  Mills  v.  Ar- 
gall,  6  Paige  (N.  Y.)  577;  Ward  v.  Newell,  42  Barb.  (N.  Y.)  482; 
Dunning's  Appeal,  44  Pa.  150. 

The  judgment  in  this  case  is  affirmed.^ 

1  In  Clapp  V.  Lacey  et  nl.,  35  Conn.  463  (18GS),  it  was  held  that  the  special 
partner  could  prove  and  share  ratably  with  other  Arm  creditors  for  all  claims 
except  his  claim  for  capitiil. 


Sec.  2)  THEIR    FORMATipN    AND    CONDUCT. 


62'i 


TILGE  et  al.  v.  BROOKS  et  al. 

(Supreme  Court  of  Pennsylvania,  18S9.    124  Pa.  178,  IG  Atl.  TIG.  2  L.  R.  A.  TOG-N 

Paxson,  C.  J.  The  defendant  below,  Matthew  Brooks,  was  sued 
as  a  copartner  with  W.  Howard  Brooks  and  A.  May  Stevenson  for  a 
debt  admittedly  due  by  the  firm  of  W.  Howard  Brooks  &  Stevenson. 
The  grounds  upon  which  this  claim  rested  are  diese :  Matthew  Brooks 
had  intended  and  attempted  to  form  a  partnership  with  W.  Howard 
Brooks  and  A.  May  Stevenson,  in  1871,  as  a  special  partner.  This 
special  partnership  was  in  fact  a  renewal  of  one  made  in  ISGG.  The 
renewed  partnership  expired  in  1876,  when  Matthew  Brooks  retired 
from  the  firm.  The  sales  for  which  it  is  sought  to  make  him  liable 
were  made  in  1881,  or  about  five  years  after  dissolution  of  the  firm 
of  which  he  had  been  a  member.  When  he  retired,  no  notice  was 
given  of  the  dissolution.  It  was  claimed — and  I  do  not  understand  it 
to  be  disputed — that  there  were  such  irregukrities  in  the  formation 
of  the  special  partnership  as  to  make  the  special  partner  liable  to  the 
penalties  provided  by  the  act  of  Assembly  in  such  cases.  The  eighth 
section  of  the  act  of  21st  of  March,  1836  (P.  L.  1835-36,  143),  in 
regard  to  limited  partnerships,  provides  that,  "if  any  false  statement 
be  made  in  such  certificate  or  affidavit,  all  the  persons  interested  in 
such  partnership  shall  be  liable  for  all  the  engagements  thereof  as 
general  partners."  There  can  be  no  doubt  that  during  the  time  the 
defendant  Brooks  was  a  member  of  this  firm  he  was  liable  for  its  en- 
gagernents  by  reason  of  his  noncompliance  with  the  statute.  The 
plaintiffs  below  claim  that  he  was  in  point  of  fact  a  general  partner, 
and  was  liable,  after  he  left  the  firm,  to  creditors,  by  reason  of  his 
failure  to  give  notice  of  his  withdrawal;  and  a  number  of  authorities 
are  cited  in  support  of  this  proposition,  among  others,  Andrews  v. 
Schott,  10  Pa.  47,  where  it  was  said  by  .this  court:  "For,  unless  the 
conditions  of  the  act  are  substantially  observed,  all  the  defendants  are 
general  partners."  The  language  quoted  from  Andrews  v,  Schott 
would  seem  to  be  justified  by  the  phraseology  of  the  act  of  1836,  as, 
for  instance,  "if  the  special  partner  transact  any  business  on  account 
of  the  partnership,  or  be  employed  for  that  purpose  as  agent,  attorney, 
or  otherwise,  he  shall  be  deemed  a  general  partner."  Like  instances 
might  be  given  from  other  sections  of  the  act.  But,  when  the  act  de- 
clares that  under  certain  circumstances  a  special  partner  shall  be 
deemed  a  general  partner,  it  certainly  does  not  mean  that  he  is  in  fact 
a  general  partner;  indeed,  there  is  in  the  language  an  implication 
that  he  is  not.  Nor  do  I  see  how  the  Legislature  can  make  a  man  a 
member  of  a  firm  without  his  consent  and  the  consent  of  the  firm. 
It  may,  indeed,  make  him  liable  for  the  debts  of  a  firm  as  though  he 
were  a  general  partner;  and  this  is  all  the  Legislature  probably  in- 
tended to  do.  The  confusion  upon^this  subject  may  be  occasioned  by 
the   inaccurate   language   sometimes  employed   in   referring  to  it.     A 


628  LIMITED   PARTNERSHIPS.  (Ch.  10 

man  who  is  not  a  member  of  a  firm  may  yet  make  himself  liable  to 
its  creditors  by  holding  himself  out  to  such  creditors  as  a  partner.  Yet 
in  fact  he  does  not  become  a  partner.  He  is  merely  liable  as  a  part- 
ner. There  being  no  general  partnership,  so  far  as  Brooks  was  con- 
cerned— only  a  liability  on  his  part  for  the  debts  of  the  limited  part- 
nership because  of  its  irregularities — we  see  no  reason  why  he  should 
have  given  notice  of  the  dissolution  of  a  partnership  which  never  ex- 
isted. Haviland  v.  Chace,  39  Barb.  (N.  Y.)  283,  was  decided  upon 
the  New  York  statute,  and  is  not  consistent  with  our  own  act  of  183G; 
nor  are  authorities  elsewhere  of  much  service  to  us  in  construing  it. 
Under  our  statute  no  general  partnership  was  formed.  It  does  say 
that  an  omission  to  comply  with  its  requirements  shall  have  the  effect 
of  creating  a  partnership  not  intended  by  the  parties. 
Judgment  affirmed. 


INDEX. 


[the  fiqubes  refer  to  pages.] 


ACCOUNTING  AND  DISTRIBUTION, 

In  general,  4Si-l'J8. 

without  dissolution,  472,  480. 

In  illegal  partnefships,  139. 

ACTIONS. 

between  partners,  at  law,  71,  4.51-470. 

fur  balance  struck,  458,  459,  460. 

single  adjusted  item,  452. 

Independent  transactions,  462. 

for  breach  ot  partnership  agreement,  461. 

for  deceit,  4t>l. 
between  partners,  in  equitj',  470-483. 

accounting  without  di.'^solution,  472,  4S0. 

specific  ix-rforniunce  of  partnership  agreement,  479,  480. 

for  receiver,  4:','^,  481,  483. 

for  dissolution,  483. 
between  firms  having  common  member,  469. 
by  partner  against  partnership,  454,  467. 
by  or  against  surviving  partner,  271-280. 

ADMISSIONS  BY  PARTNER,  358,  411,  412. 

ADVANCES,  486. 

AGENCY, 

mutual  agency  as  test  of  partnership,  36,  45,  49. 
of  partners  for  partnership,  354-359. 
see  Partners. 

ASSIGNMENT, 

of  firm  property,  by  one  partner,  233,  23ft. 

by  surviving  partner,  230. 
by  partner,  of  his  interest,  446,  528. 

ATTACHMENT, 

by  firm  creditors,  of  partner's  separate  property,  499,  503. 
by  separate  creditors,  of  firm  property,  507-528. 

BANKRUPTCY, 

application  of  assets,  558-587. 

collateral,  proof  by  creditor  holding,  563,  564,  506  tL 

discharge  in,  what  debts  barred,  584. 

dissolution,  cause  for,  003. 

double  i)roof,  501,  5Go. 

limited  partnership,  proof  by  special  partner,  626. 

of  firm,  right  of  solvent  partner  to  control  assets,  578,  583. 

of  one  partner,  effect  on  actions  against  firm,  581. 

proof  between  firms  having  common  member,  572. 

by  firm  against  separate  partner,  573. 

by  firm  creditors  against  separate  partner,  541,  545,  584. 

by  partner  against  firm,  5G9,  ."5. 

by  partner  against  partner,  57G. 

Gil.Pabt.  (629) 


630  INDEX. 

[The  figures  refer  to  pages.] 

BILLS  AND  NOTES, 
see  Negotiable  Paper. 

CAPITAL,  1&4-170. 

COMPENSATION,  Partner's  Right  to.  435,  48a 

COMPETENCY, 

of  persons  to  be  partners,  121-133. 

COMPETITION, 

by  partner  with  firm,  425. 

CONTEJIPLATED  PAItTNEHSHIP.  87. 

CONTRACT. 

extont  of  partnership  liability  in,  309-324. 
nature  of  firm,  280-300. 
quasi  severable  ch.'iraoter  in  equity,  292-306. 
contracts  in  name  of  one  partner,  156-157,  312-324. 
formalities  of,  133-139. 

CONTRIBUTION  BETWEEN  PARTNERS,  43&-446. 

CONVERSION. 

of  tirm  realty  into  personalty,  193-210,  269. 

of  firm  property  into  separate  property,  217,  221,  223,  226. 

CORPORATIONS, 

capacity  to  be  partners,  131. 
defective,  as  partnerships,  104.  106. 
distinguishable  from  partnerships,  91. 

CREDITORS,  RIGHTS  AND  REMEDIES  OF. 

as.signment  for  benefit  of  firm  creditors,  233.  236. 

attachment  of  partner's  separate  property,  499,  503. 

against  dormant  partner,  348,  349. 

against  estate  of  deceased  partner,  292-306. 

bankruptcy  of  firm  and  members,  558-587. 

effect  of  death  of  partner  on,  269. 

exemption,  firm  property  not  subject  to,  567. 

estoppel,  effect  on,  546,  557. 

of  partnership,  in  partner's  separate  property,  499,  502  n.,  503,  528. 

in  firm  property,  528,  538,  541. 

priorities  over  separate  creditors,  247,  251.  528,  541. 

nature  and  basis  of  priorities,  221,  223,  226,  247.  251. 

on  conversion  of  firm  into  separate  property.  217,  221,  223,  226. 
of  separate  partner,  in  separate  property,  499,  528. 

firm  property,  210,  507-528. 
successive  transfers  of  each   partner's  interest  in   firm   property,   effect, 
247,  251. 


DEATH, 

of  partner,  effect  on  ffrm  realty,  19.3-209. 
on  firm  property,  266-280. 
on  firm  contracts,  281.  286,  292-306. 
dissolution  of  firm  by,  592,  594  n. 
see  Surviving  Partner. 
DEED, 

power  of  partner  to  execute,  382-391. 

DELECTUS  PERSONARUM,  113-120. 

DISSENT  BY  PARTNER,  391-395. 


INDEX.  631 

(The  figures  refer  to  pagas.] 
DISSOLUTION. 

by  agrooinpnt  of  parties,  5S8-r>92. 

operation  of  law,  ;")02-(;u8.  *■ 

bankruptcy  of  partner,  G03. 

death,  :>'.)2,  r.9-t  n. 

Insanity,  r»!)5. 

war,  (iOO. 

Jutiiiial  (lofre-?,  4S.3,  004-000. 
notice  of,  MS.  310,  .589',  003. 
breacii  of  contract  by  premature,  HSS,  .")91. 
right  of  partner  to,  089,  .'591. 
powers  of  partner  after,  40.3-417. 
effeetof.  on  partnership  liability,  341-355* 
accounting  without,  472. 
limited  partnership,  notice  of,  027. 

DISTRIBUTION, 

of  firm  assets  among  creditors,  .'")28,  i^.^.S.  541. 

in  partnership  by  estoppel,  540.  r).">7. 
In  winding  up  of  partnership,  484r-i98. 

DORMANT  PARTNER. 

liability  of,  318.  348,  .149. 

notice  of  dissolution  by,  348,  .349. 

DOWER, 

in  partnership  realty,  190,  200,  207. 

DUTY  OF  PARTNERS. 

see  Partners. 


EQUITY, 

distribution  of  firm  assets  In,  528,  538.  541. 
of  partners,  in  applying  firm  as(<ots,  247,  251,  440.  .528,  .541. 
quasi  severable  character  of  firm  contract  in,  292-300. 
liability  of  estate  of  deceased  partner  in,  292,  293,  298,  300,  304. 
remedies  of  partners  inter  se  in,  470^83. 
see  Partners. 

ESTOPPEL, 

partnership  by,  95-104. 

distribution  of  assets  in  partnership  by,  54G,  557. 

EXEMPTION, 

firm  property  not  subject  to,  507. 

EXECUTION, 

of  judgment  against  partner,  210,  247,  251,  .507,  508,  515,  528. 

of  judgment  against  firm,  499,  502  n.,  503,  528. 


FARMING  ON  SHARES,  61,  63,  65  n. 

FIRM, 

see  Partnership. 

FIRM  NAME, 

necessity  of,  56,  154,  156. 

doing  business  in  name  of  partner,  1.50,  157,  312-324. 

FORMER  CUSTOMER  DEFINED,  340. 

FRAUD, 

liability  of  firm  for.  of  partner,  396,  .397,  399.  401. 

FRAUDS,   STATUTE  OF. 

compliance  with  in  forming  contract  of  partnership,  1.33-138,  214. 


632  INDEX. 

[The  figures  refer  to  pages.] 

FRAUDULENT  CONVEYANCES. 

conversion  of  firm  into  separate  property.  217-2'20. 

applying  firm  property  to  pay  sepnrate  dohts.  221,  223.  226  n..  24?,,  246. 

successive  transfers  of  each  partner's  interest  in  firm,  247.  251. 


GARNISHMENT. 

by  firm  creditor,  of  separate  partner's  property,  502  n. 
separate  creditor  of  firm's  property,  513. 

GOOD  FAITH, 

partner's  duty  inter  se.  as  to,  418-433,  439,  440. 
competition  with  firm,  425. 

GOOD  WILL.  177. 

GROSS  PROFITS. 

sharing,  effect  of,  80. 


HUSBAND  AND  WIFE  AS  PARTNERS,  121. 

ILLEGAL  PARTNERSHIPS,  139. 

INCOMING  PARTNER, 

assumption  of  firm  obligations  by,  .32r),  326. 

inde:mxity  and  contribution, 

right  of  partner  to.  43(5-446. 

INFANTS  AS  PARTNERS.  125. 

INSANITY, 

dissolution,  cause  for,  595. 

INSOLVENCY, 

effect  of,  on  transfers  of  firm  property,  217-229. 
see  Bankruptcy. 

INTENTION. 

to  be  partners.  7-17. 

sole  test  of  partnership  in  modern  law,  11,  13,  10,  17,  36,  49. 

test  of  intention,  17-82. 

sharing  profits,   17-57. 

former  doctrine,  17-30. 

development  of  modern  doctrine.  31-57. 

exceptions  to  former  doctrine,  22,  27. 
common  enterprise  or  business.  ,''>7-83. 
words  not  conclusive,  10,  11,  13,  16,  17.  49. 

INTEREST, 

nature  of  partner's  interest  in  firm,  247,  251,  510,  .'328.  541. 
In  accounting,  487,  497. 


JOINT  LIABILITY. 

nature  of,  281,  2SG. 

statutory  changes,  305. 

and  partnership  liability.  288.  289. 

JOINT  PURCHASE, 

not  a  partnership,  1,  2. 

JOINT  TENANTS, 

distinguishable  from  partners,  83,  84. 

JOINT-STOCK  COMPANIES.  108. 


INDEX.  633 

(The  flexures  refer  to  pages.] 

JDDGiMEXT, 

against  one  partner,  effect  of,  281.  286. 

how  expcuted,  210,  247.  2'.1.  507,  TjCtH.  .'SI 5,  .')2a 
against  tirni,  execution  of,  409,  .")02  u.,  ."lOo,  .■'>28,  541. 

JUIIISDICTIOX, 

equitable  actions  between  partners,  470-1S3. 


LAND  OF  PARTNERSHIP, 
see  Real  Ivstate. 

LIABILITY, 

nature,  extent,  and  duration  of  partnership.  281-355. 
nature  of  joint,  2S1.  280. 

inirtner.sliip  liability  and  joint  liability,  288,  291. 
in  contract.  281-.'',nf5. 

extent  of.  301>-324. 
in  tort,  30G-309. 
commoncenKiit  and  duration  of,  225-3.15. 

assumption  of  firm  obligations,  32.5-335. 

novation.   336-341. 

dissolution,  341-355. 
quasi  severable  character  In  equity.  292-300. 
of  partners,  elfect  of  dissent,  391-395. 

effect  of  dissolution  on.  404. 
of  retiring  partner,  328-334. 
of  tirni,  for  partner's  fraud,  396,  397.  399,  401. 

LIEN, 

of  partners,  on  firm  assets,  to  pay  firm  debts.  247,  251.  446.  .'i2S.  541. 

of  firm  creditors,  on  firm  assets,  derivative  right,  in  equity,  251,  528,  541. 

on  partner's  separate  property.  499. 
of  separate  creditors,  quasi  equitable  lien,  528,  541. 

LIMITED  PARTNERSHIP. 

origin  and  characteristics,  610. 

formation,  requisites  of,  615. 

contribution  to  capital,  form  of,  619. 

special  partner,  participation  in  control.  625. 

bankruptcy  of,  proof  by  special  partner,  626. 

dissolution,  notice  of,  627. 

LIMITATIONS,  STATUTE  OF, 

partners'  power  to  waive,  411,  413. 

LOSSES, 

sharing.  5,  7,  56,  138. 

stipulation  against  liability  for.  68,  71  n. 

liability  for,  implied  from  sharing  profits,  56,  68,  78,  13S 


MAJORITY,  POWERS  OF,  391-395. 

MARRIED  WOMEN, 
as  partners,  121. 

MARSHALING  ASSETS, 

firm  and  separate  creditors,  .528-587. 

MERGER  OF  FIRM  LIABILITY. 
In  judgment  against  partner,  281. 

MINING  PARTNERSHIPS,  118  n. 

MORTGAGE, 

power  of  partner  to  mortgage  firm  property.  236 

MUTUAL   AGENCY. 

as  test  of  partnership,  31,  36,  45,  49. 


634  INDEX. 

[The  figures  refer  to  pages.] 

NAME, 

finn  name,  necessity  of,  56.  l-'i4,  150. 

doing  business  in  name  of  partner,  156,  157,  312-324. 

NATURE  AND  CHARACTERISTICS  OF  PARTNERSHIPS.  146-280. 

NEGOTIABLE  PAPER, 

power  of  partner  to  issue,  157,  360,  371,  372,  379,  381,  405,  408. 
renewing,  after  dissolution,  405. 
Indorsing  after  dissolution,  408.  409. 

NOTICE. 

of  dissolution,  sufficiency,  necessity,  341-355,  589,  603. 
in  case  of  dormant  partner,  348,  349. 
former  customer,  346. 
of  limited  partnership,  627. 

NOVATION,  336-341. 


PARTITION, 

of  partnership  realty.  203.  214.  215. 

PARTNERS, 

rights  and  duties  inter  se.  418-450. 

as  to  good  faith,  418-433,  439,  440. 

conduct  of  the  business,  433^36. 

indemnity  and  contribution,  436-446. 

application  of  firm  assets  to  firm  debts,  247,  251,  446-450,  528,  541. 

compensation,  435,  486. 

right  to  dissolution,  589,  591. 
remedies  inter  se, 

in  equity,  accounting,  472,  480,  484-498. 

specific  performance,  479,  480. 

for  receiver,  433.  481,  483. 

for  dissolution,  483. 
actions  at  law,  single  adjusted  item,  452. 

for  balance  struck,  458,  459,  400. 

for  breach  of  partnership  agreement,  461. 

independent  transactions,  462. 

for  deceit,  404. 
powers  of,  in  general,  354r-417. 
origin  and  nature  of  partner's  power,  354-359. 
test  of  authority,  nature  of  question,  360-364. 
particular  powers  considered,  305-390. 

to  make  admissions,  358,  411,  412. 

to  issue  negotiable  paper,  157,  300,  371,  372,  379,  881. 

to  borrow  money,  366,  368. 

to  buy,  366,  307,  308. 

to  give  guaranty,  309. 

to  sign  firm  name,  300,  308,  369,  370,  371,  372,  379. 

to  confess  judgment,  370. 

to  accept  bills,  157,  371,  381. 

to  execute  sealed  instruments,  382,  383,  387. 

to  take  debts  out  of  statute  of  limitations,  413. 

to  transfer  firm  property,  213,  230-246. 

to  make  general  assignment,  233,  236. 

to  mortgage  firm  property,  236  n.    - 
powers  of  majority,  391-395. 
power  to  subject  firm  to  liability  in  tort,  390. 
powers  after  dissolution,  403-417. 
liability  of,  in  contract.  281-306. 

extent  of,  309-324. 

commencement  and  duration  of,  225-355. 


INDEX. 
[The  figures  refer  to  pages.] 

PARTNERS— Continuod. 

as.suinption  of  firm  obligations,  325-33G. 
by  iiicoining  pnrtiier.  32.>-3'2G. 
by  contiuuiug  partner  or  new  flriu,  328-334. 
novation,  33(>-34i. 
dissolution,  341-355. 

partnership  liability  and  joint  liability,  288-291. 
quasi  severable  character  in  etjuity,  292-300. 
effect  of  dissent,  ."501-395. 
of  retiring  partner,  328-334. 
several  liability  of  parUier,  309,  311. 
contract  in  name  of  one  partner,  31^324. 
liability  of  estate  of  deceased  partner.  292^300. 
exemption,  right  to.  In  firm  projjerty,  .507. 
competency  of  persons  to  be,  121-132. 
survivorship  among.  2(jG,  207  n. 

nature  of  interest  of,  in  firm  property,  210-216,  247.  251,  510,  528,  541. 
successive  transfers  of  each  partner's  Interest.  247,  251. 
applying  firm  assets  to  pay  separate  debts,  243,  245. 
dormant,  defined,  349. 

liability  of,  318,  .348,  349. 

notice  from,  in  case  of  dissolution,  348,  349. 

see  Bankruptcy;  Limited  Partnership;  Partnership. 

PARTNERSHIP, 

what  constitutes,  1-112. 

nature  and  characteristics  of,  146-280. 

various  conceptions,  140-153. 
firm  or  partnership  name,  50,  1.14-103. 
arises  out  of  contract.  81,  11.3-145. 

competency  of  parties,  121-132. 

formalities,  133-13S. 

for  what  pui-poses,  139. 
contract  for,  when  within  statute  of  frauds,  133-138,  214. 
sharing  profits,  as  test  of,  17-57. 

former  doctrine,  17-30. 

development  of  modern  doctrine,  31-57. 

various  exceptions,  22.-27. 
sharing  profits,  as  compensation  for  services,  5,  7,  10,  22,  27. 

as  compensation  for  loan,  4.  , 

mutual  agency,  as  test  of,  31,  36.  45,  49. 
intention  to  be  partners,  sole  test  of,  11,  13,  10,  17,  36,  49. 
specific  intent  to  form,  not  essential,  16,  17,  49. 
common  enterprise  or  business  necessary,  57-83. 
joint  purchase  of  goods  for  division,  does  not  create,  1. 
purchase  of  goods  by  one  for  resale  for  mutual  gain,  2. 
farming  on  shares,  01,  03,  05  n. 
relations  distiuguisliable  from,  83-94. 
contemplated,  agreement  for,  87. 
associations  not  for  profit,  85. 

distinguishable  from  tenancy  in  common,  58,  61,  S3,  84. 
distinguishable  from  corporation.  91. 
defective  corporation  as  partnership,  104,  106. 
joint-stock  companies,  108. 
trading  and  nontrading,  362.  .372,  379. 
estoppel,  partnership  by,  95-104. 
property  of, 

capital,  104-170. 

property  other  than  capital,  171-176. 

good  will,  177. 

title  to,  how  taken  and  held.  189-192. 

conversion  of  firm  realty  into  personalty,  193-209,  239,  266-280. 


C35 


636  INDEX. 

[The  figures  refer  to  pages.] 
PARTNER  PHTP— Continued, 

iiatur(^  of  partners  interest  in,  210-216,  528,  541. 
triuisier  of,  217-265. 

by  act  of  firm,  217-229. 
by  act  of  single  partner,  230-246. 
successive  transfers  of  each  partner's  interest.  247. 
effect  of  death  of  partner  on,  2GG-2S0. 
title  to,  after  death  of  partner,  2G7. 
dower  in  firm  realty,  196,  200.  267. 

partner's  right  to  have,  applied  to  firm  debts.  247,  251,  446.  528.  541. 
frnuduleut  conversion  of  firm  into  separate  property,  217-22"J. 
application  of,  to  pay  partner's  separate  debts,  221,  223,  226,  243,  245. 
creditors,  rights  of,  in,  217-229. 

nature  of,  221.  226,  247,  251,  446,  528,  541. 
exemption,  not  subject  to,  567. 
liability  of,  nature  and  duration.  281-355. 
in  contract,  281-306,  309-324. 
in  tort,  30G-309. 

commencement  and  duration  of,  225-355. 
assumption  of  obligations  of.  325-341. 
by  incoming  partner,  325-326. 
by  continuing  partner  or  new  firm,  328-334. 
partnership  liability  and  joint  liability,  288-291. 

quasi  severable  character  in  equity,  292-306. 
death,  effect  of,  on  partnership  liability,  281,  286,  292-306. 
mining,  characteristics  of,  118  n. 
Bubpartnerships.  117. 
competition  of  partner  with,  425. 
action  by  partner  against,  454,  467. 
termination  of,  588-009. 

by  act  of  parties,  588-592. 
operation  of  law,  592-004. 
judicial  decree,  604-609. 
notice  of,  suflicicncy,  necessity,  341-355. 
effect  of,  on  firm  obligations,  341-355. 

see  Bankruptcy;  E(iuity;  Execution;  Estoppel;  Fraudulent  Con- 
veyances ;  Good  Will ;  Liability ;  Lien ;  Limited  Partnership ; 
Partners. 

PARTNERSHIP  BY  ESTOPPEL,  95-104. 

see  Estoppel. 
PARTNERSHIP  INTER  SE— TRUE  PARTNERSHIP.  1-G. 
PARTNERSHIP  AS  TO  THIRD  PERSONS.  17-57. 

PARTNERSHIP  CREDITORS, 

see  Creditors;  Execution;  Liability;  Lien;  Partners;  Partnership. 

POWERS  OF  PARTNERS, 

see  Partners. 

PROFITS, 

sharing  of,  as  test  of  partnership,  17-57. 

former  doctrine,  17-30. 

development  of  modern  doctrine,  31-57. 

various  exceptions.  22,  27. 
sharing  of.  alone,  evidence  of  partnership,  .56. 
implied  liability  for  losses,  56,  68,  78,  138. 
as  compensation  for  services,  5,  7,  10,  22,  27. 

for  loan.  4. 
sharing,  nothing  being  said  about  losses,  .56,  68,  71  n. 

with  stipulation  against  losses,  56,  68,  71  n.,  78. 

PROPERTY  OF  PARTNERSHIP, 

see  Partnership. 


INDEX.  637 

[The  figures  refer  to  pages.] 

REAL   RSTATE, 

partnersliip  to  denl  hi.  13.V136. 

whether  firm  property,  171. 

title  to  firm,  how  taken  and  held,  190. 

conversion  of.  into  personalty,  19:^-209,  239. 

dowor  in,  IfW.  200.  2(37. 

partition  of,  203. 

eflect  of  death  of  partner  on  firm,  193,  100,  202  n.,  203,  2CC  280. 

firm  creditors,  rights  of,  after  death  of  partner,  209. 

RECEIVER, 

of  partnership,  right  of  partner  to,  433,  481,  483. 

RELATIONS  DISTINGUISHABLE  FROM   PARTNERSHIP.  83-94. 

REMEDIES, 

of  partners  Inter  se,  451-498. 

see  Actions;  Creditors;  Execution;  Judgment;  ParLuers. 

RETIRING  PARTNER, 

liability  of,  on  firm  obligations.  328-334,  404. 
notice  bj',  on  dissolution,  328-334. 
see  Liability;  Partners. 


SEALED  INSTRUMENTS, 

power  of  partner  to  execute,  382-391. 

SECRET  PARTNER  DEFINED,  349. 

SERVICES, 

share  of  profits  as  compensation  for,  5,  7,  10,  22.  27. 
partner's  right  to  compensation  for,  435,  486. 
surviving  partner's  right  to  compensaUou  for,  435. 

SHARING  PROFITS. 
see  Profits. 

STATUTE  OF  FRAUDS, 

requirements  of,  in  forming  partnership,  133-138,  214. 

SUBPARTNERSIIIP,  117. 

SURVIVORSHIP  AMONG  PARTNERS,  266,  267  n. 

SURVIVING  PARTNER, 

title  of,  in  firm  property,  207-280. 

rights  and  duties  of,  271-280. 

remedies  of  deceased  partner's  representatives  against,  275. 

whether  a  trustee,  275,  280  n. 

comp(Misation  for  winding  up  partnership,  435. 

powers  of,  236,  4J0. 

actions  by  or  against,  271-280. 


TENANTS  IN  COMMON, 

distinguishable  from  partners,  83,  84. 
not  necessarily   partners,  58.  01,  63. 
partnership  more  than  common  ownership,  58. 

TERMINATION  OF  PARTNERSHIP, 

see  Dissolution ;  Partnership. 

TITLE  TO  FIRM   PROPEHITY, 
how  taken  and  held,  189-192. 

conversion  of  firm  realty  into  personalty,  193-209. 
transfer  of,  217-265. 
death,  effect  of.  on.  266-280. 
surviving  partner,  title  of,  207-280. 

see  Partners;  Partnership;  Surviving  Partner. 


638  INDEX. 

[The  figures  refer  to  pages.] 

TORT, 

partnership  liability  In,  306-R09. 

power  of  partner  to  subject  firm  to  liability  in,  396-402. 

TRADING  PARTNERSHIP,  362,  372,  379. 

TRUSTEE, 

whether  surviving  partner  a,  275,  2S0  n. 


WAGES, 

see  Compensation. 

WAR, 

cause  for  dissolution,  600. 


SUPPLEMENTARY  LIST 


OF  CASES  ON 

THE  UNIFORM  PARTNERSHIP  ACT 

THE  UNIFORM  LIMITED  PARTNERSHIP  ACT 

LIMITED  PARTNERSHIP  ASSOCIATION 

ACTS  AND  BUSINESS  TRUSTS 

WITH  THE  TEXTS  OF 

THE  UNIFORM  PARTNERSHIP  ACT  AND  THE 
UNIFORM  LIMITED  PARTNERSHIP  ACT 


BY 

WILLIAM  EVERETT  BRITTON 

PROFESSOR  OF  LAW  IN  THB  UUrVBRSITY  OF  ILLINOIS 


ST.    PAUL 

WEST  PUBLISHING  COMPANY 
1924 


Copyright,  1924 

BT 
WEST  PUBLISHING  COMPANY 

(Gil.Pakt.Stjpp.) 


TABLE   OF  CASES 


Cases  printed  in  ordinary  t.viH»  are  tlio  eases  reported  as  the  text  of  this 
vohinic.  rases  printed  in  itnlicfi  are  found  in  the  foolufiles  and  in  text;  they 
are  included  in  ihis  iai)le  because  they  are  stated  and  discussed  sutficienlly 
to  nialie  the  reference  useful. 


Page 

Bank  of  Topeka  v.  Eaton 97 

Barnett  v.  Cisco  Banking  Co '   107 

Belts  V.  Ilackalhorn "J3 

Browu,  Jansou  i5c  Co.  v.  A.  llutch- 
insou  &   Co '•),     t) 

Carter  v.  Producers'  Oil  Co 31 

Cane  V.  Beauregard I'M 

Cox  V.  U ULnuiii - 

Crehan  v.  MeyarKel 110 

Crocker   v.    Mai  icy 48,  •>'/ 

Crossiuan  v.  (lil)ney 17 

Dana    v.    Treasurer    &    Receiver 

General 64 

Doner  v.  Htauffer l.">i> 

Edwards    v.    Warren    Linoliue    & 

Gasoline  Works -57 

Eliot   i\.  Freemiin 51,  5.J 


Fort,  In  re. 


George  M.  West  Co.  v.  Lea  Bros.. .   144 

Giles   V.   Vette 20 

Glcason  v.  McKay 43 


Hayes  Motor  Truck  Wheel  Co.  v. 

WoW 110 

Hecht  V.  Malley 5'J 

Supp.Gil.Part.  (iii>t 


Page 

Jleydon  v.  Heydon 130 

Home  Lumber  Co.  v.  Hopkins. ...     75 

Industrial   Lumber   Co.   v.   Texas 
Pine  Land  Ass'n 00 

Laflin    &    liaud    Powder    Co.    v. 
Steytler 28 

McCamey  v.  Uollister  Oil  Co 85 

McCarthy  v.  Parker 105 

Mayo  V.  Moritz 44 

Morgmi  v.  Farrel 128 

f'hillips   V.    Blatchford 43,  (>5 

Priestley  v.  Bur  rill 72 

Schotield,    Ex   parte 1 

Simsou  V.  Klipstein ■.     81 

Smith  v.  Anderson 45.  51 

Thayer  v.  Ilumihreys 129 

\illage  of  Westby  v.  Berkkedal..       8 


Wauyh  v.  Carver 2 

Westby.  Village  of.  v.  Berkkedal.  .  s 

West  Co.  V.  Lea  Bros 114 

Wharf  V.  Wharf 1-' 

Williams  v.  Inhabitants  of  Milton  42 


SUPPLEMENTARY  LIST 

OF 

CASES  ON  PARTNERSHIP 


In  re  FORT. 

Ex  parte  SCHOFIELD. 

(Court  of  Apix-al.     [INOT]  2  Q.  B.  493.) 

Appeal  from  the  Manchester  County  Court. 

In  April,  1894,  T.  B.  Schofield  advanced  to  the  debtor,  J.  W.  Fort, 
a  sum  of  i30(X).  upon  a  promissory  note  to  enable  the  debtor  to  set 
up  business  as  a  jeweller  at  Alanchester.  It  was  agreed  between 
them  that,  in  consideration  of  such  advance,  the  debtor  should  pay 
to  Schofield  by  way  of  interest  5  per  cent,  and  a  half  share  of  the 
net  profits  of  the  business.  That  agreement  was  not  in  writing. 
In  April,  1896,  Schofield  pressed  for  i-fei^ayment  of  the  money,  and 
on  August  15  he  commenced  an  action  on  the  promissory  note  for 
the  recovery  of  the  i3000.  and  interest.  As  a  defense  to  that  action 
the  debtor  pleaded  that  they  were  partners.  At  the  trial  the  jury 
decided  that  they  were  not  partners  and  judgment  was  entered  for 
the  plaintiff.  In  April,  1897,^  a  receiving  order  was  made  against 
the  debtor.  At  a  meeting  of  creditors  held  on  April  23  Schofield  ten- 
dered a  proof  for  the  amount  of  his  judgment  debt,  which  proof  was 
objected  to,  but  admitted  by  the  official  receiver  for  the  purpose  of 
voting.  At  that  meeting  a  resolution  was  passed  by  a  majority  in 
value  of  the  creditors  present,  including  Schofield.  that  G.  H.  Law- 
ton  be  appointed  trustee.  An  alternative  resolution  was  passed  ap- 
pointing one  Heathcote  trustee,  if  Schofield's  proof  ought  not  to  be 
admitted. 

On  May  12  a  motion  was  made  on  behalf  of  Heathcote  in  the  Man- 
chester County  Court  for  a  declaration  that  Schofield's  proof  was  in- 
valid, and  that  the  financial  relationship  between  Schofield  and  the 
debtor  had  been  such  as  to  disentitle  Schofield  to  receive  anything  in 
respect  of  his  loan  until  the  claims  of  the  other  creditors  of  the  debt- 
or bail  been  satisfied.  The  judge  rejected  the  proof  except  as  to  a 
supp.(;ir..rAKT.— 1 


Z  SUrPLEMKNTARY    LIST   OF   CASES   OX    PARTNEKSIIIP 

sum  of  il35.  10s.,  and  declared  that  the  resohition  appointing  Heath- 
cote  trustee  was  to  be  deemed  to  have  been  carried. 

Schofield  appealed  to  the  Divisional  Court. ^ 

A'auoiian  Williams,  J.  This  is  an  appeal  against  an  order  of  th2 
county  court  whereby  the  appellant's  right  of  proof  against  the  debt- 
or's estate  was  postponed  to  those  of  the  other  creditors  on  the  ground 
that  his  claim  was  in  respect  of  a  loan  of  the  kind  dealt  with  by  sec- 
tion 3  of  the  Partnership  Act,  1890.  The  question  which  we  have 
to  decide  is  whether  the  case  falls  within  that  section. 

The  contract  upon  which  the  loan  was  advanced  provided  that  the 
lender  should  be  entitled  to  a  share  of  the  profits  of  the  borrower's 
business  by  way  of  interest  upon  the  loan,  but  that  contract  was  not 
in  writing.  The  ground  of  the  appeal  is  that  section  2,  subsec.  3  (d),^ 
applies  only  to  a  case  where  the  loan  is  under  a  contract  in  writing 
signed  by  the  parties,  and  that  the  pcjstponement  provided  for  by 
section  3  is  only  intended  to  operate  in  cases  falling  within  section 
2,  subsec.  3(d).  In  my  judgment  the  appellant's  contention  is  right. 
It  is  plain  that  clause  (d)  gives  to  persons  who  lend  money  under 
a  written  agreement  signed  by  the  parties  thereto  a  certain  benefit, 
and  it  is  obvious  that  section  3  intended  to  impose  a  burden  as  a  con- 
dition of  the  benefit  so  conferred  by  clause  (d).  I  think  it  was  not 
intended  that  that  burden  should  be  imposed  in  any  case  in  which 
the  statute  "did  not  confer  the  benefit.  It  would  be  enough  for  me  to 
leave  the  matter  there,  for  the  construction  of  the  act  seems  reason- 
ably free  from  ambiguity ;  but  I  think  also  that  the  history  of  the 
law  on  this  subject  points  to  the  conclusion  that  the  construction 
which  I  have  put  on  the  section  is  the  right  one.  Previously  to  the 
decision  in  Cox  v.  Hickman,  8  H.  L.  C.  268,  the  proposition  laid 
down  in  Waugh  v.  Carver  (1793)  2  H.  Bl.  235,  that  receipt  of  a  share 
of  the  general  profits  of  a  business  of  itself   constituted  a  partner- 

1  The  ai-gunients  of  counsel,  the  concurring  opinion  of  Wright,  J.,  and  the 
opinions  in  Appeal  of  Ileathcote  are  .omitted. 

2  English  Partnership  Act,  1890,  §  2,  subsec.  3:  "The  receipt  by  a  ix^rson 
of  a  siiare  of  the  profits  of  a  business  is  prima  facie  evidence  that  he  is  a 
partner  in  the  business,  but  the  receipt  of  such  a  share,  or  of  a  payment  con- 
tingent on  or  varying  with  the  profits  of  a  business,  does  not  of  itself  make 
him  a  partner  in  the  business ;    and  in  particular — 

"(d)  The  advance  of  money  by  way  of  loan  to  a  person  engaged  or  about  to 
engage  in  any  business  on  a  contract  with  that  person  that  the  lender  shall 
receive  a  rate  of  interest  varying  with  the  profits,  or  shall  receive  a  share  of 
the  profits  arising  from  carrying  on  the  business,  does  not  of  itself  make  the 
lender  a  partner  with  the;  person  or  persons  carrying  on  the  business  or 
liable  as  sueh.  Provided  that  the  contract  is  in  writing  and  signed  by  or  on 
l>ehalf  of  all  the  parties  thereto." 

Section  .3:  "In  the  event  of  any  person  to  whom  money  has  been  advanced 
by  way  of  loan  upon  such  a  contract  as  is  mentioned  in  the  last  foregoing 
section  *  *  *  being  adjudged  a  bankrupt  *  *  *  the  lender  of  the 
loan  shall  not  be  entitled  to  recover  anything  in  respect  of  his  loan 
*  *  *  until  the  claims  of  the  other  creditors  of  the  borrower  *  *  * 
for  a  valuable  consideration  in  money  or  moneys  worth  have  been  satisfied." 

Compare  section  7  (d)  of  the  Uniform  Partnership  Act.  See  In  re  Hovne 
(C.C.  A.)  277  Fed.  668  (1922).    - 


SUPPLEMKNTAUY    LIS?T   OF   CASTAS   ON    PAUTNERSUIP  d 

ship,  was  i;cncrally  regarded  as  a  correct  proposition  of  law.  Then 
in  Cox  V,  Hickman,  the  House  of  Lords  overruled  that  doctrine,  and 
established  that  receipt  of  profits  was  only  prima  facie  evidence  of 
a  partnership.  A  few  years  later  I'ovill's  Act  (28  &  29  Vict.  c.  86) 
was  passed,  which  act,  notwithstanding  criticisms  passed  upon  It  in 
Pooley  V.  Driver  ( 1876)  5  Ch.  D.  458,  and  other  cases,  I  believe  to 
have  been  an  act  framed  upon  the  basis  of  the  law  being  as  it  was 
declared  to  be  in  Cox  v.  Hickman.  The  cases  in  which  that  act  was 
criticised  seem  to  lay  dgwn  that  although  the  receipt  of  profits  may 
be  evidence  of  the  existence  of  a  partnership,  it  is  so  only  to  the  ex- 
tent to  which  it  shews  that  the  parties  intended  that  relationship.  As 
soon  as  these  doubts  were  cast  upon  the  basis  of  the  law  on  which 
Bovill's  Act  was  founded,  the  act  became  difficult  of  application.  In 
that  state  of  things  the  Partnership  Act,  1890,  was  passed,  and  sec- 
tion 2,  subsec.  3,  of  that  act  seems  to  give  a  statutory  efifect  to  the 
basis  of  law  upon  which  Bovill's  Act  purported  to  be  founded,  and 
makes  it  clear  that  if  there  is  a  receipt  of  a  share  of  the  profits  and 
nothing  more,  there  is  a  partnership.  It  may  be  that  the  surround- 
ing facts  are  sufficient  to  rebut  the  presumption  of  partnership,  but 
prima  facie  the  recipient  of  the  profits  is  a  partner.  That  being  so, 
I  think  that  the  construction  which  I  have  put  upon  section  3  of  the 
Act  of  1890  will  work  no  commercial  injustice,  for  a  person  who 
lends  monc\-  upon  an  oral  agreement  for  a  share  of  the^  profits  runs 
this  risk — that  mere  receipt  of  the  profits  under  such  an  agreement 
will  prima  facie  make  him  a  partner.  I  think  tliat  any  court  which 
had  to  deal  in  such  a  case  with  the  question  of  partnership  or  no 
partnership  would  hold  that  the  onus  of  proof  which  the  receipt  of 
profits  casts  upon  the  recipient  was  an  onus  not  easily  to  be  satisfied ; 
because  when  a  court  finds  that  an  important  mercantile  transaction 
is  without  sufficient  explanation  arranged  by  word  of  mouth  instead 
of  being  committed  to  writing,  it  will  regard  it  with  all  the  jealousy 
with  which  courts  regard  transactions  which  are  not  in  accordance 
with  business  principles  and  business  forms,  and  will  make  every  in- 
tendment against  it.     This  ai>pcal  nmst  be  allowed. 


BROWN,  JANSON  c-t  CO.  v.  A.  HUTCHINSON  &  CO. 

(Court  of  Appfal.     [1S0.^)1  1  Q.  B.  737.) 

The  plaintiffs  brought  an  action  against  J.  A.  Hutchinson  and  the 
firm  of  A.  Hutchinson  &  Co.,  of  which  he  was  a  member,  upon  a 
bill  of  exchange  for  £3000.,  drawn  by  J.  A.  Hutchinson  upon  and  ac- 
cepted by  the  firm,  and  the}-  obtained  judgment  under  Order  xiv 
against  J.  A.  Hutchinson  for  £3034.  17s.,  leave  being  granted  to  the 
firm  to  defend  the  action.     The  plaintiffs  then  applied  by  summons 


4  SUPPLEMENTARY   LIST   OF   CASES   OX   PAUTNERSHIP 

under  section  23  of  the  Partnership  Act,  1890,  for  an  order  charg- 
ing the  interest  of  J,  A.  Hutchinson  in  the  partnership  business  with 
the  amount  of  the  judgment  debt,  and  for  the  appointment  of  a  re- 
ceiver of  his  said  partnership  interest. 

It  appeared  at  the  hearing  of  the  summons  that  J.  A.  Hutchinson 
had  no  propert}-  which  could  be  taken  under  a  writ  of  heri  facias  or 
elegit;  It  further  appeared  that  the  firm  of  A.  Hutchinson  &  Co. 
was  constituted  a  societe  en  commandite  according  to  the  law  of 
France  for  the  manufacture  and  sale  of  india  rubber  goods ;  that  its 
registered  office  was  in  Paris,  but  that  it  had  a  branch  office  in  Lon- 
don for  the  sale  of  the  manufactured  goods,  and  that  this  branch 
business  was  formerly  managed  by  J.  A.  Hutchinson. 

The  learned  judge  granted  the  application. 

The  firm  of  A.  Hutchinson  &  Co.  appealed.^ 

LiNDLEv.  L.   T.,  stated  the  facts,  and  continued: 

The  Partnership  Act  of  1890,  as  is  well  known,  made  very  little 
alteration  in  the  legal  procedure  except  by  section  23.*  Section  23 
is  absolutely  new.  It  replaced  a  very  cumbrous  method  of  proceed- 
ing which  had  to  be  adopted  before  and  even  under  the  Judicature 
Act.     When  a  creditor  obtained  a  judgment  against  one  partner  and 

3  The  arguments  of  counsel  and  the  concurring  opinion  of  A.  L.  Smith, 
L.   J.,   are   omitted. 

4  English  Partnership  Act,  1S90,  5.3  &  54  Vict.  c.  39,  §  2.3:  "(D  After  the 
commoneement  of  this  act  a  writ  of  execution  shall  not  issue  against  any 
partnership  property  except  on  a  judgment  against  the  firm. 

"(2)  The  High  Court,  or  a  judge  thereof,  or  the  -Chancery  Court  of  the 
County  Palatine  of  Lancaster,  or  a  county  court,  may,  on  the  application  by 
summons  of  any  judgment  creditor  of  a  partner,  make  an  order  charging  that 
partner's  interest  in  the  partnership  property  and  profits  with  payment  of  the 
amount  of  the  judgment  debt  and  interest  thereon,  and  may  by  the  same  or  a 
sul)sequent  order  appoint  a  receiver  of  that- partner's  share  of  profits  (whether 
already  declared  or  accruing),  and  of  any  other  money  which  may  be  coming 
to  him  in  respect  of  the  partnership,  and  direct  all  accounts  and  inquiries, 
and  give  all  other  orders  and  directions  which  might  have  been  directed  or 
given  if  the  charge  had  been  made  in  favor  of  the  judgment  creditor  by  the 
partner,  or  which  the  circumstances  of  the  case  may  require. 

"(3)  The  other  partner  or  partners  shall  be  at  liberty  at  any  time  to  re- 
deem the  interest  charged,  or  in  case  of  a  sale  being  directed,  to  purchase 
the  same." 

Compare  sections  24  and  28  of  the  Uniform  Partnership  Act. 

English  Partnership  Act,  §  31:  "(1)  An  assignment  by  any  partner  of  his 
share  in  the  partnership,  either  absolute  or  liy  way  of  mortgage  or  redeemable 
charge,  does  not,  as  against  the  other  partners,  entitle  the  assignee,  during 
the  continuance  of  the  partnership,  to  interfere  in  the  management  or  admin- 
istration of  the  partnership  business  or  affairs,  or  to  require  any  accounts  of 
the  partner.ship  transactions,  or  to  inspect  the  partnership  books,  but  en- 
titles the  assignee  only  to  receive  the  share  of  profits  to  which  the  assigning 
partner  would  otherwise  be  entitled,  and  the  assignee .  must  accept  the  ac- 
count of  profits'  agreed  to  by  the  partners. 

"(2)  In  case  of  a  dissolution  of  the  partnerslilp,  whether  as  respect  all  the 
partners  or  as  respect  the  assigning  partner,  the  assignee  is  entitled  to  re- 
ceive the  share  of  the  partnership  assets  to  wiiich  the  assigning  partner  is  en- 
titled as  between  himself  and  the  other  partners,  and,  for  the  purpose  of 
a.scertaining  that  share,  to  an  account  as  from  the  date  of  the  dissolution." 

Compare  .section  27  of  the  Uniform  Partnership  Act. 


SI  TI'LIOMKNTAUV    LIST   OF   CASES   ON    TARTNERSHIP  O 

he  wanted  to  obtain  the-  bejiefit  of  that  judgment  against  the  share 
of  that  partner  in  the  firm,  the  first  thing  was  to  issue  a  fi.  fa.,  and 
the  sherifif  went  down  to  the  partnership  place  of  business,  seized 
everything,  stopped  the  business,  drove  the  solvent  partners  wild, 
and  caused  the  execution  creditor  to  bring  an  action  in  chancery  in 
order  to  get  an  injunction  to  take  an  account  and  pay  over  that  which 
was  due  by  the  execution  debtor.  A  more  clumsy  method  of  pro- 
ceeding could  hardly  have  grown  up.  In  order  to  stop  that  a  new 
method  was  introduced,  which  is  explained  and  indicated  in  section 
23.  Clause  1  says,  "After  the  commencement  of  this  Act  a  writ  of 
execution  shall  not  issue  against  any  partnership  property  except  on 
a  judgment  against  the  firm.''  That  puts  a  stop  at  once  to  all  such 
proceedings  as  I  have  been  alluding  to.  The  sheriff  cannot  now  go 
and  seize  the  property  of  the  firm  if  a  debt  is  due  by  one  of  the  part- 
ners only.     That  is  absolutely  stopped. 

Then  the  second  part  of  that  section  really  recasts  the  whole  of  the 
procedure  which  formerly  prevailed  with  regard  to  the  mode  of  as- 
certaining the  amount  due  by  the  judgment  debtor:  "The  High 
Court  or  a  judge  thereof,  or  the  Chancery  Court  of  the  County  Pala- 
tine of  Lancaster,  or  a  county  court,  may,  on  application  by  sum- 
mons of  any  judgment  creditor  of  a  partner,  make  an  order  charging 
that  partner's  interest  in  the  partnership  property  and  profits  with 
payment  of  the  amount  of  the  judgment  debt  and  interest  thereon."' 
What  is  the  efifect  of  that?  That  has  no  immediate  efTect  on  the  ':o- 
partners  at  all.  It  simply  amounts  to  this — that  the  interest  of  their 
copartner  in  the  business  is  charged  just  as  if  he  had  given  an  equi- 
table charge  over  his  interest.  It  does  not  harass  or  affect  the  other 
partners  in  the  least.  Then,  in  order  to  give  effect  to  that  charge, 
provision  is  made  for  the  appointment  of  a  receiver  of  that  partner's 
share  and  profits.  The  eft'ect  of  that  is  that  the  appointment  of  a 
receiver  operates  as  an  injunction  against  the  execution  debtor  re- 
ceiving anything  from  his  copartners,  and  if  his  copartners  pay  over 
to  him  anything  with  knowledge  of  the  appointment  of  the 'receiver 
ihev  may  get  into  trouble.  But  then  that  does  not  produce  money, 
except  money  which  the  copartners  may  hand  over,  or  could  hand 
over  to  the  judgment  debtor  partner  if  it  were  not  for  the  receiver. 
In  order  to  get  the  full  benefit  of  the  charge,  the  section  proceeds : 
"The  court  may  direct  all  accounts  and  inquiries,  and  give  all  other 
orders  and  directions  which  have  been  directed  or  given  if  the  charge 
had  been  in  favor  of  the  judgment  creditor  by  the  partner,  or  which 
the  circumstances  of  the  case  may  require.''  That  means  this — that 
an  order  may  be  made  to  take  an  account  of  what  is  due  from  the 
copartners  to  the  judgment  debtor  partner,  and  there  is  a  clause  (sec- 
tion 33,  subsec.  2)  which  enables  the  solvent  partners  to  treat  that 
as  a  dissolution.  There  is  a  clause  which  enables  the  solvent  part- 
ners to  proceed,  if  they  think  fit,  to  get  rid'  of  the  judgment  debtor. 
That  is  the  machinery  provided. 


6  SUPPLEMEXTAKY    LIST   OF   CASES   ON    PARTXEUSIIIP 

Now,  that  is  intended  unquestionably ,  to  supersede  the  old  prac- 
tice; and  whenever  there  is  a  lirni,  I  do  not  care  how  it  is  consti- 
tuted, carrying  on  business  here  with  assets  which  the  sheriff  could 
seize  under  the  old  practice,  this  section  is  applicable. 

That  is  the  case  here.  Mr.  J.  A.  Hutchinson  carries  on  business 
over  here  under  the  name  of  A.  Hutchinson  &  Co.,  with  or  without 
the  foreign  members,  and  there  are  assets  in  that  place  .of  business, 
which  is  a  branch  place  of  business,  which  assets  the  sheriff  could 
seize  under  the  old  practice.  I  think  there  is  ample  jurisdiction  to 
make  this  order,  and  I  do  not  ihink  it  will  prejudice  or  affect  the 
foreign  partners  at  all,  unless  indeed,  they  came  over  here  and  in- 
sisted upon  handing  over  to  the  judgment  debtor  the  money  which 
they  ought  to  hand  over  to  the  receiver ;  and  the  receiver  cannot  go 
to  Paris  and  enforce  this  order.  Neither  does  it  authorize  the  re- 
ceiver to  receive  partnership  assets.  He  has  no  business  to  locate 
himself  in  this  branch  of  business  and  stop  there.  All  he  can  do  is 
to  give  notice  to  the  other  partners  about  payments  to  the  judgment 
debtor.  But  as  regards  the  judgment  debtor,  the  appointment  of  a 
receiver  is  extremely  important,  because  if  he,  in  violation  of  this 
order,  receives  anything  from  his  copartners  and  the  receiver  finds 
it  out,  he  can  order  him  to  hand  it  over.  The  judgment  creditor  need 
not  bring  an  action  against  him ;  he  can^  get  a  four-day  order  enforc- 
ing obedience  by  a  speedy  process.  It  appears  to  me,  therefore,  that 
there  is  jurisdiction  to  make  this  order,  that  the  order  is  right,  and 
that  this  appeal  proceeds  on  a  theory  that  it  has  a  much  greater  effect 
than  it  has.  It  has  no  effect  at  all  abroad.  I  may  add,  for  the  sat- 
isfaction of  the  appellants,  that  if  they  choose  io  pay  off  the  judg- 
ment creditor  they  can  do  so  under  clause  3  of  section  23.  I  think 
that  this  appeal  must  be  dismissed  with  costs. 

Appeal  dismissed. 


BROWN,  JANSON  &  CO.  v.  A.  HUTCHINSON  &  CO. 

(Court  of  Ai)i>eal.     [1S95]  2  Q.  B.  120.) 

=1-  *  *  The  plaintiffs  obtained  an  order  under  section  23  of  the 
Partnership  Act,  1890,  charging  the  interest  of  the  defendant  J.  A. 
Hutchinson  in  the  partnership  business  with  the  amount  of  the  judg- 
ment debt,  and  appointing  a  receiver  of  that  interest.  This  order  was 
appealed  again.st  and  affirmed  by  the  Court  of  Appeals.  See  [1895] 
1  Q.  B.  7Z7 .  They  then  applied  for  and  obtained  the  order  appealed 
against,  which  directed  the  defendants  A.  Hutchinson  &  Cq.  to  de- 
liver to  the  plaintiffs  within  one  month  or  such  extended  time  as 
might  be  allowed  by  the  judge  an  account  of  the  share  of  profits  of 
the  defendant  J.  A.  Hutchinson  in  the  partnership  of  the  defendants 
A.  Hutchinson  &  Co.,  whether  already  declared  or  accruing  to  him 
in  respect  of  the  said   partnership,   and   of  any   other  monev   which 


\ 

SUPPLEMEXTAUY.  LIST   OF'   CA55ES   ON    PARTNERSHIP  7 

might  be  coming  to  him  in  respect  of  the  said  partnership;  and  that 
the  said  defendants  A.  Hutchinson  &  Co.  should  forthwith  pay  the 
profits  and  moneys  found  to  be  due  to  the  said  T.  A.  Hutchinson  to 
the  receiver  ajipointed  as  before  mentioned.  The  defendants  A. 
Hutchinson  &  Co.  appealed  against  this  order.*^ 

Rir.BV,  L.  J.  This  case  depends  upon  section  23,  subsec.  2,  of  the 
Partnership  Act,  1890.  The  latter  part  of  that  subsection  provides 
that  the  court  or  a  judge  may  "direct  all  accounts  and  incjuiries,  and 
give  all  other  orders  and  directions  which  might  have  been  directed 
or  given  if  the  charge  had  been  made  in  favor  of  the  judgment  credi- 
tor by  the  partner,  or  which  the  circumstances  of  the  case  may  re- 
quire." Reading  the  subsection  with  section  31,  subsec.  1,  which 
l)rovides  that  an  assignment  by  a  partner  of  his  share  in  the  partner- 
ship, either  absolute  or  by  way  of  mortgage  or  redeemable  charge, 
does  not,  as  against  the  other  partners,  entitle  the  assignee,  during 
the  continuance  of  the  partnership,  to  require  any  accounts  of  the 
partnership  transactions,  I  think-  it  plain  that  the  intention  of  the  leg- 
islature was  that,  under  ordinary  circumstances,  in  dealing  with  a 
case  under  subsection  2  of  section  23,  the  analogy-  of  an  assignment 
by  a  partner  of  his  share  should  be  adhered  to.  In  order  to  get  rid 
of  such  inconveniences  as  arose  under  the  old  law  in  cases  where  the 
partnership  property  was  seized  to  satisfy  the  separate  judgment  debt 
of  one  of  the  partners,  it  is  provided  by  section  33,  subsec.  2,  that  a 
partnership  may,  at  the  option  of  the  other  partners,  be  dissolved  if 
any  partner  suffers  his  share  of  the  partnership  property  to  be  charged 
imder  the  act  for  hi?  separate  debt.  That  provision  is,  of  course,  only 
applicable  to  English  partnerships;  and  whether  there  is  in  this  case 
an  English  partnership  as  well  as  the  French  partnership,  or,  if  not, 
what  the  French  law  on  the  "subject  under  such  circumstances  may 
be,  we  are  not  in  a  position  to  say.  It  seems  to  me  that  the  words 
at  the  end  of  subsection  2  must  be  taken  as  meaning  that  prima  facie 
the  judgment  creditor  who  has  obtained  a  charging  order  under  that 
subsection  shall  have  such  remedies  as  a  person  would  have  in  whose 
favor  a  charge  had  been  made  by  a  partner  upon  hi^  share  in  the 
partnership ;  and  that  by  so  reading  them  we  are  not  depriving  such 
a  judgment  creditor  of  any  right  which  he \  would  have  had  under 
the  laW  as  it  previously  existed.  Treating  that  as  being  the  general 
rule  laid  down  by  the  subsection,  what  then  is  the  meaning  of  the  con- 
cluding words  of  the  subsection,  "or  which  the  circumstances  of  the 
case  may  require"?  I  do  not  look  upon  those  words  as  having  no 
effective  meaning.  I  think  that  they  recognize  that  the  analog}-  of 
an  assignment  of  a  share  in  the  partnership  by  a  partner  might  not 
in  all  cases  afiford  the  rule  which  is  to  be  acted  upon  under  the  new 
law.     But   I   cannot  think  that   the  previous   words  referring  to  the 

">rart  of  the  statement  of  facts,  the  arguments  of  counsel,  and  the  concur- 
ring opinion  of  Ixix>es.  L.  J.,  are  omitted. 


8  SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP 

remedies  given  to  an  assignee  by  way  of  charge  were  inserted  with- 
out reason,  as  would  be  the  case  according  to  the  wide  construction 
of  the  subsection  contended  for  by  the  plaintiffs.  I  think  they  were 
inserted  as  an  instruction  with  regard  to  the  rule  to  be  acted  on  in 
ordinary  cases,  and  that  the  concluding  words  were  added  to  give  un- 
der special  circumstances  a  wider  jurisdiction  to  direct  accounts  than 
would  have  existed  in  the  case  of, an  assignee;  and  what  |he  special 
circumstances  so  contemplated  may  be  it  seems  to  me  unnecessary  for 
the  purposes  of  the  present  case  to  endeavor  to  define,  for,  when  I 
look  at  the  facts,  I  cannot  find  any  special  circumstances  whatever 
to  take  the  case  out  of  the  ordinai-y  rule  indicated  by  the  subsection. 
I  do  not  think  that  in  a  case  like  the  present  the  legislature  ever  in- 
tended tliat  an  account  should  be  directed  as  against  the  other  part- 
ners during  the  continuance  of  the  partnership.  I  therefore  agree 
with  my  brother  Lopes  that  this  appeal  should  be  allowed. 
Appeal  allowed. 


VILLAGE  OF  WESTBY  v.  BEKKEDAL  et  al. 
(Supreme  Court  of  Wisconsin,  1920.     172  Wis.  114,  178 'n.  W.  451.) 

Action  by  the  Village  of  Westby  against  M.  H.  Bekkedal  and  oth- 
ers.    Judgment  for  plaintiff  and  defendants  appeal. 

M.  H.  Bekkedal  &  Son  are  a  partnership  located  at  Westby,  Wis., 
engaged  in  the  business  of  buying,  storing,  handling,  and  shipping  of 
tobacco.  E.  Rosenwald  &  Bro.  are  a  partnership  ^having  its  principal 
office  and  place  of  business  in  the  city  of  New  York,  and  engaged  in 
the  selling,  handling,  and  merchandising  of  tobacco.  On  March  6, 
1917,  the  two  partnerships  entered  into  a  contract  by  the  terms  of 
which  the  Bekkedals  (party  of  the  second  part)  were  to  buy  tobacco 
of  1916  crop,  raised  in  the  state  of  Wisconsin,  in  joint  account  with 
the  party  of  the  first  part  (the  Rosenwalds),  and  attend  to  the  pack- 
ing and  handling  of  the  same.  The  Rosenwalds  agreed  to  attend  to 
the  marketing  of  the  tobacco  so  purchased  and  packed,  and  apply  all 
the  net  proceeds  pf  any  sales  made  to  the  credit  of  the  joint  account, 
as  kept  on  their  books. 

The  contract  contained  a  provision  as  to  the  manner  in  which  ad- 
vances were  to  be  made  by  each  of  the  parties  to  the  contract,  the 
Rosenwalds  to  advance  60  per  cent,  and  the  Bekkedals  40  per  cent. 
The  Rosenwalds  agreed  to  use  every  effort  to  dispose  of  the  tobacco 
to  the  best  advantage,  and  the  Bekkedals  agreed  to  give  their  sole  at- 
tention to  the  buying,  packing,  and  handling  of  the  joint  account  hold- 
ing. It  was  agreed  that  the  net  profits  or  net  losses  should  be  shared, 
60  per  cent,  to  the  Rosenwalds  and  40  per  cent,  to  the  Bekkedals. 
The  contract  required  that  the  name  of  E.  Rosenwald  &  Bro.  should 
show  distinctly  on  each  warehouse  used  for  the  packing  or  handling 
of  joint  account  tobacco.    While  the  contract  covered  the  crop  of  1916, 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  9 

it  was  to  continue  unless  terminated  by  three  months'  notice.  It  ap- 
peared without  disinite  that  under  the  contract  a  large  amount  of 
tobacco  was  bought  and  stored,  packed  and  prepared  for  shipment, 
and  sold  under  the  contract,  and  the  net  proceeds  for  the  year  1917 
was  the  sum  of  $345,296.11;  that  all  of  the  business  transactions  re- 
lating to  the  sale  and  marketing  of  said  tobacco  were  conducted,  maH- 
aged.  and  directed  by  the  Rosenwalds,  including  the  procuring  of 
purchasers,  collection  of  purchase  price,  the  shipping,  invoicing,  in- 
suring, and  the  fixing  of  prices,  without  participation  therein  by  the 
Bekkedals.  and  that  such  sales  were  made  to  purchasers  without  the 
state  of  \Visconsin ;  that  when  sales  were  made  the  tobacco  was  load- 
ed on  board  cars  by  the  Bekkedals  and  shipped  to  purchasers  direct- 
ly from  Westby  and  other  warehouses  located  in  Wisconsin,  upon 
order  of  the  Rosenwalds;  that  all  the  proceeds  of  the  sales  were  col- 
lected by  the  Rosenwalds  at  their  office  without  the  state  of  AViscon- 
sin,  and  that  at  the  ;;ime  the  proceeds  of  such  sales  were  received  no 
part  of  the  tobacco  sold  vl^as  located  within  the  state  of  Wisconsin. 

It  further  appeared  that  M.  H.  Bekkedal,  on  April  30,  1918,  ai 
the  request  of  the  income  tax  assessor,  and  without  the  actual  knowl- 
edge or  express  authority  of  the  Rosenwalds,  made,  signed,  and  filed, 
as  was  required  by  law,  a  joint  return  with  the  income  tax  assessor. 
and  that  upon  the  return  so  made  there  was  assessed  jointly  against 
the  partnerships  an  income  tax  for  the  year  1917  of  $20,352.76,  which 
amount  was  duly  certified  and  placed  upon  the  tax  roll  of  the  plain- 
't\fi  village  for  the  year  1918.  It  further  appears  that  on  May  1,  1918, 
there  was  assessed  and  levied  against  the  personal  property  belonging 
to  the  joint  accountants  a  tax  amounting  to  $8,657.39,  which  taxes 
were  afterward  paid;  that  out  of  the  amount  of  taxes  so  paid  the 
Rosenwalds  claim  the  right  to  offset  $5,194.44,  and  the  Bekkedals 
$3,462.95,  against  any  tax  which  the  court  might  find  and  determine 
in  this  action  is  justly  due  from  the  defendants;  that  the  Rosenwalds 
had  no  information  as  to  the  assessment  of  the  taxes  upon  the  return 
made  and  filed,  before  the  same  had  been  certified  by  the  county  clerk 
of  Vernon  county  to  the  clerk  of  the  village  of  Westby. 

The  case  was  tried  by  the  court,  and  the  court  found  upon  the  facts 
as  stated  that  the  contract  between  the  two  partnerships  amounted 
to  a  partnership  contract  creating  a  partnership,  that  the  income  de- 
rived from  the  business  of  the  joint  account  was  income  derived  from 
property  and  business  transacted  within  the  state  of  Wisconsin,  and 
that  the  defendants  made  no  appearance  before  the  county  board  of 
review  for  income  tax  assessment ;  allowed  an  offset  of  $8,657.29  per- 
sonal property  tax.  The  plaintift  had  judgment  for  the  remainder, 
from  which  judgment  the  defendants  appeal. 

RosKXPERRV,  J.  (after  stating  the  facts  as  above).®  The  principal 
contention  of  the  defendants  here  is  that  the  court  erred  in  holding 

6  Tarts  of  the  opinion  are  omitted. 


10  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

that  the  income  in  question  was  derived  from  property  located  or 
business  transacted  within  the  state  of  Wisconsin,  within  the  meaning 
of  the  income  tax  act.  It  is  further  contended  that  the  court  erred 
in  holding  that  the  contract  of  March  6,  1917,  entered  into  by  the 
partnerships,  created  a  partnership.     *     *     *  >^ 

On  the  part  of  the  defendants  it  is  argued  that  the  relationship  be- 
tween the  defendant  partnerships  was  that  of  a  joint  adventure  rath- 
er than  a  partnership,  and  this  argument  is  placed  upon  the  ground 
that,  although  there  is  admittedly  a  sharing  of  profits  and  losses,  and 
community  of  interest,  the  agreement  does  not  contemplate  that  each 
of  the  parties  shall  be  the  agent  for  the  other.  Jackson  v.  Hooper, 
76  X.  J.  Eq.  185,  74  Atl.  130;  Cocks  v.  Hickman,  8  H.  L.  Cas.  268. 
This  argument  is  based  upon  that  provision  of  the  contract  which 
provides  that  the  purchasing,  storing,  handling,  and  shipping  of  the 
tobacco  shall  be  exclusively  within  the  control  of  the  Bekkedals,  and 
that  the  sale  and  disposition  of  the  tobacco  shall  be  exclusively  in  the 
hands  of  the  Rosenwalds.  It  would  seem  to  require  no  argument  to 
show  that,  considering  the  business  as  a  whole,  the  Bekkedals  were 
to  act  as  agents  for  the  Rosenwalds  in  the  purchasing,  storing,  han- 
dling, and  shipping,  because  the  Rosenwalds  had  a  60  per  cent,  inter- 
est in  the  tobacco  when  purchased,  and  that  as  to  the  sales  the  Rosen- 
walds were  to  act  as  agents  of  the  Bekkedals,  the  Bekkedals  having 
a  40  per  cent,  interest  in  the  proceeds  of  the  sales  when  made.  We 
think  the  contract  in  question  created  a  partnership  as  defined  by  the 
Uniform  Partnership  Act  (St.  1919,  §§  1724m— 1  to  1724m— 38). 

Upon  the  other  branch  of  the  case  it  is  argued  that,  because  the 
sales  are  made  and  the  proceeds  collected  entirely  without  the  state 
of  Wisconsin,  all  of  the  income  of  the  partnership  is  derived  from 
business  transacted  without  the  state  of  Wisconsin,  and  therefore  not 
taxable  vmder  the  provisions  of  section  1087m2,  subd.  3,  which  pro- 
vides that  an  income  tax  "shall  be  assessed,  levied  and  collected  up- 
on all  income,  not  hereafter  exempted,  received  by  every  person  re- 
siding within  the  state,  and  by  every  nonresident  of  the  state,  upon 
such  incoine  as  is  derived  from  property  located  or  business  trans- 
acted within  the  state."  By  the  provisions  of  the  income  tax  law  the 
term  "income"  includes  "all  profits  derived  from  the  transaction  of 
business  or  from  the  sale  of  real  estate  or  other  capital  assets."  This 
statutory  definition  gives  to  the  word  "income"  its  ordinary  meaning 
as  used  in  everyday  language;  that  is,  that  income  is  a  profit  or  gain 
derived  from  capital  or  labor  or  from  both  combined.  State  v.  Ny- 
gaard,  163  Wis.  307,  158  N.  W.  87,  L.  R.  A.  1917E,  563!  Manifest- 
ly the  total  proceeds  of  the  sales  of  the.  tobacco  covered  by  the  con- 
tract in  question  were  not  profits,  hence  not  income.  In  order  to 
determine  what  the  profits  transacted  under  the  contract  were,  it  was 
necessary  to  deduct  from  the  gross  proceeds  of  the  sales  made  by  the 
Rosenwald.s  their  expenses,  and  cost  of  purchasing,  storing,  handling, 
and  shipping  the  tobacco  incurred  by  the   Bekkedals,  and  until   that 


STJPPLBMBNTAnY    LIST   OF   CASES   OX    PARTNERSHIP  11 

was  done  no  determination  could  be  made  as  to  what  was  and  what 
was  not  income,  whether  that  term  be  used  in  the  statutory  sense  or 
in  its  ordinary  business  significance.  The  sales  made  by  the  Rosen- 
walds  were  one  factor,  and  the  purchasinj^,  etc.,  by  the  Bekkedals 
were  the  other  factor,  the  combination  of  which  produced  the  profit. 
Mence  to  argue  that,  because  the  sales  were  entirely  without  the  state, 
all  of  the  income  was  derived  from  business  without  the  state,  when 
it  is  conceded  that  a  large  part  of  the  business  was  transacted  with- 
in the  state,  is  to  argue  from  a  false  premise.  The  partnership  had 
an  income,  at  least  a  part  of  which  was  derived  from  property  lo- 
cated or  business  transacted  within  the  state.  The  question  present- 
ed is,  Where  and  to  whom  was  such  income  properly  assessable?  Bv 
section  1987m22  the  situs  of  income  for  purposes  of  taxation  is  that 
of  its  recipient  if  the  recipient  be  a  resident,  and  if  the  recipient  be 
a  nonresident  then  the  tax  shall  be  assessed,  levied,  and  collected  in 
the  district  from  which  the  income  is  derived.  WHiere  does  the  part- 
nership created  by  the  contract  of  March  6,  1917,  reside?  It  is  un- 
disputed that  the  members  of  the  Bekkedal  firm  reside  in  the  state 
of  Wisconsin,  in  the  village  of  Westby,  and  that  the  members  of  the 
Rosenwald  firm  reside  in  the  state  of  New  York,  and  that  the  part- 
nership business  was  transacted  partly  in  the  state  of  Wisconsin. 

There  are  cases  which  hold  that  a  partnership  is  a  legal  entity  dis- 
tinct and  independent  of  the  persons  who  compose  it.  *  *  *  Un- 
der the  United  States  Bankruptcy  Act  of  1898  a  partnership  is  con- 
sidered as  a  separate  and  distinct  entity.  Tumlin  v.  Brvan,  165  Fed. 
166,  91  C.  C.  A.  200,  21  L.  R.  A.  (N.  S.)  960.  .  On  the  other  hand, 
under  the  diverse  citizenship  clause  of  the  Constitution  of  the  United 
States  a  partnership  is  held  for  the  purposes  of  that  clause  to  reside 
in  any  state  where  one  of  the  partners  resides;  that  is,  a  suit  begun 
in  the  state  in  which  one  of  the  partners  resides  cannot  be  remoyed 
on  the  ground  of  diverse  citizenship.  While  the  question  has  not  been 
directly  passed  upon,  the  reasoning  of  man\-  cases  before  this  court  is 
based  upon  the  theory  that  a  partnership  has  no  entity  distinct  and- 
apart  from  the  persons  who  compose  it.  The  partnership  in  question, 
therefore,  resided  equally  within  the  state  of  New  York  and  within 
the  state  of  Wisconsin. 

It  appears  without  dispute  that  40  ])cr  cent,  of  the  income  of  the 
partnershij)  belonged  to  the  l^ekkedals.  Under  the  construction  giv- 
en to  the  clause  "derived  from  business  transacted  and  property  locat- 
ed within  the  state"  in  U.  S.  Glue  Co.  v.  Town  of  Oak  Creek,  161 
Wis.  211,  153  N.  W^  241,  Ann.  Cas.  1918A,  421,  it  is  plain  that  that 
part  of  the  income  belonging  to  the  Bekkedals  was  taxable  within  this 
state;  it  being  derived  wholly  from  property  located  and  business 
transacted  within  the  state  and  transactions  embodying,  as  to  the  Bek- 
kedals, interstate  commerce. 

As  to  that  portion  of  the  income  apportioned  under  the  contract  to 
the  Rosenwalds,  it  is  income  derived  partly  from  property  and  busi- 


12  SUPPLEMENTARY   LIST   OF   CASES   ON    PARTNERSHIP 

ness  within  the  state  of  Wisconsin  and  partly  from  business  transact- 
ed without  the  state  of  Wisconsin,  and  it  should  therefore  have  been 
allocated.  U.  S.  Glue  Co.  v.  Town  of  Oak  Creek,  161  Wis.  211,  153 
N.  W.  241,  Ann.  Cas.  1918A,  421.  As  to  the  Rosenwalds,  that  por- 
tion of  the  income  belonging  to  them  must  be  treated  as  partly  earned 
from  business  transacted  for  them  by  an  agent ;  their  partner,  the 
Bekkedals.  residing  within  the  state  of  Wisconsin.     *     *     * 

Judgment  affirmed  as  modified. 

WiNSLOW,  C.  J.,  and  Kerwin,  J.,  took  no  part. 


WHARF  V.  WHARF  et  al. 
(Supreme  Court  of  Illiuois,  1922.     .306  111.  79.  in"  N.  E.  4-46.) 

Bill  by  Eugene  C.  Wharf  against  Edith  Stone  Wharf  and  others. 
From  an  adverse  decree,  complainant  appeals. 

Cartwright,  J.  In  March,  1911.  the  appellant.  Eugene  C.  Wharf, 
and  James  E.  Wharf,  his  father,  formed  a  partnership  for  the  purchase 
of  real  estate  to  be  improved  and  sold  for  their  mutual  profit.  They 
purchased  46.24  acres  of  land  on  Milwaukee  avenue,  in  Jefferson  Park, 
Chicago,  for  the  purpose  of  platting  it,  laying  it  out  in  lots,  blocks, 
streets,  and  alleys,  making  improvements,  and  constructing  dwelling 
houses  on  some  of  the  lots  and  making  sales.  They  laid  out  and  plat- 
ted the  land  in  a  subdivision  called  Sunnyside  addition  to  Jefferson 
Park.  Each  paid  in  money  aggregating  $36,018.57.  They  constructed 
a  number  of  dwelling  houses  and  made  improvements,  such  as  sewers, 
l^avements,  and  grading  of  streets,  employed  a  real  estate  firm  to  at- 
tend to  the  selling,  and  placed  the  property  on  the  market.  They 
sold  all  the  property  on  which  dwelling  houses  were  erected  on  the 
lots.  The  title  to  the  tract  was  taken  in  the  names  of  both  partners 
individually,  and  in  many  of  the  sales  the  full  purchase  price  was 
■paid  and  the  lots  were  conveyed  to  the  purchasers.  In  other  sales  a 
portion  of  the  purchase  price  was  paid  and  a  first  mortgage  was  taken 
to  secure  the  balance,  and  in  other  sales  second  mortgages  were  taken 
for  deferred  payments.  Most  of  the  sales  were  by  contract,  and  as 
they  matured  and  the  amount  required  was  paid  deeds  were  executed. 
The  money  received  from  sales  was  deposited  to  the  credit  of  the  firm 
in  a  bank  and  all  liabilities  were  paid  therefrom,  and  from  time  to 
time  there  was  an  equal  division  of  the  accumulated  funds.  James 
E.  Wharf,  who  lived  at  Olney,  in  Richland  county,  died  intestate  on 
October  25,  1921,  leaving  Edith  Stone  Wharf,  his  widow,  Eugene  C. 
Wharf,  the  appellant,  Alison  J.  Wharf,  Pauline  Rexroat,  Nana  King, 
and  Edna  Kaufman,  his  children,  and  Jane  Wharf,  an  adopted  minor, 
his  heirs  at  law. 

The  appellant  filed  his  bill  in  equity  in  the  circuit  court  of  Richland 
county,  in  which  he  alleged  these  facts,  and  also  that  at  the  time  of  the 


SUPPLEMENTAKY    LIST   OF   CASES   ON    PARTNERSHIP  13 

death  of  Wharf  the  partnership  had  on  hand  unpaid  first  mortgages 
amcmnting  to  $11,900,  second  mortgages  amounting  to  $16,615  and 
unpaid  contracts  of  sales  of  lots  amounting  to  $20,843.44;  that  there 
were  58  lots  which  had  not  been  disposed  of  and  would  not  be  needed 
for  the  settlement  of  the  partnership;  that  the  estate  of  Wharf  was 
being  administered  in  the  county  c(jurt  of  Richland  county  by  Edith 
and  Alison  J.  W' harf  as  administrators ;  that  the  appellant  was  admin- 
istering the  partnership  estate  for  the  pur[)ose  of  winding  up  its  af- 
fairs, and  had  collected  the  amounts  that  had  come  due  on  mortgages 
and  contracts  of  sale,  paid  the  debts  accruing,  and  divided  between 
himself  and  the  administrators  the  balance;  that  since  the  death  of 
Wharf  two  contracts  for  the  purchase  of  lots  had  been  com[jlied  with, 
and  he  had  executed  in  the  iirm  name,  as  surviving  partner,  and  de- 
livered, deeds  of  conveyance,  but  in  each  case  before  a  guaranty  policy 
could  be  secured  he  was  re(|uired  to  give  a  bond  to  hold  the  insurer 
harmless  in  case  it  was  held  that  he  had  no  power  to  convey  a  valid 
title,  and  that  holders  of  contracts  would  be  entitled  to  deeds  of  con- 
veyance on  complying  with  the  terms,  of  their  contracts  and  mort- 
gagors would  be  entitled  to  deeds  of  release. 

The  prayer  of  the  bill  was  that  it  should  be  decreed  that  the  appel- 
lant was  vested,  as  surviving  partner,  with  an  undivided  half  of  the 
58  lots  unsold,  free  from  all  dower  rights,  and  the  remaining  undi- 
vided half  vested  in  the  heirs  at  law  of  James  E.  Wharf  according 
to  the  laws  of  descent  of  intestate  property;  that  the  appellant  should 
be  authcirizedto  carry  out  .and  complete  the  contracts  of  sale,  to  exe- 
cute deeds  as  the  purchasers  might  become  entitled  thereto,  conveying 
all  the  legal  and  equitable  title  of  the  partnership  in  fee  simple  free  of 
all  dower  rights,  and  to  release  mortgages  as  the  debts  secured  there- 
by should  be  paid. 

Edith'  Stone  A\'harf ,  appearing  by  different  attorneys,  filed  two  de- 
murrers, one  in  her  own  right  and  another  as  administratrix.  The 
guardian  ad  litem  of  the  minor,  Jane  Wharf,  filed  a  demurrer,  and 
the  other  defendants  were  defaulted.  The  court  sustained  the  demur- 
rers, and,  the  appellant  having  elected  to  stand  by  his  bill,  it  was  dis- 
missed at  his  costs,  and  he  appealed. 

The  appellee  Edith  Stone  W'harf  appears  in  tliis  court  in  her  dif- 
ferent capacities  as  administratrix  and  in  her  own  right,  and  is  rep- 
resented by  different  counsel,  who  have  filed  sei)arate  briefs  and  ar- 
giunents,  and  the  guardian  ad  litem  of  Jane  Wharf  has  adopted  the 
brief  and  argument  filed  by  the  widow  in  her  own  right. 

The  questions  concerning  which  the  parties  are  divided  are  whether 
the  58  lots  remaining  and  not  needed  for  the  settlement  of  the  part- 
nership have  passed  as  real  estate  to  the  heirs  at  law  or  as  personal 
property,  and  whether  the  bill  stated  any  ground  of  equitable  jurisdic- 
tion. The  partnership  was  formed  to  deal  in  real  estate  for  profit,  and 
the  same  rules  of  law  apply  as  in  other  partnerships  where  real  estate 
is  the  subject-matter  of  a  partnership  business.     In  such  cases,  in  the 


14  SUPPLEMENTAUY    LIST   OF   CASES   ON    rARTNERSIIir 

absence  of  any  different  agreement,  the  real  estate  is  regarded  as 
personal  property  in  order  to  effectuate  the  partnership  business  and 
the  settlement  of  partnership  affairs. 

The  English  rule,  estabhshed  first  by  judicial  decision  and  more 
recently  by  statute,  is  that  real  estate  is  regarded  as  converted  into 
personalty  for  all  purposes,  including  not  only  the  partnership  busi- 
ness and  the  settlement  of  the  partnership  affairs,  but  also  the  suc- 
cession as  between  the  personal  representatives  of  a  deceased  partner 
and  the  heir  at  law.  The  rule  of  nearly  all  courts  in  the  United  States 
is  that  real  estate  is  to  be  regarded  as  personal  property  only  for  the 
business  of  the  partnership  and  the  settlement  of  its  affairs,  and,  when 
no  longer  needed  for  that  purpose,  the  ordinary  incidents  and  quality 
of  real  estate  revive  and  the  property  goes  according  to  the  statute 
of  descent.  This  is  a  doctrine  of  reconversion  of  real  estate  to  its 
original  character,  or,  rather,  that  the  conversion  to  personalty  is  for 
a  temporary  purpose  only,  and  when  the  object  ceases  the  supposed 
conversion  ends. 

This  court  has  followed  those  rules  and  held  that  during  the  exist- 
ence of  the  partnership,  and  until  the  partnership  affairs  are  settled, 
the  debts  paid  and  all  accounts  between  the  partners  adjusted,  the 
real  estate  stands  on  the  same  footing  as  personal  property  and  is  not 
subject  to  dower  or  homestead.  loopp  v.  Fox, '63  111.  540;  Simpson 
V.  Leech,  86  111.  286:  Trowbridge  v.  Cross,  117  111.  109,  7  N.  E.  347; 
Parish  v.  Bainum,  291  111.  374,  126  N.  E.  129.  But  the  law  has  also 
been  that  the  doctrine  of  survivorship  in  respect  to  estates  in  partner- 
ship' in  real  property  was  limited  to  the  extent  to  which  equity  stamps 
the  character  of  personalty  upon  such  estates,  which  was  as  far,  and 
no  farther,  than  they  were  required  to  pay  partnership  debts,  and 
whatever  remained  of  partnership  real  estate  after  the  debts  of  the 
partnership  had  been  discharged  was  held  as  tenants  in  common,  sub- 
ject to  dower  or  curtesy,  and  went  to  the  heirs  of  a  deceased  part- 
ner. Strong  V.  Lord,  107  111.  25;  Galbraith  v.  Tracy,  153  111.  54,  38 
N.  E.  937,  28  L.  R.  A.  129,  46  Am.  St.  Rep.  867. 

That  being  the  state  of  the  law.  the  Legislature  in  1917  passed  an  act 
entitled  "An  act  relating  to  partnerships  and  to  promote  uniformity 
in  the  law  with  reference  thereto."  Laws  of  1917,  p.  625.  The  act 
covered  a  large  scope  and  contained  seven  parts,  covering  the  nature 
of  partnership,  the  relation  of  partners  to  persons  dealing  with  the 
partnership,  the  relation  of  partners  to  one  another,  the  property 
rights  of  partners,  and  the  dissolution  and  winding  up  of  partnerships. 
The  act  made  material  changes  in  the  law  of  this  state  relating  to  part- 
nerships, and  it  became  a  law  without  the  approval  of  the  Governor. 
It  purports  to  be  a  complete  code  declaring  the  law  as  to  all  these  sub- 
iects  and  makes  material  changes  in  the  law  of  this  state  relating  to 
partnership,  but,  whatever  its  mtrinsic  merits  or  demerits,  it  repre- 
sents the  judgment  of  the  Legislature  as  to  the  law  of  partnership. 


.SIJI•I•Lr•:^lKNTAUY    list    of    cases    on    PAUTNKUSIIII'  li) 

Related  in  some  way  to  tlie  question  here  involvcii,  it  contains  the  fol- 
lowing provisions: 

In  part  2,  para'graph  3  of  section  8  is  as  follows: 

"(3)  Any  estate  in  real  property  may  be  acquired  in  the  partnership 
name.    Title  so  acquired  can  be  conveyed  only  in  the  partnership  name." 

In  part  3,  paragraphs  4  and  5  of  section  10  are  as  follows: 

"(4)  Where  the  title  to  real  property  is  in  the  name  of  one  or  more 
or  all  the  partners,  or  in  a  third  person  in  trust  for  the  partnership,  a 
conveyance  executed  l)y  a  ])artner  in  the  partnership  name,  or  in  his 
own  name,  pas.ses  the  ecjuitable  interest  of  the  partnership,  provided 
the  act  is  one  within  the  authority  of  the  partner  under  the  provisions 
of  paragraph  (1)  of  section  9. 

"(5)  Where  the  title  to  real  pro[;erty  is  in  the  names  of  all  the  part- 
ners a  conveyance  executed  by  all  the  partners  passes  all  their  rights 
in  such  property." 

In  part  5,  clauses  (d)  and  (e)  of  paragrajjh  2  of  section  2.^  and 
section  26,  are  as  follows: 

"(d)  On  the  death  of  a  partner  his  right  in  specific  partnership  prop- 
erty vests  in  the  surviving  partner  or  partners,  except  where  the  de- 
ceased was  the  last  surviving  partner,  when  his  right  in  such  property 
\ests  in  his  legal  representative.  Such  surviving  partner  or  partners, 
or  the  legal  representative  of  the  last  surviving  partner,  has  no  right 
to  possess  the  partnership  property  for  any  but  a  partnership  purpose. 

"(e)  A  partner's  right  in  speciik  partnership  property  is  not  subject 
to  dower,  curtesy,  or  allowances  to  widows,  heirs,  or  next  of  kin." 

"Sec.  26.  A  partner's  interest  in  the  partnership  is  his  share  of  the 
profits  and  surplus,  and  the  same  is  personal  property." 

In  part  6,  section  31  declares  a  dissolution  is  caused  "(4)  by  the 
death  of  any  partner." 

Paragraph  1  of  section  SS^  contains  the  following : 

"(1)  When  dissolution  is  caused  in  any  way,  except  in  contraven- 
t'um  of  the  partnership  agreement,  each  partner,  as  against  his  copart- 
ners and  all  persons  claiming  through  them  in  respect  of  their  interests 
in  the  partnership,  unless  otherwise  agreed,  may  have  the  partner- 
ship property  applied  to  discharge  its  liabilities,  and  the  surplus  ap- 
plied to  pay  in  cash  the  net  amount  owing  to  the  respective  partners." 

The  provisions  that  any  estate  in  real  property  may  be  acquired  in 
the  partnership  name  and  title  so  acquired  can  be  conveyed  only  in 
the  partnership  name,  and  that,  where  the  title  to  real  property  is  in 
the  names  of  the  partners,  the  conveyance  by  one  partner  passes  the 
equitable  interest  of  the  partnership,  have  no  relation  to  the  facts  in 
this  case,  and  are  only  worthy  of  consideration  so  far,  if  at  all,  as 
they  indicate  the  nature  of  the  property.  The  title  in  this  case  was  not 
acquired  in  the  partnership  name,  but  was  in  the  names  of  the  partners, 
and  the  provision  in  such  a  case  that  a  deed  by  one  passes  the  equitable 
title  to  the  whole  indicates  a  legal  title  in  the  individual  partners,  and 
in    case    of    a    conveyance  by  one  the  other  partner,  through  the  equity, 


16*  SUPPLEMEXTxVRY    LIST   OF   CASES   OX   PARTNERSHIP 

AVGuld  be  compelled  to  convey  his  legal  title.  The  provision  that  part- 
nership land  shall  not  be  subject  to  dower,  curtesy,  and  allowances  to 
heirs  necessarily  applies  to  the  property  of  a  partner  after  his  death. 
The  provision  that  on  the  death  of  a  partner  his  right  in  specific  part- 
nership property  vests  in  the  surviving  partner  or  partners,  except 
when  the  deceased  was  the  last  surviving  partner,  when  his  right 
vests  in  his  legal  representative,  leads  to  a  conclusion  that  real  prop- 
erty passes  on  the  death  of  a  partner  as  personalty,  since  the  legal 
representative  would  take  it  as  such.  The  qualification  that  the  legal 
representative  has  no  right  to  possess  the  partnership  property  for  any 
but  a  partnership  purpose  applies  to  the  \yinding  up  of  the  partner- 
ship business.  The  provision  that  a  partner's  interest  in  the  partnership 
is  his  share  of  the  profits  and  surplus,  and  the  same  is  personal  prop- 
erty, and  that,  when  dissolution  is  caused  by  death,  each  partner,  as 
against  his  copartner  and  all  persons  claiming  through  them,  in  re- 
spect to  their  interest  in  the  partnership,  unless  otherwise  agreed,  may 
have  the  partnership  property  applied  to  discharge  its  liabilities  and 
the  surplus  applied  to  pay  in  cash  the  net  amount  owing  to  the  respec- 
tive partners,  is  inconsistent  with  the  doctrine  heretofore  held  that 
upon  the  settlement  of  the  partnership  affairs  real  estate  resumes  its 
original  character  and  descends  to  heirs.  It  seems  that  the  legisla- 
tive intention  was  to  adopt  the  English  rule  that  real  estate  which  be- 
comes personal  property  for  the  purposes  of  a  partnership  remains 
personal  property  for  the  purpose  of  distribution. 

There  is  no  dispute  of  the  proposition  that  the  appellant,  as  sur- 
viving partner,  is  authorized  and  required  to  wind  up  the  partnership 
business,  and  the  statute  changes  the  rule  that  the  doctrine  of  surviv- 
orship in  respect,  to  estates  in  partnership  in  real  property  is  limited 
to  the  extent  to  w^hich  such  proper^  is  given  the  character  of  person- 
alty for  the  purposes  of  the  partnership  and  to  pay  partnership  liabil- 
ities. The  title  of  his  partner  in  the  specific  partnership  property 
having  vested  in  him,  appellant  has  a  right  to  convey  to  purchasers,  re- 
lease mortgages,  sell  and  convey  the  property,  and  distribute  the  pro- 
ceeds. That  being  so,  the  bill  states  no  ground  of  equitable  jurisdic- 
tion, but  the  settlement  and  accounting  are  to  be  in  the  county  court. 
While  the  jurisdiction  of  that  court  is  not  exclusive  in 'the  settlement  of 
partnership  estates  CBreckenridge  v.  Ostrom,  79  111.  71),  a  court  of 
equity  will  only  interfere  when  there  is  some  equitable  ground  for 
such  interference. 

The  decree  is  affirmed. 

Decree  affirmed. 

Stone,  J.,  dissenting. 


SUPPLEMENTARY   LIST  OF   CASES  OX   PAUTXERSHIP  17 

GROSSMAN  V.  GIBNEY. 
(Supreme  Court  of  Wisconsin,  1910.    1G4  Wis.  305,  160  X.  W.  172.) 

Action  by  Wilbur  Grossman  against  Nelson  Gibney.  From  judg- 
ment for  defendant,  plaintiff  appeals. 

This  is  an  action  in  ejectment  brought  by  the  plaintiff  to  oust  the 
defendant  from  possession  of  certain  farm  lands.  The  plaintiff  owns 
a  farm  in  Vernon  county.  On  January  5,  1915,  he  entered  into  a  part- 
nership agreement  in  writing  with  the  defendant  by  the  terms  of  which 
the  defendant  was  to  occupy  the  farm  and  operate  it  to  conduct  the 
partnership  business  pursuant  to  this  agreement.  For  this  purpose  the 
plaintiff  was  also  to  furnish  the  seed  and  a  part  of  the  slock,  and  the 
defendant  agreed  to  do  the  necessary  work  and  to  furnish  a  part  of 
the  stock.  The  agreement  provides  "that  the  losses  and  profits  shall  be 
equally  borne  by  the  parties" ;  that  they  shall  be  deemed  in  possession 
of  the  crops  as  partners  and  entitled  to  the  rights  and  subject,  in  re- 
spect to  the  business,  to  the  liabilities  of  partners.  The  contract  fur- 
ther provides  that  it  shall  continue  for  a  term  of  three  years  from 
February  1,  1915,  and  that  an  accounting  shall  be  made  on  the  1st  day 
of  February  of  each  year,  and  that  defendant's  occupancy  of  the  farm 
shall  be  deemed  the  possession  of  both  parties.  It  contains  provisions 
relative  to  the  payment  of  the  expense  of  threshing,  harvesting,  and 
as  to  the  amount  of  land  to  be  plowed,  and  others  which  need  not  be 
repeated  here. 

On  December  31,  1915,  plaintiff  served  on  defendant  a  notice  in 
writing  terminating  the  agreement.  The  plaintift''s  agent  and  the  de- 
fendant on  about  February  1,  1916,  adjusted  the  claims  of  the  par- 
ties and  settled  all  of  the  accounts  up  to  that  day  except  the  division 
of  some  young  stock.  On  March  8th,  1916,  a  formal  demand  in  writ- 
ing was  served  on  the  defendant  by  plaintiff'  requiring  defendant  to 
deliver  the  premises  to  plainjtift".  The  defendant  refused  to  deliver 
the  possession  of  the  farm  to  plaintiff,  and  ttiis  action  of  ejectment 
was  commenced  soon  thereafter. 

The  trial  court  held  that  the  parties  to  the  action  were  partners  for  the 
purposes,  of  the  business  embraced  in  their  written  agreement,  but  the 
plaintiff'  was  not  entitled  to  prosecute  this  action  in  ejectment  until  an 
accounting  and  settlement  of  the  partnership  affairs  had  been  had. 
including  a  determination  of  what  damages  defendant  sustained  as  the 
result  of  plaintift"'s  breach  of  the  partnership  agreement,  and  hence 
awarded  judgment  dismissing  plaintiff"s  complaint.  From  such  judg- 
ment, this  appeal  is  taken. 

SiERECKER,  J.  (after  stating  the  facts  as  above).     There  is  no  dis- 
pute regarding  the  facts  as  stated  above,  and  the  only  inquiry  is  wheth- 
er the  plaintiff'  under  these  facts  and  circumstances  is  entitled  to  re- 
cover possession  of  his  farm  from  the  date  the  partnership  agreement 
Si'pp.Gil.Part.— 2 


18  SUPPLEMENTARY   LIST   OF   CASES   ON    PARTNERSHIP 

was  terminated,  on  February  1,  1916,  by  the  written  notice  of  plain- 
tiff of  December  31,  1915.  The  ri'^hts  of  the  parties  are  controlled  by 
the  law  governing  partnership  affairs  as  declared  in  the  "Uniform 
Partnership  Act"  (section  1724ml  to  section  1724m38,  Stats.  1915). 
Section  1724m26,  subd.  (2)  provides  that  a  partnership  dissolution  is 
caused  "in  contravention  of  the  agreement  between  the  partners,  where 
the  circumstances  do  not  permit  a  dissolution  under  any  other  provi- 
sion of  this  section,  by  the  express  will  of  any  partner  at  any  time." 

The  only  facts  in  the  case  operating  to  show  a  dissolution  of  the 
partnership  is  the  action  of  the  plaintiff  by  his  written  notice  of  De- 
cember 31,  1915,  declaring  the  partnership  agreement  terminated  as  of 
February  1,  1916.  This,  under  the  circumstances,  constituted  a  dis- 
solution of  the  partnership  by  the  plaintiff  in  contravention  of  the 
agreement.  It  is  not  seriously  contested  but  what  plaintiff  could  in 
law  do  this,  and  thereby  render  himself  liable  for  the  damages  he 
caused  the  defendant  as  the  other  member  of  the  partnership.  Under 
this  state  of  affairs  the  partnership  was  terminated  unless  defendant, 
pursuant  to  the  provision  of  section  1724m33,  continued  the  business  in 
the  same  name  upon  the  conditions  prescribed  therein  by  subdivision 
(2),  "when  dissolution  is  caused  in  contravention  of  the  partnership 
agreement.  *  *  *  "  The  condition  prescribed  by  this  statute  to 
enable  defendant  to  continue  the  business  of  the  partnership  for  the 
specified  term  requires  that  he  apply  the  partnership  property  to  the 
payment  of  plaintiff's  interest  therein,  less  the  amount  of  damages 
plaintiff's  termination  of  the  partnership  caused  defendant,  or  to  secure 
by  bond  the  payment  of  the  value  of  plaintiff's  interest,  less  the  dam- 
ages which  plaintiff  caused  defendant  by  terminating  the  partnership 
agreement.  There  is  no  showing  that  defendant  has  done  either  of 
these  things  or  in  any  manner  coniplied  with  the  law  to  entitle  him  to 
continue  the  partnership  business  after  the  termination  of  the  agree- 
ment on  February  1,  1916. 

It  is  manifest  that  the  partnership  is  terminated,  and  that  the  de- 
fendant has  no  right  "to  continue -the  partnership  business.  Under 
these  circumstances  he  has  no  right  to  remain  in  possession  of  the 
farm  under  the  partnership  arrangements.  The  farm  was  at  no  time 
a  partnership  asset,  and  the  right  to  occupy  it  for  carrying  on  the 
partnership  busmess  ceased  at  the  time  the  partnership  was  terminated, 
namely,  February  1,  1916.  Under  this  state  of  the  case  defendant  had 
no  legal  right  to  withhold  possession  thereof  from  the  plaintiff.  It  is 
no  answer  to  say  that  because  no  partnership  accounting  has  been  had 
the  plaintiff  is  not  entitled  to  the  possession  of  his  farm.  Defendant's 
right  to  the  possession  thereof  ceased  on  February  1,  1916,  unless  he 
complied  with  section  1724m33  for  continuance  of  the  business.  This 
he  has  failed  to  do.  His  right  to  an  accounting  of  the  partnership 
affairs  does  not  vest  in  him  the  right  to  continue  in  possession  of  the 
farm  after  the  partnership  ceased.  The  defendant's  right  to  an  ac- 
counting, including  his  claim  for  damages  against  plaintiff  for  disso- 


SUPPLEMENTARY    LJST   OF   CASES   ON    PARTNEUSUIP  19 

lution  of  the  partnership  in  contravention  of  the  agreement,  and  to 
have  the  partnership  property  apphed  in  payment  of  his  claim,  includ- 
ing damages,  does  not  include  the  right  to  occupy  the  farm  under  the 
terms  of  the  partnership  agreement.  The  necessary  consequence  is 
that  defendant  unlawfully  withholds  the  farm  from  plaintiff,  thai 
plafntilT  is  entitled  to  the  possession  thereof,  and  hence  he  is  entitled 
to  judgment  awarding  him  possession  of  the  farm  and  his  damages  for 
the  unlawful  disi)Ossession  by  the  defendant. 

The  judgment  appealed  from  is  reversed,  and  the  cau^e  remanded, 
with  direction  that  judgment  he  awarded  in  plaintiff's  favor  as  indi- 
cated in  the  foregoing  opinion. 


20  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 


GILES  et  al.  V..VETTE  ct  al. 

(Supreme  Court  of  tho  VuUihI  States,  1924.     2G3  U.  S.  553,  44  Sup.  Ct.  157, 

US  L.  Ed.  .) 

Bankruptcy  proceeding  against  Marcuse  &  Co.,  alleged  bankrupts, 
on  petition  of  C.  B.  Giles  and  others.  An  order  finding  that  Henry 
Vette  and  others  were  general  partners  of  the  firm  was  revised  by 
the  Circuit  Court  of  Appeals  (Vette  v.  Giles,  281  Fed.  928),  and  the 
petitioning  creditors  bring  certiorari.  Decree  of  Circuit  Court  of  Ap- 
peals affirmed. 

Mr.  Justice  BuTi.ER  delivered  the  opinion  of  the  Court. 

Oh  jNIarch  11  and  12,  1920,  creditors  filed  petitions  in  bankruptcy 
against  Marcuse  &  Co.,  and  a  receiver  was  appointed.  The  bank- 
ruptcy court  found  that  the  firm  was  composed  of  Marcuse,  Morris, 
Hecht,  Finn,  Vette,  Zuncker,  R^gensteiner,  Clement  Studebaker,  Jr., 
and  George  M.  Studebaker,  and  sent  the  case  to  the  referee,  directing 
findings  of  fact  as  to  insolvency.  The  case  was  taken  to  the  Circuit 
Court  of  Appeals  on  petition  to  review  and  revise  that  finding  and 
order.  That  court  eliminated  from  the  order  the  names  of  all  except 
Marcuse  and  Morris.  Vette  v.  Giles,  281  Fed.  928.  This  court 
granted  a  writ  of  certiorari  on  petition  of  creditors,  260  U.  S.  712,  43 

Sup.  Ct.  14,  67  L.  Ed. .    The  question  for  decision  is  whether  any 

of  the  persons  named,  other  than  Marcuse  and  Morris,  are  liable  as 
general  partners. 

Marcuse  had  been  a  member,  and  Morris  had  been  an  employee, 
of  the  firm  of  Von  Frantzius  &  Co.,  brokers,  at  Chicago,  which  sus- 
pended business  because  of  the  death  of  Von  Frantzius.  In  April, 
1917,  settlement  of  the  estate  of  Von  Frantzius  was  pending  in  pro- 
bate court.  Proceedings  in  bankruptcy  were  pending  against  Von 
Frantzius  &  Co.  There  were  many  creditors  of  the  firm,  and  it  was 
indebted  in  large  amounts  to  the  respondents  other  than  Vette  and 
Zuncker.  Marcuse  desired  to  organize  a  new  brokerage  firm  to  carry 
on  business  in  the  place  formerly  occupied  by  his  old  firm.  It  was  pro- 
posed that  a  limited  partnership  be  formed  under  the  Illinois  Limited 
Partnership  Act  of  1874  (Rev.  St.  1874,  c.  84,  §§  1-23),  and  to  that 
end  a  form  of  agreement  was  prepared,  and  nine  originals  were  signed 
by  Marcuse,  Morris,'  Hecht,  Finn,  Vette,  Zuncker,  Regensteiner,  and 
HofTman  (in  his  own  name,  but  in  fact  representing  the  Studebaker 
interest). 

In  advance  of  the  consummation  of  this  agreement,  Marcuse  was 
to  arrange  with  creditors  of  the  firm  that  the  assets  of  the  Von  Frant- 
zius estate  be  turned  over  to  him,  as  trustee,  on  his  giving  bond  and 
making'  certain  payments  for  the  protection  of  the  administrators.  Pie 
was  to  obtain  assignments  of  the  claims  of  creditors,  in  consideration 
of  trust  certificates  issued  by  him  containing  his  agreement  to  pay  off 
the  creditors  who  did  not  accept  such  certificates,  to  organize  a  new 


SUPPLKMf:N'TAUY    LIST   OF   CASliS   ON    PAUTNintSH  I P  21 

partnership,  to  turn  over  the  assets  to  the  new  firm  for  Hquidation  in 
the  usual  course  of  its  business  for  account  of  the  certificate  holders, 
and,  out  of  profits  accruing  to  him  as  a  member  of  the  new  firm,  to 
pay  any  deficiency  remaining  after  liquidation  of  the  assets.  This 
arrangement  had  not  been  completed  at  the  time  of  the  signing  of  the 
I)artnershi])  agreement.  The  signed  agreements  were  placed  in  escrow, 
not  to  be  delivered  until  conclusion  of  arrangements  for  the  delivery 
to  Marcuse  of  all  the  assets  of  Von  Frantzius,  excepting  an  auKjunt 
to  indenmify  against  claims  of  nonassenting  creditors,  and  to  pay 
the  expenses  of  administration,  and  until  dismissal  of  the  bankrupt- 
cy proceedings. 

The  proposed  agreement  provided  for  a  limited  copartnership  un- 
der the  name  of  Marcuse  &  Co.,  to  commence  business  on  April  2, 
1917,  and  to  continue  for  five  years.  Marcuse  and  Morris  were  to 
be  general  partners.  The  other  signers  were  to  be  limited  partners. 
Marcuse  was  to  contribute  a  membership  in  the  New  York  Stock 
EKchange.  in  addition  to  cash  and  other  property.  Morris  was  to 
contribute  $10,000.  Contributions  were  to  be  made  by  the  limited 
partners  as  follows:  Hecht  $25,000.  Finn  $31,500,  Vette  $30,000. 
Zuncker  $25,000,  Regensteiner  $28,500.  and  Hoffman  (in  fact  the 
Studebaker  interest)  $50,000— amounting  in  all  to  $190,000.  The 
general  partners  were  to  devote  all  their  time  to  the  business  and 
were  permitted  to  draw  specified  sums  each  year  to  be  charged  to  ex- 
penses. Each  partner,  general  and  limited,  was  to  have  6  per  cent. 
on  capital  contributed  by  him.  Morris  was  to  have  10  per  cent,  of  the 
net  profits.  There  was  to  be  paid  to  Marcuse  25  per  cent,  of  the  net 
profits,  to  be  used  by  him  to  pay  ofif  his  trust  certificates  covering  the 
debts  of  Von  Frantzius  &  Co.  The  rest  was  to  be  divided  among 
the  partners,  except  Morris,  in  the  proportions  in  which  they  had 
contributed  capital. 

Shortly  after  the  deposit  in  escrow,  IMarcuse  learned  that  the  New 
York  Stock  Exchange  would  not  admit  to  membership  a  firm  having 
more  than  two  limited  partners,  but  would  not  object  to  a  firm  having 
only  two  limited  partners,  who  were  not  engaged  in  other  business. 
This  was  reported  to  the  others,  and  the  matter  of  consummating  the 
proposed  partnership  agreement  was  dropped. 

But  Marcuse  did  not  abandon  the  idea  of  organizing  a  new  firm. 
and,  after  conferences  and  lapse  of  some  time,  another  limited  part- 
nership agreement  for  a  firm  of  the  same  name  was  prepared  con- 
formably to  the  act  of  1874.  Marcuse,  Morris,  Hecht,  and  Finn  were 
the  ]iarties  to  the  new  agreement.  It  was  dated — as  was  the  former — 
April  2,  1917,  and  was  signed  June  30  of  that  year.  Marcuse  and 
]\Iorris  were  general  partners  and  agreed  to  contribute  capital  as  in 
the  proposed  former  agreement.  Hecht  and  Finn  were  named  as 
limited  partners,  and  each  agreed  to  contribute  $95,000.  The  liabili- 
ty of  each  was  expressly  limited  to  the  amount  contributed  by  him. 
The  term  was  five  years  from  July  1,  1917.'    Rights,  duties,  and  im- 


22  SUPrLEMEXTARY    LIST   OF   CASES   ON   PARTNERSHIP 

munities   of   the   general   and   limited    partners   were    substantially   as 
stated  in  the  first  draft. 

On  the  same  day,  and  as  a  part  of  the  same  transaction,  there  was 
signed  an  instrument  known  as  the  Ilecht-Finn  trust  agreement.  The 
limited  partnership  agreement  was  made  a  part  of  it,  and  a  copy  was 
attached.  It  recited  that  Hecht  and  Finn  would  be  entitled  to  certain 
payments  an^  distributions  of  income  and  assets  of  the  copartnership, 
and  declared  that  they  held  the  same  as  trustees.  The  agreement  di- 
rected payment  to  the  Chicago  Title  &  Trust  Company  of  all.  funds 
at  any  time  payable  to  Hecht  and  Finn  under  the  partnership  agree- 
ment, or  by  way  of  distribution  or  dissolution.  It  directed  the  trust 
company  to  distribute  all  funds  to  the  holders  of  certain  trust  certifi- 
cates for  380  shares  of  the  initial  value  of  $500  per  share  to  be  is- 
sued by  Hecht  and  Finn,  in  accordance  with  the  agreement,  as  fol- 
lows :  To  Hecht  50  shares,  Finn  63  shares,  Vette  60  shares,  Zuncker 
50  shares,  Regensteiner  57  shares,  and  Hoffnian  (for  the  Studebaker 
interest)  100  shares.  Certificate  holders  were  entitled  to  have  access 
to  the  books,  to  have  an  inventory  and  account  once  a  year,  and  a  trial 
balance  monthly.  Hecht  and  Finn  were  to  appoint  such  auditors  as 
the  holders  of  certificates  should  designate.  On  the  report  of  the  au~ 
ditors  and  the  direction  of  the  certificate  holders,  they  were  authorized 
to  take  steps  to  dissolve  the  firm,  if  the  business  was  not  conducted 
conservatively  or  was  neglected  or  mismanaged.  It  was  provided  that 
the  certificate  holders  should  "have  no  right,  title  or  interest,  direc- 
tory, proprietary  or  otherwise,  in  the  said  copartnership  or  in  or  to 
the  property  or  assets  of  said  copartnership,  *  *  *  "  and  that 
"the  interest  of  each  *  *  "  holder  of  trust  certificates  shall  con- 
sist solely  of  the  right  to  receive  from  the  trust  company  his  propor- 
tionate share  of  the  net  part  or  parts  of  the  trust  fund  from  time  to 
time  actually  received  by  the  trust  company.  *  *  *  "  This  agree- 
ment was  signed  by  Hecht  and  Finn ;  there  was  attached  to  it  an 
agreement  signed  by  Marctise,  Morris,  Hecht,  and  Finn  to  do  all 
things  necessary  to  carry  out  the  trust,  and  the  trust  company  accept- 
ed the  duties  imposed  upon  it. 

On  the  same  day — June  30,  1917 — Hecht  delivered  his  check  to 
Marcuse  &  Co.  for  $25,000  and  Finn  his  check  for  $31,500,  and  checks 
were  delivered  to  Hecht  and  Finn  by  Vette  for  $30,000,  by  Zuncker 
for  $25,000,  by  Regensteiner  for  $28,500,  and  by  Hoffman  (for  the 
Studebaker  interest)  for  $50,000.  These  checks  were  handed  over 
to  Marcuse  &  Co.,  making  up  a  total  of  $190,000. 

On  Monday,  July  2,  the  certificate  of  limited  partnership  was  filed 
in  the  office  of  the  county  clerk.  The  new  firm  commenced  business 
on  that  day.  All  the  letter  heads  and  other  papers  of  the  firm  indi- 
cated that  Marcuse  and  Morris  were  general  partners  and  that  Hecht 
and  Finn  were  limited  partners.  Hecht  and  Finn  took  no  part  in  the 
control  of  the  business.  Marcuse  and  Morris  exercised  exclusive  con- 
trol and   carried   on  the  business.     The   Hecht-Finn   trust  agreement 


ST:PPLKMi;.\TAriY    LIST   OF    CASKS    ON    PARTNTOUSinP  23 

was  uiiknovvn  to  persons  dealing  with  the  firm.  It  docs  not  appear 
that  any  of  the  creditors  understood  or  had  any  reason  to  beheve  that 
the  arrangement  was  other  than  as  shown  by  the  partnersliip  agree- 
ment. 

I'Vom  time  to  time,  while  it  was  a  going  concern,  the  firm  paid  divi- 
dends on  the  capital  contributed.  After  bankruptcy  proceedings  had 
been  commenced  against  Marcuse  &  Co.,  Hecht  and  Finn,  in  accord- 
ance with  section  11  of  the  Uniform  Limited  Partnership  Act  CI  Turd's 
Rev.  St.  111.  1919,  c.  106a,  §  55),  hereafter  quoted,  renounced  their 
interest  in  the  profits  of  the  business  or  other  coinpensation  by  way 
of  income.  They  also  paid  $46,000  into  court  for  the  benefit  of  the 
alleged  bankrupt  estate.  This  amount  was  sufficient  to  cover  all  divi- 
dends paid  on  the  $190,000,  so  contributed  to  the  capital  of  the  busi- 
ness, with  interest  on  such  dividends  from  the  times  of  payment. 

Are  Hecht  and  Finn  liable  as  general  partners  ? 

No  limited  partnership  was  formed.  On  Jwly  1.  1917,  the  Illinois 
Limited  Partnership  Act  of  1874  was  repealed,  and  there  was  sub-'ti- 
tuted  for  it  the  Uniform  Limited  Partnership  Act  (Ilurd's  Revised 
Statutes  1919,  c.  106a,  §§  45-75).  The  Uniform  (General)  Partner- 
ship Act  (Id.  §§  1— +5)  became  effective  on  the  same  day.  The  act 
of  1874  provided  that  no  limited  partnership  should  be  deemed  to  have 
been  formed  until  the  certificate  should  be  filed  in  the  office  of  the 
county  clerk.  The  first  effort  to  form  a  limited  partnership  was  given 
up.  The  final  effort  failed  because  the  certificate  was  not  filed  until 
after  the  repeal  of  the  act  of  1874.  Limited  partnerships  organized 
under  the  act  of  1917  are  not  authorized  to  do  a  brokerage  business, 
and  no  attempt  was  made  to  organize  under  it. 

Hecht  and  Finn  were  not  partners  as  to  Marcuse  and  Morris.  It 
is  well  settled  in  Illinois  that,  as  between  the  parties,  the  question  of 
partnership  is  one  of  intention,  to  be  gathered  from  the  facts  and  cir-' 
cumstances.  Goacher  v.  Bates,  280  111.  372,  376,  117  N.  E.  427;  Na- 
tional Surety  Co.  v.  Townsend  Brick  Co.,  176  111.  156,  161,  52  N.  E. 
').^v^:  Grinton  v.  Strong,  148  111.  587.  596,  36  N.  E.  559;  Lycoming 
Insurance  Co.  v.  Barringer,  7Z  111.  230,  233,  234;  Smith  v.  Knight, 
71  111.  148,  150,  22  Am.  Rep.  94.  See,  also,  London  Assurance  Co. 
v.  Drennen,  116  U.  S.  461,  472,  6  Sup.  Ct.  442,  29  L.  Ed.  688.  The 
Uniform  (General)  Partnership  Act  provides: 

"A  partnership  is  an  association  of  two  or  more  persons  to  carry  on 
as  co-owners  a  business  for  profit."     Section  6(1). 

<«  *  *  *  Persons  who  are  not  partners  as  to  each  other  are  not 
partners  as  to  third  persons."    Section  7  (1). 

"  *  ^^  *  Common  property  or  part  ownership  does  not  of  itself 
establish  a  partnership,  whether  such  co-owners  do  or  do  not  share 
any  profits  made  by  the  use  of  the  property."    Section  7  (2). 

'"The  receipt  by  a  person  of  a  share  of  the  profits  of  a  business  is 
prima  facie  evidence  that  he  is  a  partner  in  the  business.  *  *  *  " 
Section  7(4). 


24  SUPPLEMENTARY    LIST   OF   CASES   ON    PAUTNEUSIIIP 

Hecht  and  Finn  did  not  carry  on  the  business  of  the  firm  as  co- 
owners  or  otherwise.  They  had  no  authority,  actual  or  apparent,  to 
act  for  or  bind  the  copartnership.  The  agreements  of  the  parties,  their 
subsequent  conduct,  the  repayment  of  chvidends  received,  with  inter- 
est, together  with  the  other  facts  and  circumstances  abo\e  alkided  to, 
are  more  than  sufficient  to  rebut  and  overcome  any  inference  legiti- 
mately resulting  from  the  receipt  of  a  share  of  the  profits.  The  pro- 
visions of  the  agreement  giving  respondents  right  to  have  access  to 
the  books  of  the  firm,  to  have  statements,  to  appoint  auditors,  and,  in 
the  events  specified,  to  call  lor  a  dissolution,  were  appropriate  in  a 
limited  partnership.  See  section  19,  Act  of  1874;  section  10,  Uni- 
form Limited  Partnership  Act.  Under  the  circumstances,  these  pro- 
visions do  not  indicate  any  intent  on  the  part  of  Ilecht  and  Finn  to 
become  general  partners,  or  support  petitioners'  contention  that  they 
are  liable  as  partners. 

As  to  third  parties,  they  cannot  be  held  liable  as  general  partners. 

Section  16  of  the  Uniform  (General)  Partnership  Act  provides 
that : 

"When  a  person  *  *  *  represents  himself,  or  consents  to  an- 
other representing  him  to  any  one,  as  a  partner  in  an  existing  part- 
nership, *  *  *  he  is  liable-  to  any  such  person  *  *  *  who 
has,  on  the  faith  of  such  representation,  given  credit  to  the  actual  or 
apparent  partnership,  and  if  he  has  made  such  representation  or  con- 
sented to  its  being  made  in  a  public  manner  he  is  liable.     *     *     *  " 

There  was  no  such  representation  of  Hecht  or  Finn  to  any  person 
or  to  the  public.  On  the  contrary,  they  were  published  to  the  world 
as  limited  partners.  It  is  true  that  they  were  not.  But  no  person 
could  have  been  misled  to  his  disadvatitage  by  the  statement  that  they 
were.  Representation  on  mistaken  belief  that  they  were  limited  part- 
ners was  not  a  holding  out  as  general  partners.  The  lack  of  power  of 
a  limited  partnership  created  under  the  later  act  to  carry  on  a  broker- 
age business  gives  no  additional  significance  to  the  representations. 
The  firm  was  not  held  out  as  having  been  organized  under  that  act. 
The  failure  to  complete  the  organization  did  not  injure  any  ])ersons 
dealing  with  the  firm.  Creditors  are  as  well  off  as  if  the  limited  part- 
nership had  been  perfected.  The  $190,000  handed  over  by  Hecht  and 
Finn  was  not  withdrawn.  Hecht  and  Finn  did  not  intend  or  agree 
to  become  general  partners.  The  things  intended  and  done  do  not 
constitute  a  partnership.  They  did  nothing  to  estop  them  from  deny- 
ing liability  as  such.  The  case  is  not  doubtful.  But  if  it  were,  their 
intent  should  be  followed.  Beecher  v.  Bush,  45  Mich.  188,  193,  7  N. 
W.  785,  40  Am.  Rep.  465.  See  also  Post  v.  Kimberly,  9,  Johns.  470, 
502,  et  seq.  To  hold  them  liable  as  general  partners  would  give  credi- 
tors what  they  are  not  entitled  to  have,  and  would  impose  on  Hecht 
and  Finn  burdens  that  are  not  theirs  to  bear. 

Moreover,  we  think  that  section  11  of  the  Uniform  Limited  Part- 


SUPPLEMKNTAKY    LIST   OK   (ASICS   ON    PAKTNIUISIIIP  Jo 

nership  Act  was  applicable,  and  was  properly  invoked  by  Hecht  and 
Finn.     It  provides : 

"A  person  who  has  contributed  to  the  capital  of  a  business,  con- 
ducted by  a  person  or  partnership  erroneously  believing  that  he  has 
become  a  limited  partner  in  a  limited  partnership,  is  not,  by  reason 
of  his  exercise  of  the  rights  of  a  limited  i)artner,  a  general  partner 
with  the  person  or  in  the  partnership  carrying  on  the  business,  or 
bound  by  the  obligations  of  such  person  or  partnership;  provided 
that  on  ascertaining  the  mistake  he  promptly  renounces  his  interest 
in  the  profits  of  the  business,  or  other  compensation  by  way  of  in- 
come." 

Prior  to  the  taking  effect  of  that  act,  the  courts  of  Illinois  held  that 
at  common  law  all  partners  were  liable  without  limitation  for  the  debts 
of  the  firm,  and  that,  in  order  to  limit  such  liability,  the  statute  au- 
Ihorizing  limited  partnerships  must  be  complied  with,  or  all  those  who 
associated  under  it  would  be  liable  as  general  partners.  Henkel  v. 
Heyman,  91  111.  96,  101 ;  Manhattan  Brass  Co.  v.  Allin,  35  111.  App. 
336,  341 ;  Walker  v.  Wood,  69.111.  App.  542,  549,  affirmed  170  111.  463, 
48  N.  E.  919;  Cummings  v.  Hayes,  100  111.  App.  347,  353.  And  this 
is  in  harmony  with  decisions  elsewhere  under  statutes  similar  to  the 
Illinois  act  of  1874.  Pierce  v.  Bryant,  5  Allen,  91,  94;  Haggerty  v. 
Foster.  103  Mass.  17;  Argall  v.  Smith,  3  Denio,  435,  affirming  Smith 
v.  Argall,  6  Hill,  479,  481  ;  Durant  v.  Abendroth,  69  N.  Y.  148.  152, 
25  Am.  Rep.  158;  In  re  Merrill;  12  Blatchf.  (U.  S.)  221,  223,  Fed. 
Cas.  No.  9,467;  Richardson  v.  Hogg,  38  Pa.  153;  Vanhorn  v.  Cor- 
coran. 127  Pa.  255,  268,  18  Atl.  16,  4  L.  R.  A.  386;  In  re  Allen,  41 
Minn.  430.  43  N.  W.  382;  Linewe^ver  v.  Slagle,  64  Md.  465,  483,  2 
Atl.  693,  54  Am.  Rep.  775 ;  HoUiday  v.  Union  Bag  &  Paper  Co.,  3 
Colo.  342,  344;  Oglesby  v.  Lindsey,  112  Va.  767,  776,  72  S.  E.  672, 
Ann.  Cas.  1913B,  913.  -These  cases  illustrate  how  strictly  the  com- 
mon-law rule  against  limitation  of  liability  was  applied,  and  how  far 
the  dcKtrine  of  constructive  partnership  was  carried.  It  was  thought 
that  the  strictness  of  the  old  act  and  decisions  under  it  impaired  the 
usefulness  of  Hmited  partnerships  as  business  organizations  because 
of  the  risk  that  one  contributing  capital  as  a  limited  partner  might  be 
held  liable  without  limitation.  See  explanatory  note  as  to  the  Uni- 
form Limited  Partnership  Act,  submitted  with  the  act  to  the  Illinois 
Legislature.  The  Uniform  Limited  Partnership  Act  and  the  Uni- 
form (General)  Partnership  Act,  passed  at  the  same  time,  relax  the 
strictness  of  the  rules  against  limitation  of  liability.  Each  provides 
that  the  rule  that  statutes  in  derogation  of  the  common  law  are  to  be 
strictly  construed  shall  have  no  application  to  it,  and  that  the  act  shall 
be  so  interpreted  and  cons.trued  as  to  effect  the  general  purpose  to 
make  uniform  the  laws  of  those  states  which  adopt  it.  See  section  28, 
Uniform  Limited  Partnership  Act  (Hurd's  Rev.  St.  1919,  c.  106a, 
§  72)  ;   section  4,  Uniform  (General)  Partnership  Act. 

Hecht   and    Finn   contributed    to   the   capital    of   the   business,   and 


26  SUPPLEMEXTARY    LIST   OF   CASES   ON   PARTNERSHIP 

each  erroneously  believed  that  he  had  become  a  limited  partner  in  a 
limited  partnership.  Neither  took  any  part  in  the  control  of  the  busi- 
ness ,or  exercised  any  rights  or  powers  in  respect  of  it,  other  than 
those  which  might  belong  to  one  not  a  general  partner.  See  section 
19,  Act  of  1874;  section  10,  Uniform  Limited  Partnership  Act.  They 
made  the  renunciation  provided  for.  No  person  suffered  any  loss  or 
disadvantage  because  it  w-as  not  made  earlier,  or  because  of  reliance 
on  any  statement  in  the  certificate.  All  dividends  paid  on  the  $190,- 
000  were  returned.  It  need  not  be  decided  whether  such  return  was 
necessary. 

Section  II  is  broad  and  highly  remedial.  The  existence  of  a  part- 
nership— limited  or  general— is  not  essential  in  order  that  it  shall  ap- 
ply. The  language  is  comprehensive,  and  covers  all  cases  where  one 
ha's  contributed  to  the  capital  of  a  business  conducted  by  a  partnership 
or  person  erroneously  believing  that  he  is  a  limited  partner.  It  ought^ 
to  be  construed  liberally,  and  with  appropriate  regard  for  the  legisla- 
tive purpose  to  relieve  from  the  strictness  of  the  earlier  statutes  and 
decisions.  See  Logan  v.  Davis,  233  U.  S.  613,  627,  628,  34  Sup.  Ct. 
685,  58  L.  Ed.  1121;  United  States  v.  Colorado  Anthracite  Co.,  225 
U  S  219,  223,  32  Sup.  Ct.  617,  56  L.  Ed.  1063 ;  United  States  v. 
Southern  Pacific  Railroad  Co.,  184  U.  S.  49,  56,  22  Sup.  Ct.  285.  46 
L.  Ed.  425.  Its  application  should  not  be  restricted  to  cases  where 
there  was  an  attempt  to  organize  a  limited  partnership,  under  that  act. 

The  petitioners  assert  that  section  11  does  not  apply  because  the 
limited  partnership  certificate  filed  July  2,  1917,  was  false,  in  that  it 
did  not  disclose  the  names  of  all  the  limited  partners  or  the  amount 
of  the  contributions  of  each.  Their  contention  is  that  the  other  re- 
spondents were  represented  by  Ilecht  and  Finn,  and  that  all  should 
have  been  named  in  the  certificate  as  limited  partners,  and  that  the 
amount  advanced  by  each  of  the  respondents  should  have  been  stated 
as  his  contribution  to  the  capital.  But  the  act  of  1874  was  repealed 
and  the  Uniform  Limited  Partnership  Act  was  substituted  for  it  be- 
fore the  certificate  was  filed  and  before  the  firm  commenced  business.. 
Section  8  of  the  act  of  1874  provides  that : 

"If  any  false  statement  shall  be  made  in  such  certificate  *  *  * 
all  the  persons  interested  *  *  *  shall  be  liable  *  *  *  as 
general  partners." 

The  later  act  is  very  different.     It  provides  (section  6)  : 

"If  the  certificate  contains  a  false  statement,  one  who  suffers  loss  by 
reliance  on  such  statement  may  hold  liable  any  party  to  the  certificate 
who  knew  the  statement  to  be  false." 

We  do  not  find  that  the  certificate  was  false  within  the  meaning 
of  section  8.  But  even  if  it  was  inaccurate  or  false  as  asserted,  lia- 
bility of  Hecht  and  Finn  or  the  other  respondents  as  general  partners 
does  not  follow,  because  the  act  of  1874  was  superseded,  and  because 
it  is  not  shown  that  any  creditors  suffered  loss  by  reliance  upon  any 
statement  in  the  certificate. 


SUPPLEMENTARY    LIST   OF   CASES   ON    PART.NERSlilP  27 

It  must  be  held  that  Hecht  and  Finn  are  not  Hahle  as  general  part- 
ners. 

Petitioners  contend  that  the  respondents  other  than  llecht  anrl  Finn 
are  liable  as  general  partners.  They  argue  that,  in  the  attempt  to 
form  the  limited  partnership  under  the  agreement  signed  June  30. 
Hecht  and  Finn  were  acting  as  the  rcprescntati\es  of  the  other  re- 
spondents ;  that  the  earlier  agreement,  signed  by  all  and  placed  in  es- 
crow, was  not  abandoned;  and  that  the  limited  partnership  agreement 
and  the  Ilecht-Finn  trust  agreement  signed  June  30  were  calculated 
and  intended  to  circumvent  the  rule  of  the  Xew  York  Stock  Exchange 
above  referred  it,  without  altering  the  substance  of  the  plan  of  organi- 
zation evidenced  by  the  first  agreement.  But  from  the  conclusion 
that  Ilecht  and  Finn  are  not  liable  as  general  partners,  it  necessarily 
follows  that  the  other  respondents  cannot  be  held  liable  as  such. 

The  decree  of  the  Circuit  Court  of  Appeals  is  affirmed. 


28  SUPrLEMENTAItY    LIST   OF   CASES   OX   PAUTNEUSIilP 

LAFLIN  &  RAND  POWDER  CO.  v.  STEYTLER  et  al. 

(Supreme  Court  of  reuiisvlvania.  1S92.     14G  Pa.  434,  2.3  Atl.   21.^,  14   L.   K. 

A.  690.) 

Assumpsit  by  the  Latlin  il^v:  Rand  Powder  Company  against  J.  J. 
Steytler  and  others,  doing  business  as  the  Youghioghcny  Coal  Com- 
pany, Limited.     Judgment  for  plaintiff.     Defendants  appeal. 

MiTCHKU.,  J."  The  limited  association  act  of  2d  June,  1874,  was  a 
wide  departure  from  the  principles  of  the  common  law  governing  part- 
nerships and  the  liability  of  the  individual  partners  to  the  firm  cred- 
itors. It  was  not  the  first,  nor  has  it  been  the  last,  of  such  changes. 
On  the  contrary,  it  is  but  one  step  in  a  line  of  concessions  to  the  busi- 
ness views  and  habits  of  a  commercial  age  and  community,  and  it 
should  be  construed  in  the  spirit  of  its  enactment.  A  review  of  the 
course  of  legislation  may  help  us  towards  the  true  intent  of  the  stat- 
ute. The  act  of  21st  March,  1836,  (P.  L.  143,)  was  an  elaborate  scheme 
for  the  introduction  of  a  new  kind  of  partnership,  not  previously  known 
to  the  law.  One  or  .more  general  partners  were  required,  and  they 
alone  were  authorized  to'  transact  the  business  or  sign  the  firm  name, 
and  their  names  alone,  without  the  word  "company"  or  other  general 
term,  could  appear  in  the  firm  title.  The  special  partners  must  con- 
tribute actual  cash  as  part  of  the  capital,  could  not  withdraw  any  part 
of  it  during  the  term,  nor  receive  profits,,  or  even  interest,  which  les- 
sened its  amount,  and  any  violation  of  these  provisions,  or  any  partic- 
ipation in  the  transaction  of  the  business  with  the  public,  or  the  ap- 
pearance of  their  names  in  the  firm  title,  subjected  them  to  be  treated 
as  general  partners.  A  certificate  of  the  facts  had  to  be  sworn  to, 
acknowledged  in  the  manner  of  acknowledgment  of  deeds,  and  re- 
corded, before  the  partnership  was  legally  constituted ;  and  any  change 
as  to  any  fact  set  forth  in  the  certificate  must  be  again  certified  in  like 
manner  on  penalty  of  liability  of  all  parties  as  general  partners. 

The  influence  of  common-law  ideas  of  partnership  is  apparent 
throughout  the  act.  It  was  manifestly  regarded  as  an  experiment,  to 
be  entered  upon  cautiously  and  hedged  about  with  restrictions.  But 
the  act  met  the  needs  of  the  community,  and,  in  the  language  of  the 
present  hour,  it  had  come  to  stay.  After  more  than  half  a  century,  it 
is  still  on  our  statute. book  as  the  basis  of  the  system,  and  every  change 
since  It^s  been  a  step  forward  in  the  same  direction,  and  not  back- 
ward. By  joint  resolution  of  16th  April,  1838  fP.  L.  691),  a  partner, 
general  or  special,  or  his  executor,  in  case  of  his  death,  could,  with 
the  assent  in  \vriting  of  the  others,  sell  and  assign  his  interest  without _ 
causing  a  dissolution,  such  alterations  being  certified,  etc.,  as  before. 
By  the  act  of  21st  April,  1858  (P.  L.  383),  the  sale  of  a  partner's  in- 
terest, or  an  increase  of  the  capital,  either  by  increased  contributions 
from  the  original  partners,  or  by  taking  in  new  special  partners,  could 

7  I'art  of  th(!  oi)inion  is  omitted. 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNKUSHIP  20 

be  provided  for  in  advance  in  the  articles  of  partnership  or  in  a  sep- 
arate instrument,  such  changes  being  required  to  be  certified  and  -re- 
corded as  before;  but,  most  notable  of  all.  the  omission  to  record  was 
not  to  work  a  dissolution  as  before,  or  subject  the  special  partners 
to  general  liability.  The  spirit  of  progressive  legislation  had  discov- 
ered that  changes  which  left  the  business  intact,  or  even  increased  in 
capital,  did  not  demand  the  punishment  of  special  partners  by  imposing 
general  liability  for  neglect  of  mere  formalities. 

The  act  of  March  30.  1865  (P.  L.  46),  made  two  important  further 
changes :  The  firm  title,  where  there  were  more  than  two  general 
partners,  may  contain  the  words  "and  company"  (previously  forbid- 
den), the  names  in  full  of  all  the  partners,  special  as  well  as  general, 
being  put  upon  a  sign  ;  and  the  special  partners  were  allowed  to  con- 
tribute their  share  of  the  capital  in  goods,  the  value,  however,  being 
first  appraised  under  oath  by  an  appraiser  appointed  by  the  court 
of  common  pleas.  By  the  act  of  21st  February,  1868  (P.  L.  42),  the 
firm  name  may  consist  of  the  name  of  any  one  general  partner,  with 
the  addition  "and  company,"  notwithstanding  the  name  may  be  com- 
mon to  such  general  partner,  but  the  sign  must  be  put  up  as  required 
by  the  act  of  1865.  This  was  the  state  of  the  law  when  the  legislature 
passed  the  act  of  2d  June,  1874  (P.  L.  271),  for  the  formation  of  part- 
nership associations  with  limited  liabilities,  under  which  the  present 
defendants  were  organized.  By,  this  act  no'  general  partners  are  re- 
quired, nor  is  any  restriction  put  upon  the  firm  name  or  title,  except 
that  the  word  "limited"  must  be  the  concluding  word.  The  persons  de- 
siring to  form  the  association  must  sign  and  acknowledge  a  statement 
setting  forth,  inter  alia,  "the  full  names  of  such  persons."  The  act 
speaks  only  of  "subscribing  and  contributing  capital,"  total  amount, 
"and  when  and  how  to  be  paid,"  etc.  But  this  being  held  to  mean 
money  capital  only,  a  supplement  was  passed  1st  May,  1876  (P.  L. 
89),  authorizing  contribution  "in  real  or  personal  estate,  mines,  or  oth- 
er proj)erty,  at  a  valuation  to  be  approved  by  all  the  members." 

The  act  of  1874,  it  will  be  seen,  was  not  a  mere  amendment  or  sup- 
plement to  anything  that  went  before,  but,  like  the  act  of  1836,  a  new 
scheme,  carefully  and  elaborately  drawn,  creating  a  new  kind  of  ar- 
tificial person,  standing  between  a  limited  partnership  as  previously 
known  and  a  corporation,  and  partaking  of  the  attributes  of  each.  It 
was,  however,  a  step  forward  in  the  same  line  of  legislative  recognition 
of  business  demands  uniformly  pursued  since  the  start,  in  1836. 

With  this  review,  we  may  now  turn  to  the  two  points  especially  in- 
volved in  the  present  case.    *    *    * 

The  act  of  1874,  as  already  said,  made  no  restrictions  upon  the  firm 
title,  except  the  compulsory  termination  '.'limited,"  and  omitted  the  re- 
quirement of  the  sign,  but  in  lieu  thereof  substituted  the  statement  con- 
taining the  "full  names"  of  the  persons  composing  the  association. 
This  phrase  was  borrowed  from  the  act  of  1865.  and  its  intent  was 
the  same  in  both — to  secure  the  identification  of  the  individual  by  hav- 


30  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

iug  his  name  plainly  set  forth  in  the  full  form  by  which  the  communi- 
ty-would recognize  him.  The  appellants  gave  evidence  that  the  names 
as -signed  to  the  statement  were  in  the  form  habitually  used  by  them 
in  business,  and  by  which  they  were  generally  known  in  the  communi- 
ty.   This,  if  proved,  was  a  sufficient  compliance  with  the  statute. 

The  act  of  1836  required  the  special  partners  to  contribute  actual 
cash,  and  for  nearly  30  years  this  requirement  was  absolute  and  un- 
yielding. The  act  of  1865  for  the  first  time  permitted  goods  to  be  put 
in  as  capital,  but  required  their  value  to  be  fixed  by  a  sworn  appraiser 
appointed  by  the  court.  The  act  of  1874,  as  amended  in  1876,  did 
away  with  all  these  restrictions,  and  allowed  the  capital  to  be  con- 
tributed in  "real  or  personal  estate,  mines,  or  other  property,"  without 
any  other  check  as  to  the  valuation  than  the  agreement  of  all  the  sub- 
scribers. The  statement  is  to  certify  the  kind  of  capital  contributed, 
whether  money  or  property,  and,  in  the  latter  case,  a  schedule  with  a 
description  and  valuation.  By  the  plain  terms  of  the  act  the  valua- 
tion is  in  the  discretion  of  the  parties,  and  (assuming,  of  course,  good 
faith)  may  be  sanguine  or  cautious.  Rehfuss  v.  Moore,  134  Pa.  462, 
19  Atl.  756.  The  description,  therefore,  is  plainly  for  the  information 
of  parties  interested,  so  that  they  may,  if  they  desire,  have  the  data 
for  their  own  judgment  of  value.  Accordingly  it  has  been  uniformly 
held  by  this  court  that  a  vague  or  general  or  lumping  description  is  not 
sufficient.  Malonev  v.  Bruce,  94  Pa.  249 ;  Vanhorn  v.  Corcoran,  127 
Pa.  255,  18  Atl.  16. 

It  is  not  intended,  however,  nor  would  it  be  practicable  in  many 
cases  where  an  existing  business  is  the  basis  of,  the  new  firm,  to  re- 
quire minute  specification  of  details  that  may  change  from  day  to 
day.  Certainty  to  a  fair  business  intent  is  the  safe,  practical  criterion, 
as  was  indicated  in  Rehfuss  v.  Moore,  134  Pa.  462,  19  Atl.  756,  where 
a  lumping  valuation  of  six  distinct  patent  rights,  at  a  very  high  figure, 
was  sustained  on  the  ground  that  they  were  all- expected  to  be  used  in 
the  operation  of  a  single  device,  embodying  the  principle  of  all,  and 
were  considered  valuable  only  in  combination.  The  schedule  in  the 
present  case  described  several  tracts  of  land  which  it  appears  were 
acquired  by  different  titles,  but  which  had  been  merged  together,  and 
formed  into  a  coal  works  called  the  "Bufifalo  Mines."  The  schedule 
valued  them  as  one  tract.  It  also  set  out  certain  buildings,  tenement 
houses,  engines,  etc.,  in  considerable,  but  not  minute,  detail,  valuing 
each  item  separately,  but  as  a  part  of  one  entire  plant,  for  the  opera- 
tion of  coal  mining.  It  is  claimed  that  the  various  items  of  property 
are  sufficiently  specified  and  described  for  a  creditor  or  the  sheriff  to 
go  upon  the  land  and  identify  or  levy  upon  them.  This  was  sufficient. 
The  act  expressly  mentions  "mines"  as  the  subject  of  contribution  as 
capital,  and  it  cannot  be  intended  that  every  pick  and  shovel  or  mule 
and  harness  should  be  specified  and  valued  separately.  A  fair  busi- 
ness description  of  the  mine  and  its  equipment  is  all  that  the  statute 
requires. 

Judgment  reversed,  and  venire  de  novo  awarded. 


SDPrLEMENTAUY    LIST   OF   CASES   ON    PAUTNERSUIP  3i 


CARTER  V.  PRODUCERS"  OIL  CO.,  Limited. 

(Supreme   Cdiirt   of   I'cnnsylvniiia.   1S1»7.      IM:   I'a.   '..".1.   :',s   Atl.  571,   HO   L.   K. 

A.  100.) 

Suit  by  John  J.  Carter  against  the  Producers'  Oil  Company,  Limited. 
Decree  for  defendant.     Plaintiff  appeals. 

The  following*  is  the  opinion  of  the  court  of  common  pleas: 

"I  have  found  as  a  fact  that  the  plaintiff  is  the  bona  fide  owner  of 
tlue  stock  which  he  seeks  by  his  bill  to  have  transferred  to  him.  In  so 
doing,  I  l7ave  negatived  so  much  of  paragraph  c  of  the  defendant's 
5th  proposition  of  law  as  avers  that  the  plaintilt  has  not  overcome  the 
responsive  denial  of  the  answer  as  to  the  bona  fides  of  his  ownership. 
The  proof  of  ownership  offered  by  the  plaintiff  consisted  of  the  pro- 
duction of  the  certificates  issued  by  the  Producers'  Oil  Company,  Lim- 
ited, evidence  establishing  their  genuine  character,  and  the  due  execu- 
tion by  the  holders  thereof  of  the  transfers  printed  on  the  back  of  the 
certificates.  To  this  was  added  his  own  testimony  that  he  purchased 
the  shares  from  the  National  Transit  Company,  and  paid  for  the  same 
in  cash  with  his  own  money,  and  that  no  other  person  had  any  interest 
therein.  He  produced  the  check  by  which  payment  was  made,  the 
receipt  of  the  National  Transit  Company,  and  other  documents  cor- 
roborating his  testimony.  This  was  certainly  enough,  in  the  absence 
of  countervailing  proof,  to  establish  his  unqualified  ownership  against 
the  general  and  vague  denial  of  the  answer.*     *     *     * 

"I  turn,  therefore,  to  the  questions  raised  upon  the  undisputed  facts 
by  the  plaintiff's  1st,  2d,  3d,  4th,  5th,  7th,  8th,  and  10th,  and  the  de- 
fendant's 1st,  2d,  3d.  and  4th,  propositions  of  law.  Under  the  law 
governing  'partnership  associations'  formed  under  the  act  of  June  2, 
1874,  and  its  amendments,  and  the  agreement,  rules,  and  regulations 
governing  the  Producers'  Oil  Company,  Limited,  is  a  member  of  that 
company  who  purchases  additional  shares  entitled  to  represent  such 
additional  interest  in  the  capital  in  the  meetings  of  the  company,  with- 
out being  elected  to  membership  in  respect  to  such  additional  interest? 
The  fourth  section  of  the  act  of  June  2.  1874,  as  amended  by  the  act 
of  25th  of  June.  1885,  provides  as  follows:  'Section  1.  Interests  in 
such  partnership  associations  shall  be  personal  estate,  and  may  be 
transferred,  given,  bequeathed,  distributed,  sold  or  assigned,  under 
such  rules  and  regulations  as  such  partnership  associations  shall,  from 
time  to  time,  prescribe  by  a  vote  of  a  majority  of  the  members  in  num- 
ber and  value  of  their  interests,  and  in  the  absence  of  such  rules  and 
regulations  the  transferee  of  any  interest  in  any  such  ass'ociation  shall 
not  be  entitled  to  any  participation  in  the  subsequent  business  of  such 

»That  portion  of  the  opinion  in  which  the  court  concluded  that  the  fact 
that  plaint ilT  niav  have  sought  control  for  the  purpose  of  conducting  the 
business  in  conformity  with  the  policy  of  the  Standard  Oil  Trust  did  not  de- 
feat his  riLiht  to  the  relief  prayed  is  omitted. 


32  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

association,  unless  elected  to  membership  therein  by  a  vote  of  a  ma- 
jority of  the  members  in  number  and  value  of  their  interests.  And 
any  change  of  ownership,  whether  by  sale,  death,  bankruptcy  or  other- 
wise, which  occurs  in  the  absence  of  any  rules  and  regulations  of  such 
associations  regulating  such  transfer,  and  which  is  not  followed  by 
election  to  membership  in  such  associations,  shall  entitle  the  owner  or 
transferee  only  to  the  value  of  the  interest  of  the  date  of  acquiring 
such  interest,  at  a  price  and  upon  terms  to  be  mutually  agreed  upon, 
and  in  default  of  such  agreement  at  a  price  and  upon  terms  to  be  fixed 
by  an  appraiser  to  be  appointed  by  the  court  of  common  pleas  of  the 
proper  county,  on  the  petition  of  either-  party,  which  appraisement 
shall  be  subject  to  the  approval  of  said  court.'  The  provisions  of  this 
section  affecting  the  status  of  transferees  of  interests  are  only  operative 
in  the  absence  of  rules  and  regulations  prescribed  by  the  association 
by  a  vote  of  a  majority  of  the  members  in  number  and  value  of  their 
interests.  June  5,  1894,  over  a  year  before  the  plaintiff  purchased  any 
of  the  shares  involved  in  this  controversy,  the  Producers'  Oil  Com- 
pany, Limited,  in  the  manner  prescribed  by  the  act,  and  also  in  con- 
formity w^ith  the  provision  in  the  rules  governing  amendments  thereto, 
adopted  the  amended  rule  set  forth  in  the  findings  of  fact.  It  is  con- 
ceded that  this  rule,  if  valid,  is  conclusive  against  the  rights  claimed 
by  the  plaintiff  in  his  bill.  But  it  is  contended  that  the  rule  is  invalid, 
because  no  authority  to  make  such  a  rule  is  given  by  the  statute,  be- 
cause it  is  against  the  terms  of  the  statute,  and  because  it  is  in  restraint 
of  trade,  in  derogation  of  the  rights  of  tjie  members,  and  unreasonable 
in  its  provisions. 

"The  provision  forbidding  sales  of  shares  except  to  a  particular  class 
of  persons,  and  that  requiring  a  member  purchasing  additional  shares 
to  be  elected  to  membership  in  respect  to  such  shares,  are  independent ; 
either  may  stand  though  the  other  fall.  The  plaintiff,  although  he  had 
never  been  lawfully  expelled  from  membership  in  the  P.  P.  A.,  was  not 
at  the  time  he  purchased  this  stock  qualified  for  membership  therein  by 
reason  of  his  business  associations  with  the  vStandard  Oil  Trust.  But 
the  first  clause  of  this  rule  deals  with  the  righf  of  a  member  to  sell 
and  not  to  buy.  No  member  of  the  company  sold  his  stock  to  the  plain- 
tiff ;  nor  are  we  able  to  determine  whether  or  not  the  persons  to  whom 
they  did  sell  were  or  were  not  qualified  under  this  clause.  We  pass 
it  by,  therefore,  to  consider  the  last  paragraph  of  the  rule,  which  spe- 
cifically covers  the  case  in  hand.  Many  cases  are  cited  for  the  plain- 
tiff to  show  that  the  right  of  a  corporation  to  make  by-laws  for  the 
regulation  of  .transfers  of  stock  does  not  include  the  right  to  place  re- 
strictions upon  transfers.  For  the  protection  of  the  corporation,  its 
stockholders  and  creditors,  it  may  prescribe,  by  by-laws,  the  mode  of 
transfer ;  but  it  cannot,  without  express  authority  in  the  charter,  im- 
pose restrictions  upon  the  free  alienability  of  its  shares,  which  is  an 
incident  of  such  property.  ^  The  argument,  howevd",  fails  when  it  is 
attempted  to  apply  it  to  a  'partnership  association';     for  it   is  quite 


SUPPLEMENTARY    LIST   OF   CASKS   OX   PAUTNEUSHIP  u3 

clear  that  the  rul.es  and  regulations  authorized  by  the  act  of  1SS5  are 
intended  to  govern  more  than  the  mere  mode  of  transferring  shares, 
and  to  embrace  the  status  of  a  transferee  in  respect  to  the  association. 
The  language  is:  'Interests  may  be  transferred,  given,  bequeathed,  dis- 
tributed, sold  or  assigned  under  such  rules  and  regulations  as  such 
partnership  association  shall  from  time  to  time  prescribe.'  And  as  the 
act  prescribes,  not  \he  manner  of  registering  transfers,  but  the  status 
of  a  transferee  who  has  become  the  owner  of  an  interest  in  the  capital 
b-'-  gift,  l)equest,  distribution,  sale,  assignment,  or  other  mode  of  tran?- 
fer,  only  in  the  absence  of  rules  and  regulations,  it  is  necessarily  im- 
plied that  these  rules  and  regidations,  which  are  to  take  the  place  of 
the  statutory  provisions,  may  cover  the  same  subject ;  and  this  is  pre- 
cisely what  the  first  sentence  of  this  section  declares.  If  the  associa- 
tion may  not  make  rules  and  regulations  covering  the  status  of  trans- 
ferees as  well  as  the  manner  of  transfer,  it  follows  that,  in  every  as- 
sociation having  rules  and  regulations  governing  the  formal  transfer 
of  interests,  any  transferee  becomes  immediately  a  member  without 
election,  for  the  statute  operates  only  in  the  absence  of  rules  and  reg- 
ulations. Every  association,  if  this  be  a  correct  construction  of  the 
law.  will  be  required  to  choose  between  doing  business  without  any 
rules  at  all  governing  the  transfer  of  shares  and  the  loss  of  all  control 
over  the  membersb.ip  through  the  adoption  of  such  rules. 

"It  is  quite  too  clear  for  argument  that  the  power  of  partnership  as- 
sociations under  the  statute  to  make  rules  and  regulations  extends  to 
the  general  subject  of  the  status  of  transferees,  and  the  manner  in 
which  they  may  become  members,  as  well  as  to  the  mode  of  transfer; 
and  the  question  is  therefore  narrowed  to  this :  Is  the  provision  re- 
quiring members  of  the  company  purchasing  additional  shares  to  be 
re-elected  in  respect  thereto  within  this  general  power,  or  is  it  void  as 
against  the  spirit  and  intention  of  the  law?  Whether  the  partnership 
association  ought  to  be  classified  by  the  professor  of  legal  science  as  a 
species  of  the  genus  corporation,  or  the  genus  partnership,  or  whether 
it  should  be  set  apart  as  a  new  genus,  seems  to  me  unimportant.  If 
a  corporation,  it  is  so  peculiar  in  its  features  that  the  general  law  of 
corporations  cannot  be  applied  to  it  without  important  modifications ; 
if  a  partnership,  it  so  difTcrs  from  the  common  type  that  the  general  law 
of  partnerships  is  but  slightly  applicable.  Both  the  law  of  corporations 
and  the  law  of  partnerships  are  to  be  resorted  to  in  the  absence  of 
statutory  regulations,  the  choice  being  determined  by  the  nature  of  the 
feature  under  consideration.  In  the  present  case  we  derive  little  as- 
sistance from  either.  The  general  rule  of  corporations  invoked  by  the 
plaintiff  has  been  laid  down  to  meet  the  conditions  existing  in  cor- 
porations in  which  the  ownership  of  stock  carries  with  it  ipso  facto 
membership  in  the  corporate  body.  If  there  are  corporations  in  which 
the  conditions  are  different,  it  is  manifest  that  the  rule  is  inapplicable 
to  the  extent  of  the  difference. 
Supp.Gil.Part.— 3 


34  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

"The  delectus  personarum  as  it  exists  in  partnerships  grows  out  of 
the  contract  of  the  partners  to  be  associated  with  each  other, -and  with 
no  others.  The  reason,  for  it  is  found  in  the  right  of  each  partner  to 
act  as  agent  for  all  the  others,  the  liability  of  each  for  the  partnership 
obligations,  and  the  right  of  each  to  contribution  from  the  others. 
None  of  these  conditions  exist  in  partnership  associations.  The  case 
of  a  transfer  of  interest  from  one  partner  to  another  is  not  analogous 
to  the  case  in  hand,  for  the  dissolution  is  caused  in  such  a  case,  not  by 
the  addition  to  the  interest  of  one  of  the  partners,  which  adds  nothing 
to  his  power,  but  by  the  dropping  out  of  the  assigning  partner,  whose 
continuance  is  necessary  to  the  partnership  existence.  A  partnership 
association  differs  from  the  common  type  of  partnerships  in  that  the 
members  vote,  and  do  not  act  with  the  powers  of  partners,  and  in  that 
they  are  subject  to  no  joint  liability.  It  differs  from  the  common  type 
of  corporations  in  that  the  members  have  a  right  to  admit  or  refuse 
membership  in  the  company  to  the  transferee  of  the  interest,  as  well  as 
in  some  other  particulars.  In  determining  whether  the  act  of  188ri 
should  be  strictly  construed  against  the  power  of  the  association  to 
limit  the  right  of  one  of  its  members  to  acquire  control  by  increasing 
his  interest,  we  ought  to  look  to  the  spirit  and  intention  of  the  act.  The 
peculiar  form  of  delectus  personarum,  so  carefully  guarded  in  part- 
nership associations,  cannot  be  based  upon  the  same  consideration 
which  gives  rise  to  the  common  form  in  partnerships,  for  there  is  no 
mutual  agency,  no  joint  liability.-  Looking  at  the  general  scheme  of 
the  act,  it  seems  apparent  that  it  was  intended  to  enable  persons  desiring 
to  combine  their  capital  in  any  business  enterprise  to  do  so  without  in- 
curring, on  the  one  hand,  the  general  liability  of  partners,  or,  on  the 
other,  the  risk  of  having  the  business  taken  out  of  the  control  of  those 
in  whom  it  was  originally  placed  without  their  consent,  which  exists 
in  ordinary  corporations.  If  this  be  true,  it  is  manifest  that  transfers 
of  interests  from  one  member  to  another  are  within  the  mischief  sought 
to  be  prevented,  for  the  members  vote  by  value  of  interest  as  well  as 
number  upon  most  important  questions. 

"If  the  case  of  a  member  transferee  is  not  included  within  the  pro- 
visions of  the  statute,  it  is  not  because  the  letter  of  the  law  does  not 
include  it,  but  because  the  court  is  moved  by  the  context  to  limit  its 
literal  meaning.  'Interests,'  the  act  declares,  with6ut  indicating  any 
exception,  'may  be  transferred  *  *  *  under  such  rules  and  regu- 
lations as  such  partnership  association  shall  from  time  to  time  pre- 
scribe,' etc.  'Any  change  of  ownership  which  occurs  in  the  absence 
of  any  rules  and  regulations  of  such  associations  regulating  such  trans- 
fer *  *  *  shall  entitle  the  owner  or  transferee,'  etc.  But  the  term 
'election  to  membership'  is  not  happily  chosen  to  express  the  consent 
of  the  members  to  the  acquisition  of  a  greater  interest  by  one  of  their 
number.  One  who  is  already  a  member  cannot  be,  in  any  proper  sense 
of  the  term,  elected  to  membership.  The  broad  and  general  terms  used 
in  the  act,  together  with  the  use  of  this  phrase,  inappropriate  to  the 


SUPPLEMENTARY    LIST   OF   CASKS   ON    I'ARTNEUSIIIP  35 

case  of  transfer  between  members,  indicate  that  the  particular  case  of 
sucli  transfer  was  not  present  in  the  leg^i^lative  mind.  Had  it  been, 
the  general  terms  would  have  been  modiRed  if  it  were  intended  to  ex- 
clude it,  and  some  modification  of  the  term  'elected  to  membership' 
would  have  been  made  had  the  intention  been  specifically  to  include  a 
transfer  to  one  already  a  member.  We  can  only  ascertain  the  legisla- 
tive will  in  a  particular  case  by  determining  whether  or  not  it  falls 
within  the  general  intention  expressed  in  the  law.  And,  while  my  mind 
inclines  to  the  belief  that  such  a  case  was  not  within  the  intention  of 
the  legislature,  it  is  not  without  much  doubt  and  some  hesitation  that 
I  so  decide.  But  it  seems  clear  to  me  that  the  power  of  the  associa- 
tion to  regulate  the  status  of  transferees  of  interests  in  capital  is  not 
limited  by  the  regulations  prescribed  by  the  act.  In  conferring  upon 
the  association  authority  to  legislate  for  itself,  it  is  implied  that  it  may 
make  rules  which  differ  from  those  prescribed  in  the  act.  If  the  case 
of  a  transfer  to  one  already  in  the  membership  be  not  included  in 
the  terms  of  the  act.  it  is,  at  most,  an  omitted  case,  which  the  associa- 
tion itself  may  provide  for.  The  rule  adopted  by  the  defendant  is  not 
against  the  terms  of  the  act,  for,  at  best,  the  act  does  not  cover  it  at 
all.  Nor  is  it  unreasonable,  for  it  is  in  line  and  harmony  with  the 
•general  spirit  and  intention  of  the  act.  Nor  does  it  infringe  any  right 
of  the  members,  for  the  owners  of  the  shares  may  still  freely  sell 
them  to  whom  they  please,  the  only  difference  being  that  a  sale  to  a 
member  is  put  in  the  same  category  as  a  sale  to  other  persons.  No 
member  can  claim  a  vested  right  to  a  greater  voting  power  than  was 
given  him  by  the  articles  of  association.  The  full  value  of  the  interest 
is  guarantied  to  the  purchaser  in  any  event. 

"Thus  far  we  have  considered  the  rules  and  regulations  of  the  de- 
fendant as  mere  by-laws,  imposed  by  a  majority  under  the  authority  of 
the  statute.  The  original  rules  were,  however,  agreed  to  and  signed 
by  all  the  members  at  the  time  the  company  was  organized,  and  as  part 
of  its  organization.  They  have  therefore  the  effect  of  articles  of  as- 
sociation additional  to  the  certificate  filed  as  required  by  law.  The 
plaintiff  had  notice  of  them,  both  actual  and  constructive.  He  is  there- 
fore bound  by  this-  agreement,  and  one  of  its  provisions  is  that  it  may 
be  altered  by  a  vote  of  the  majority,  of  the  members  in  number  and 
value  of  their  interests.  It  was  so  altered  long  prior  to  his  purchase 
of  the  shares  in  question,  no  vote  being  against  it  except  his  own.  Con- 
ceding that  the  authority  thus  given  to  alter  cannot  be  carried  so  far 
a»  to  permit  a  change  in  the  general  scope  of  the  instrument ;  that  no 
change  can  be  made  against  the  mandate  of  positive  law,  or  contrary 
to  the  certificate  of  association,  or  which  is  unreasonable  or  oppressive. 
— still,  I  think,  this  alteration  is  not  an  undue  exercise  of  the  power, 
for  the  same  reasons  which  have  been  already  adverted  to,  and  which, 
considered  in  this  aspect,  are  still  more  forcible  and  cogent. 

"Being  of  opinion  that  the  last  clause  of  rule  25,  which  excludes  the 
plaintiff'  from  participation  in  the  business  and  profits  of  the  defend- 


36  eUPPLEMEXTARY   LIST   OF   CASES   ON    PARTNEUSIIIP 

ant  in  respect  to  the  shares  purchased  by  him  until  he  shall  be  elected 
to  membership  in  respect  to  such  shares  by  the  majority  of  the  mem- 
bers in  number  and  value  of  their  interests,  is  valid,  it  follows  that  he 
is  not  entitled  to  the  relief  prayed  for  in  his  bill.  His  counsel  in  the 
argument  distinctly  disclaimed  any  desire  to  have  the  stock  transfer- 
red upon  the  books  of  the  company  unless  such  transfer  carried  with 
it  the  right  to  vote  and  participate  in  the  profits ;  and  hence  we  do  not 
consider  the  question  whether  so  much  of  the  relief  prayed  for  might 
not  properly  be  granted  on  the  facts  disclosed. 

''It  remains  to  consider  the  case  for  affirmative  relief  presented  by 
the  defendants  upon  their  cross  bill.  At  the  time  the  plaintiff  present- 
ed the  certificates  for  13,013  shares  to  the  secretary  of  the  company, 
and  had  new  certificates  issued  to  himself  for  the  same,  he  was  not,  in 
fact,  the  owner  of  the  interest  represented  by  the  certificates.  He,  in 
effect,  represented  himself  to  be  owner  by  presenting  them  indorsed  as 
they  were  in  the  usual  form,  and  demanding  the  transfer  to  himself. 
But  he  is  now  the  owner  of  the  same  shares  by  a  subsequent  purchase. 
And  the  National  Transit  Coinpany,  which  was  at  the  time  owner,  is 
clearly  estopped  by  its  own  acts  from  asserting  that  ownership  as 
against  the  defendant.  We  are  required  to  note  a  difference  here  be- 
tween partnership  associations  and  ordinary  corporations.  In  the  lat-- 
ter  the  transfer  of  stock  on  the  books  invests  the  transferee  with  the  full 
rights  of  a  stockholder,  including  the  right  to  vote  the  stock  and  to  re- 
ceive the  dividends.  In  the  former  this  right  does  not  follow  the 
transfer  on  the  books,  which  is  a  merely  ministerial  act  of  an  officer  or 
clerk,  but  is  obtained  only  by  election  to  membership  by  the  members 
of  the  company.  We  have  held  in  the  principal  case  that  the  plaintiff 
cannot  participate  in  the  business  or  profits  of  the  defendant  company 
as  to  purchased  stock  without  re-election,  and  it  follows  that  no  clerk 
or  officer  can  confer  that  right  upon  him  by  permitting  a  transfer  upon 
the  books.  Apart  from  membership,  and  pending  the  appraisement  of 
the  value  of  the  interest,  or  the  sale  of  it  to  another  who  may  be  ac- 
ceptable to  the  remaining  members,  it  may  be  important,  and  it  seems 
to  me  it  is  quite  proper,  that  the  interest  should  stand  on  the  books  of 
the  company  in  the  name  of  the  true  owner,  both  for  its  protection 
and  his  own.  If  we-  now  grant  the  relief  prayed  for  in  the  cross  bill, 
we  shall  restore  the  interest  owned  by  the  plaintiff  on  the  books  of  the 
company  to  the  names  of  the  original  members,  and  invest  them  with 
an  apparent  rigbt  to  dividends  and  participation  in  the  business  to 
which  they  are  not  entitled,  and  which  might  be  an  injury  to  all  con- 
cerned. The  books  of  the  company  defendant  do  not  show  that  the 
plaintiff  is  entitled  to  vote  or  participate  in  profits  in  respect  to  these 
shares,  and  it  can  therefore  suffer  no  injury  from  an  unauthorized 
transfer.  Let  a  decree  be  drawn  dismissing  both  the  plaintiff's  bill  and 
the  cross  bill  filed  by  the  defendant,  at  the  costs  of  the  plaintiff;  and, 
at  the  time  of  settling  the  decree,  the  court  will  hear  either  party  upon 


SUPPLEMRNTARY    LIST   OF   CASKS   ON   PAUTNERSHIP  37 

any  exceptions  to  the  findings  of  fact  or  of  law  which  they  may  file, 
respectively,  within  10  days  after  notice  of  the  filing  of  this  opinion." 

McCoLLUM,  J.  We  think  the  court  below  entered  the  proper  decree 
in  this  case.     *    *    * 

Decree  affirmerl,  and  appeal  dismissed,  at  the  cost  of  the  appellant. 


EDWARDS  V.  WARREN  LINOLINE  &  GASOLINE  WORKS, 

Limited. 

(Supreme  Judicial  Court  of  Mas.'^achu.^ctts,  1S97.    1G8  Mass.  5G4,  47  N.  E.  502. 

38  L.  R.  A  701.) 

Action  by  one  Edwards  against  the  Warren  Linoline  &  Gasoline 
Works,  Limited,  in  which  the  Walworth  Manufacturing  Company 
was  summoned  as  trustee.  From  a  judgment  discharging  the  trustee, 
and  dismissing  the  action,  plaintiff  appeals. 

Latiirop,  T.  It  is  conceded  by  the  plaintiff  that  as  the  jurisdiction 
of  the  court  depends  upon  charging  the  Walworth  Alanufacturing 
Company  as  trustee,  inasmuch  as  there  was  no  service  upon  the  prin- 
cipal defendant,  the  action  was  properly  dismissed  upon  discharging 
the  trustee.  The  question,  then,  is  whether  the  trustee  was  properly 
discharged,  and  this  depends  upon  whether  the  principal  defendant, 
an  association  formed  under  the  laws  of  the  state  of  Pennsylvania, 
is  a  partnership  or  a  corporation.  The  trustee's  answers  to  interroga- 
tories refer  to  Brightly's  Purd.  Dig.  (12th  Ed.)  1086-1088,  and  to 
the  cases,  of  Eliot  v.  Himrod,  108  Pa.  569,  and  Sheble  v.  Strong,  128 
Pa.  315,  18  Atl.  397,  as  containing  the  law  relative  to  the  statement 
in  the  answer  that  the  principal  defendant  was  a  partnership,  and  not 
a  corporation.  From  the  Digest  it  appears  that  such  an  association  is 
styled  a  "partnership  association,"  and  not  a  corporation.  By  the 
terms  of  the  various  acts  which  have  been  passed  ttpon  the  subject, 
such  an  association  may  be  formed  by  three  or^  more  persons.  The 
capital  is  alone  to  be  liable  for  the  debts.  There  is  no  personal  lia- 
bility of  the  members,  except  to  the  extent  of  any  unpaid  subscrip- 
tion, if  certain  provisions  of  the  act  are  complied  with.  "Interests  in 
such  partnership  associations''  are  declared  to  be  personal  estate,  and 
are  transferable,  under  such  rules  and  regulations  as  shall  from  time 
to  time  be  prescribed;  but,  if  there  are  no  such  rules  and  regulations, 
the  transferee  of  any  interest  in  any  such  association  is  not  entitled  to 
any  participation  in  the  subsequent  business  of  the  association,  un- 
less elected  to  membership  therein,  by  a  vote  of  a  majority  of  the 
members  in  number  and  value  of  their  interests.  The  business  is  to 
be  conducted  by  a  board  of  managers.  The  duration  of  the  associa- 
tion may  be  fixed  by  the  articles  of  association,  but  is  not  to  exceed 
20  years.  Power  to  adopt  and  use  a  common  seal  is  given  in  case 
the  association  has  occasion  to  execute  a  deed  of  conveyance  or  bonds 


38  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

and  mortgages.  Land  sold  to  the  association,  or  by.  it,  is  required  to 
be  conveyed  in  the  name  of  the  association.  It  is  further  provided: 
"Said  association  shall  sue  and  be  sued  in  their  association  name;  and, 
when  suit  is  brought  against  any  such  association,  service  thereof  shall 
be  made  upon  the  chairman,  secretary,  or  treasurer  thereof,  vi'hich 
service  shall  be  as  complete  and  effective  as  if  made  upon  each  and 
every  member  of  such  association." 

In  Eliot  V.  Himrod,  108  Pa.  569,  580,  it  is  said  by  Mr.  Justice  Trun- 
key,  in  delivering  the  opinion  of  the  court:  "Tlie  formation  of  a  lim- 
ited partnership  association  is  materially  different  from  the  creation 
of  a  corporation.  Such  association  is  treated  in  the  statute  as  a  part- 
nership, which,  upon  the  performance  of  certain  acts,  shall  possess 
specified  rights  and  immunities.  In  contemplation  that  the  associa- 
tion may  consist  of  many  members,  for  convenience  it  is  clothed  with 
many  of  the  features  and  powers  of  a  corporation,  such  as  the  right 
to  sue  and  be  sued,  grant  and  receive,  in  the  association  name.  But 
no  man  can  purchase  the  interest  of  a  member,  and  participate  in  the 
subsequent  business,  unless  by  a  vote  of  a  majority  of  the  members  in 
number  and  value  of  their  interests.  No  charter  is  granted  to  the 
persons  who  record  their  statement."  Sheble  v.  Strong,  128  Pa.  318, 
18  Atl.  397,  is  to  the  same  effect. 

If  the  question  presented  were  an  open  one  in  this  commonwealth, 
it  might  well  be  held  that  such  an  association  could  be  considered  to 
have  so  many  of  the  characteristics  of  a  corporation  that  it  might  be 
treated  as  one.  At  common  law,  a  joint-stock  company  formed  for 
business  purposes  is  considered  in  this  commonwealth  merely  as  a 
partnership.  Tappan  v.  Bailey,  4  Mete.  (Mass.)  529;  Tyrrell  v. 
Washburn,  6  Allen,  466.  The  same  rule  has  been  applied  to  joint- 
stock  associations  formed  under  the  laws  of  the  state  of  New  York, 
which  do  not  differ,  in  any  essential  respect,  from  the  laws  of  Penn- 
sylvania. Taft  V.  Ward,  106  Mass.  518,  111  Mass.  518;  Bodwell  v. 
Eastman,  106  Mass.  526;  Gott  v.  Dinsmore,  HI  Mass.  45,  51;  Rail- 
road V.  Pearson,  128  Mass.  445.  See,  also.  Frost  v.  Walker,  60  Me. 
468;  Dinsmore  v.  Railroad,  32  Leg.  Int.  388,  11  Phila.  483,  and  Fed. 
Cas.  No.  '3,921.  In  Taft  v.  Ward,  106  Mass.  518,  524,  speaking  of 
the  New  York  statutes,  it  was  said  by  Chief  Justice  Chapman :  "These 
statutes  provide,  in  substance,  that  any  association  consisting  of  seven 
or  more  shareholders  or  associates  may  sue  and  be  sued  in  the  name 
of  the  president  or  treasurer;  that  in  such  suit  a  judgment  may  be 
rendered  against  the  company ;  and  until  an  execution  is  issued  against 
-  the  company  and  returned  unsatisfied,  no  action  shall  be  maintained 
against  individuals.  These  statutes  seem  to  apply  to  all  co-partner- 
ships consisting  of  seven  or  more  members.  The  members  of  such 
companies  are  authorized  to  hold  their  interests  in  shares,  which  are 
assignable  like  shares  of  stock  in  a  corporation,  and  the  action  against 
the  members  is  regarded  as  supplementary  to  the  action  against  the 
company.     Waterbury   v.   Express   Co.,    50  Barb.    157;    Robbins   v. 


SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP  ?>0 

Wells,  1  Rob.  (N.  Y.)  666.  So  far  as  these  statutes  relate  to  the 
procedure  in  courts  for  the  recovery  of  debts,  they  are  limited  to  the 
state  of  New  York;  for  each  state  adopts  its  own  forms  of  remedy. 
Story,  Confl.  Laws,  §§  556-558.  The  i)laintifT  could  not  in  this  com- 
monwealth Ijrinjj  an  action  against  the  president  or  secretary,  and  nh- 
tain  a  judgment  against  the  company  Jjy  its  name;  nor  could  he  bring 
an  action  against  the  members,  or  any  of  them,  as  a  supplement  to 
such  an  action.  In  order  to  do  so,  we  must  hold  that  the  statutes  of 
New  York  prescribing  forms  of  action  are  in  force  here.  In  this 
commonwealth,  such  a  company  is  a  mere  co-partnership."  There  is 
nothing  inconsistent  with  an  assocuition  being  a  partnership  that  it  has 
shares,  or  that  the  shares  are  transferable,  or  that  the  death  of  a  mem- 
ber shall  not  work  a  dissolution  of  the  i^artnership.  Phillips  v.  Blatch- 
ford,  137  Mass.  510.  See,  also,  Hoadley  v.  County  Com'rs,  105  Mass. 
519;   Gleason.v.  McKay,  134  Mass.  419. 

The  case  mostly  relied  on  by  the  plaintiff  is  Liverpool  Ins.  Co.  v. 
Massachusetts,  10  Wall.  566,  which  was  taken  to  the  supreme  court 
of  the  United  States  on  a  writ  of  error  from  this  court.  See  Oliver  v. 
Insurance  Co.,  100  ]\Iass.  531.  It  was  a  bill  in  equity,  filed  by  the 
treasurer  of  the  commonwealth,  under  St.  1862,  c.  224,  §  11,  to  re- 
strain the  defendant  from  prosecuting  its  business,  until  the  tax  as- 
sessed upon  it  by  section  2  of  the  statute  had  been  paid.  This  section 
provided  that  "each  fire,  marine,  and  fire  and  marine  insurance  com- 
pany incorporated  or  associated  under  the  laws  of  any  government  or 
state,  other  than  one  of  the  United  States,"  should  annually  pay  a 
certain  tax.  The  defendant  was  an  English  company,  formed  for  the 
business  of  insurance,  and  organized  under  a  deed  of  settlement.  Its 
property  was  divided  into  transferable  shares.  It  had  power  to  sue 
and  be  sued  by  the  name  of  its  chairman,  and  a  suit  did  not  abate  by 
reason  of  the  death  of  such  officer.  The  company  could  sue  its  own 
members,  and  be  sued  by  them.  Execution  on  any  judgment  recov- 
ered against  the  company  could  be  issued  against  any  proprietor.  The 
statute  under  which  it  was  formed,  and  subsequent  statutes,  declared 
that  it  should  not  be  deemed  to  be  incorporated.  The  company  was 
composed  in  part  of  British  subjects,  and  in  part  of  citizens  of  the 
state  of  New  York.  This  court,  after  stating  that  it  was  not  a  pure 
corporation  nor  a  pure  partnership,  but  was  an  association  intermedi- 
ate between  corporations  known  to  the  common  law  and  ordinary 
partnerships,  and  was  so  far  clothed  with  corporate  powers  that  it 
might  be  treated,  for  the  purposes  of  taxation,  as  an  artificial  body, 
proceeded  to  say:  "We  think  the  defendants  are  an  association  of  the 
kind  to  which  the  statute  of  1862  w^as  expressly  intended  to  apply, 
as  well  as  to  bodies  wholly  corporate  in  their  character ;  and  that,  be- 
ing permitted  by  the  comity  of  our  laws  to  exercise  their  functions 
v.'ithin  this  commonwealth,  they  can  claim  no  exemption  from  regula- 
tions appropriate  to  their  collective  action  on  account  of  the  citizen- 
ship or  nationality   of   their   individual   members."      In   the    supreme 


40  SrrPLEMKXTARY    LIST   OF   CASES   ON   rARTXERSIIIP 

court  of  the  United  States  the  decree  of  this  court  was  affirmed,  on 
the  ground  that  the  company  was  a  foreign  corporation ;  but  Mr.  Jus- 
tice Bradley,  while  agreeing  in  the  result,  ditfered  on  the  question 
whether  the  company  was  a  corporation.  He  was  of  opinion  that  it 
was  one  of  those  special  partnerships  called  "joint-stock  companies," 
and  that  it  could  not  sue  or  be  sued  in  this  country  without  legislative 
aid.  This  view  of  Mr.  Justice  Bradley  is  in  accord  with  the  view  of 
this  court,  and  we  are  not  aware  that  the  view  taken  by  the  supreme 
court  of  the  United  States  has  been  followed  in  this  commonwealth. 
The  decisions  which  we  have  already  cited  show  that  a  foreign  joint- 
stock  company  is  considered  as  an  association  or  partnership,  and  not 
as  a  corporation. 

An  examination  of  the  statutes  further  shows  that  the  legislature 
has  clearly  recognized  the  distinction  between  foreign  corporations 
and  associations;  and  that,  where  it  has  deemed  it  be^t  that  an  act 
should  apply  to  an  association  as  well  as  to  a  corporation,  it  has  said 
so  in  plain  language.  Thus,  St.  1882,  c.  106,  relating  to  the  taxation 
of  foreign  mining,  quarrying,  and  oil  companies,  and  requiring  the 
appointment  of  an  agent  here,  upon  whom  process  may  be  served,  uses 
the  language  "every  corporation,  company,  or  association."  St.  1887, 
c.  214,  in  section  1,  provides:  "When  consistent  with  the  context,  and 
not  obviously  used  in  a  different  sense,  the  term  'company'  or  'insur- 
ance company,'  as  used  herein,  includes  all  corporations,  associations, 
partnerships  or  individuals  engaged  as  principals  in  the  business  of 
insurance."  The  language  is  the  same  in  St.  1894,  c.  522,  §  1.  By  St. 
1888,  c.  429,  §  11,  "fraternal  beneficiary  corporations,  associations  or 
societies,"  organized  under  the  laws  of  another  state,  and  then  doing 
business  here,  were  allowed  to  continue  business  without  incorporat- 
ing under  the  act.  But  by  St.  1892,  c.  40,  §  1,  this  was  amended  by 
striking  out  the  words  "associations  or  societies."  St.  1884,  c.  230, 
requires  "ever\^  corporation  established  under  the  laws  of  any  other 
state  or  foreign  country,"  and  hereafter  having  a  usual  place  of  busi- 
ness here,  before  doing  business,  to  appoint  jn  writing  the  commis- 
sioner of  corporations,  or  his  successor  in  office,  to  be  its  true  and 
lawful  attorney,  upon  whom  process  might  be  served.  St.  1888,  c. 
321,  allows  "manufacturing  corporations  established  under  the  laws 
of  other  states,"  which  have  complied  with  the  provisions  of  St.  1884, 
c.  330,  to  purchase  and  hold  such  real  estate  here  as  may  be  neces- 
sary for  conducting  their  business.  By  St.  1895,  c.  34,  "foreign  cor- 
porations engaged  in  the  business  of  selling  or  negotiating  bonrjs, 
mortgages,  notes  or  other  choses  in  action"  are  made  subject  to  the 
provisions  of  St.  1884,  c.  330.  St.  1896,  c.  391,  contains  a  provision 
relating  to  the  personal  liability,  under  certain  circumstances,  of  the 
officers  and  members  or  stockholders  in  any  corporation  established 
under  the  laws  of  any  other  state  or  other  country.  See,  also,  St. 
1895,  c.    157.     Many  other  instances  of   legislation  might  be   given 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNEKSHIP  41 

where  the  distinction  between  a  corporation  proper  and  a  mere  asso- 
ciation or  organization  is  shown  to  be  clearly  in  mind. 

Unless  the  principal  defendant  can  be  considered  a  corporation,  it 
cannot  be  sued  here  under  the  name  which  the  laws  of  Pennsylvania 
authorize  it  to  use.  Such  laws  have  no  extraterritorial  force  or  effect. 
The  trustee,  therefore,  was  properly  discharged.  In  the  opinion  of 
a  majority  of  the  court,  the  order  discharging  the  trustee,  and  dis- 
missing the  action,  must  be  affirmed." 

i'.\l)I)ITIOXAL  ProIU-KMS  DkALINT.   WITH  LIMITED    PaBTNER-SHIP    AsSOCI  A  IK*  .^^. 

—Whore  the  statemeut  liU-d  contains  a  specification  and  valuation  of  proiM-ity 
contri! lilted  which  is  indefinite  or  inaccurate,  members  are  held  liable  as 
general  partners:  Apix>al  of  Ilite  Natural  Gas  Co.,  Limited,  118  I'a.  4:JG,  12 
Atl  207  (ISSSi ;  Hill  v.  Stetler,  127  Pa.  145.  17  Atl.  887  (1SS9)  ;  Vanhorn  v. 
Corcoran,  127  Pa.  2.jr).  18  Atl.  IG,  4  L.  R.  A.  3SG  (1889);  Gearing  v.  Carroll,  1.51 
Pa  79.  24  Atl.  lOir.  (1S92) ;  Haslet  v.  Kent,  ICO  Pa.  85,  28  Atl.  501  (1S94) ; 
First  Nat.  Bank  v.  Creveling.  177  Pa.  270,  .35  Atl.  595  (189G) ;  Sheble  v.  Strong, 
128  Pa.  315,  18  Atl.  .397  (1889) ;    Lee  v.  lUirnley,  195  Pa.  58,  45  Atl.  6G8  (1900). 

Statement  not  so  indefinite  or  inaccurate  as  to  impose  personal  liability 
upon  the  members  as  general  partners:  llehfuss  v.  Moore,  134  Pa.  4G2.  19  Atl. 
75G  7  L.  R.  A.  603  (1S90):  Cock  v.  P.ailoy,  146  Pa.  328,  23  Atl.  370  (1892); 
Staver  &  Abbott  Mfg.  v.  Blake,  111  Mich.  282,  69  N.  W.  508,  38  L.  R.  A. 
798  (1S9G),  in  which  case  the  court  said:  "We  are  aware  that  this  decision  is 
not  in  harmonv  with  the  decisions  of  the  Supreme  Court  of  Pennsylvania,  but 
in  so  far  as  those  decisions  adopt  the  rigorous  rule  that  the  members  of  these 
associations  are  liable  as  partners  because  of  some  irregularity  or  defect  in 
their  organization  or  management,  and  thereby  read  into  the  statute  a  penalty 
which  it  does  not  impose,  but  which,  by  a  fair  coiistruction  of  the  statute,  is 
excluded,  we  cannot  follow  them."  See,  also,  Deckert  v.  Chesapeake  Western 
Co.,  101  Va.  804,  45  S.  E.  799  (1903). 

Limited  partnership  associations  properly  organized  not  liable  on  con- 
tracts, when  there  has  been  a  failure  to  comply  with  the  statutory  require- 
ments for  association  contracts:  Pittsburgh  Melting  Co.  v.  Reese.  118  Pa. 
.^-.5.  12  Atl.  302  (1888)  ;  Walker  v.  Brewing  Co.,  131  Pa.  546,  20  Atl.  309  (1889); 
Merc.  Nat.  Bank  v.  Lauth.  143  Pa.  53,  21  Atl.  1017  (1891) ;  Hoyt  v.  Paw  Paw 
Grape  Juice  Co.,  158  Mich.  619,  123  N.  W.  529  (1909).  But  such  an  associa- 
tion may  be  held  liable  for  goods  accepted  under  such  a  contract  on  an 
estopi)€l  theory.  See  Yaryan  Co.  v.  Pennsylvania  Glue  Co.,  Ltd.,  ISO  Pa.  480, 
36  Atl.  lOSO  (1897). 

Although  such  an  association  is  so  defectively  organized  as  to  impose  per- 
sonal liability  upon  its  members,  it  cannot,  when  sued  as  an  association,  take 
advantage  of  its  defective  organization  by  way  of  defense.  Briar  Hill  Coal  & 
Iron  Co.^  V.  Atlas  Works.  140  Pa.  290.  23  Atl.  326  (1892). 

A  Pennsvlvania  association  held  taxable  as  a  corporation  in  New  Jer.sey  un- 
der the  corporation  tax  law  of  New  Jersey  in  force  in  18SS.  Tide  Water"  Pipe 
Co.,  Limited,  v.  State  Board  of  Assessors,  57  N.  J.  Law,  516,  31  Atl.  220,  27  J.. 
E.  A.  0S4  (189.5).  ,  ^     ^^^ 

Limited  partnership  association  statutes,  see  Pa.  St.  1920,  §§  160o6-16684  ; 
Comp.  Laws  Mich.  1915,  c.  151,  S§  7950-7906. 


42  SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP 

WILLIA^IS  et  al.  v.  INHABITANTS  OF  MILTON. 
(Supreme  Judicial  Court  of  Massachusetts,  1913.    215  Mass.  1,  102  N.  E.  .355.) 

Petitions  by  Closes  Williams  and  others,  trustees,  against  the  In- 
habitants of  Milton,  against  the  City  of  Waltham,  against  the  Inhabit- 
ants of  Brookline,  and  against  the  City  of  Boston  and  others,  for  the 
abatement  of  taxes. 

LoRiNG,  J.  These  are  four  petitions  for  the  abatement  of  taxes 
assessed  upon  the  plaintiffs  as  trustees  of  the  Boston  Personal  Proper- 
ty Trust.  The  Boston  taxes  were  assessed  on  the  theory  that  the  prop- 
erty held  by  the  plaintiff's  under  that  trust  was  partnership  property 
to  be  assessed  under  St.  1909,  c.  490,  pt.  1,  §  27,  in  Boston  where  the 
partnership  (if  there  was  a  partnership)  had  its  place  of  business. 
The  other  taxes  were  assessed  upon  the  theory  that  the  property  held 
by  the  plaintiffs  under  that  trust  was  held  by  them  as  trust  property 
the  income  of  which  was  payable  to  another  person  and  was  to  be  as- 
sessed under  St.  1909,  c.  490,  pt.  1,  §  23,  cl.  5. 

It  has  been  contended  in  effect  if  not  in  terms  that  whatever  may 
be  its  true  character  the  trust  for  the  purposes  of  taxation  was  a  part- 
nership. Doubtless  the  Legislature  might  provide  that  a  trust  which 
was  not  a  partnership  should  be  treated  as  a  partnership  for  the  pur- 
poses of  taxation.  But  it  has  not  done  so.  What  the  Legislature  has 
done  is  to  provide  (1)  that  "personal  property  held  in  trust  by  an 
executor,  administrator  or  trustee,  the  income  of  which  is  payable  to 
another  person,  shall  be  assessed  to  the  executor,  administrator  or 
trustee  in  the  city  or  town  in  which  such  other  person  resides,  if  with- 
in the  commonwealth,"  and  if  he  resides  out  of  the  commonwealth,  iii 
the  place  where  the  trustee  resides  (St.  1909,  c.  490,  pt.  1,  §  23); 
and  (2)  that  "partners,  whether  residing  in  the  same  or  in  different 
cities  or  towns,  may  be  jointly  taxed  under  their  firm  name,  in  which. 
their  business  is  carried  on,  for  all  the  personal  property  employed  in 
such  business,  except  ships  or  vessels"  (St.  1909,  c.  490,  pt,  1,  §  27). 
That  is  to  say,  the  Legislature  has  provided  that  the  right  to  tax  prop- 
erty as  trust  or  as  partnership  property  depends  upon  the  real  char- 
.acter  of  the  property  taxed.  Under  these  enactments  of  the  Legisla- 
ture^ there  is  no  room  for  holding  that  property  which  is  in  reality 
not  partnership  property  can  be  taxed  as  partnership  property.  The 
right  to  tax  property  as  trust  or  as  partnership  property  depends  up- 
on what  the  character  of  the  property  taxed  really  is. 

We  proceed  to  a  discussion  of  the  principles  on  which  the  question 
of  the  true  character  of  the  Boston  Personal  Property  Trust  depends. 

Where  persons  associate  themselves  together  to  carry  on  business 
for  their  mutual  profit,  they  are  none  the  fess  partners  because  (1) 
their  shares  in  the  partnership  are  represented  by  certificates  which 
are  transferable  and  transmissible,  and  because  (2)  as  a  matter  of 
convenience  (if  not  of  necessity  in  case  of  transferable  and  transmis- 


SUPPLEMENTARY    LIST   OF    CASES   ON    PARTNERSHIP  43 

sible  certificates)  the  legal  title  to  the  partnership  property  is  taken 
in  the  name  of  a  third  person.  The  person  in  whose  name  the  part- 
nership property  stands  in  such  a  case  is  perhaps  in  a  sense  a  trustee. 
But  speaking  with  accuracy  he  is  an  agent  who  for  the  principal's 
convenience  holds  the  legal  title  to  the  principal's  property. 

Several  instances  of  such  partnerships  are  to  be  founfl  in  our  re- 
ports. In  Iloadley  v.  County  Com'rs  of  Essex,  105  Mass.  519,  one 
Gordon  McKay  executed  a  declaration  of  trust  by  which  he  declared 
that  he  held  his  patents  for  sewing  the  soles  of  boots  and  shoes  to  the 
vamps,  his  factory  where  machines  were  manufactured  under  these 
patents  and  the  whole  business  theretofore  carried  on  by  him,  in  trust 
for  such  persons  as  should  buy  certificates  which  were  to  be  issued 
under  that  declaration  of  trust  to  the  amount  of  50,000  in  number, 
the  proceeds  to  be  used  in  carrying  on  the  factory  and  business  as- 
signed to  and  held  by  the  trustee.  The  certificate  holders  were  to 
be  known  as  the  McKay  Sewing  Machine  Association  and  the  busi- 
ness to  be  conducted  by  an  executive  committee  to  be  chosen  by  them. 
This  was  held  to  create  a  partnership,  and  for  that  reason  the  shares 
were  held  not  to  be  taxable  to  the  holders  of  them.  For  a  subsequent 
case  involving  the  same  association,  where  the  same  conclusion  was 
reached,  see  Gleason  v.  McKay,  134  Mass.  419.  In  Whitman  v.  Por- 
ter, 107  Mass.  522,  certain  subscribers  associated  themselves  togeth- 
er to  buy  a  ferryboat  to  be  run  between  Agawam  and  Springfield : 
the  boat  was  to  be  conveyed  to  one  of  the  subscribers  in  "trust"  and 
the  entire  business  was  to  be  conducted  by  these  trustees  and  their  offi- 
cers to  be  annually  elected  by  the  subscribers.  The  stock  was  assign- 
able. These  stockholders  were  held  to  be  partners.  In  PhiUips  v. 
Blatchford,  137  Mass.  510,  the  money  to  carry  on  the  business  of 
manufacturing  and  selling  grates  was  raised  by  the  sale  of  transfer- 
able certificates  issued  under  a  somewhat  similar  declaration  of  trust 
which  provided  that  the  business  should  be  carried  on  by  a  board  of 
managers  of  whom  the  trustee  was  to  be  one,  and  the  other  members 
were  to  be  elected  by  the  shareholders.  This  also  was  held  to  be  a 
partnership.  In  Ricker  v.  American  Loan  &  Trust  Co.,  140  Mass. 
346,  5  N.  E.  284,  the  doctrine  of  these  cases  was  extended  to  a  case 
where  the  purpose  of  the  association  was  to  buy  cars  to  be  leased  to 
a  specified  railroad.  The  persons  providing  the  purchase  money  were 
to  have  transferable  certificates,  which  certificates  by  the  terms  of 
the  lease  to  the  railroad  were  to  be  paid  in  ten  annual  installments 
with  six  per  cent,  interest  until  paid.  The  certificate  holders  were 
declared  in  the  declaration  of  trust  to  be  an  association,  and  ah  the 
business  was  to  be  transacted  by  a  board  of  managers  to  be  elected 
by  them.  The  property  of  the  association  was  to  be  held  by  the  Amer- 
ican Loan  &  Trust  Company  as  trustee.  This  also  was  held  to  be  a 
partnership.  Williams  v.  Boston,  208  Mass.  497,  94  N.  E.  808,  was 
a  similar  case.  The  trust  agreement  in  that  case  provided  that  the 
trust  was  established  "for  the  purchase,  development  and  disposition 


-14  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

of"  the  former  site  of  the  INIuseum  of  Fine  Arts  in  Boston.  The 
property  was  to  be  held  by  trustees,  but  the  shareholders  had  a  right 
to  remove  the  trustees,  and  meetings  of  the  shareholders  were  to  be 
held  at  which  the  shareholders  might  authorize  or  instruct  the  trus- 
tees in  any  manner  and  alter  or  amend  the  declaration  of  trust,  or 
direct  the  trustees  to  end  the  trust,  sell  the  property  and  distribute  the 
proceeds.  The  original  papers  in  the  case  show  these  to  have  been 
the  facts  in  the  case,  although  they  are  not  stated  in  the  report  of  that 
decision.  The  property  of  this  association  was  held  to  be  taxable  as 
partnership  property. 

In  Mayo  v.  Moritz,  151  Mass.  481,  24  N.  E.  1083,  on  the  other 
hand,  it  was  held  that  certificate  holders  under  the  declaration  of 
trust  there  in  question  were  not  partners.  In  that  case  an  inventor 
transferred  his  invention  to  trustees  to  whom  by  the  terms  of  the 
trust  indenture  the  patent  was  to  be  issued  when  it  was  issued.  The 
trust  indenture  provided  for  the  issue  of  scrip  to  those  who  should 
furnish  to  the  trustees  the  money  necessary  for  the  more  advanta- 
geous disposition  of  the  invention.  The  trust  on  which  the  trustees 
were  to  hold  the  invention  and  the  money  produced  by  the  issue  of 
scrip  was  to  hold,  manage  and  dispose  of  the  invention  or  any  part 
thereof  or  interest  therein  upon  such  terms  as  to  them  (the  trustees) 
or  a  maioritr  of  them  should  seem  best,  the  net  proceeds  to  be  paid 
one  half  to  the  inventor  and  the  other  half  to  the  holders  of  the  scrip 
or  certificates.  The  scrip,  called  in  the  trust  indenture  scrip  or  cer- 
tificates, was  transferable.  Vacancies  in  the  office  of  trustees  were 
to  be  filled  by  the  remaining  trustees.  It  was  held  that  the  scrip  hold- 
ers were  not  partners,  and  in  that  respect  the  case  was  "unlike  Glea- 
son  v.  McKay,  134  Mass.  419,  and  Phillips  v.  Blatchford,  137  Mass. 
510." 

The  difference  between  Hoadley  v.  County  Commissioners,  105 
Mass.  519  (involving  the  same  indenture  as  that  in  Gleason  v.  Mc- 
Kay, 134  Mass.  419),  Whitman  v.  Porter,  107  Mass.  522,  Phillips  v. 
Blatchford,  137  Mass.  510,  Ricker  v.  American  Loan  &  Trust  Co., 
140  Mass.  346,  5  N.  E.  284,  and  Williams  v.  Boston,  208  Mass.  497, 
94  N.  E.  808,  on  the  one  hand,  and  Mayo  v.  Moritz,  151  Mass.  481, 
24  N.  E.  1083,  on  the  other  hand,  lies  in  the  fact  that  in  the  former 
cases  the  certificate  holders  are  associated  together  by  the  terms  of 
the  "trust"  and  are  the  principals  whose  instructions  are  to  be  obeyed 
by  their  agent  who  for  their  convenience  holds  the  legal  title  to 
their  property,  the  property  is  their  property,  they  are  the  masters ; 
while  in  Mayo  v.  Moritz,  on  the  other  hand,  there  is  no  association 
between  the  certificate  holders,  the  property  is  the  property  of  the 
trustees  and  the  trustees  are  the  masters.  All  that  the  certificate  hold- 
ers in  Mayo  v.  Moritz  -had  was  a  right  to  have  the  property  managed 
by  the  trustees  for  their  benefit.  They  had  no  right  to  manage  it 
themselves  nor  to  instruct  the  trustees  how  to  manage  it  for  them.  As 
was  said  by  C.  Allen,  J.,  in  Mayo  v.  Moritz,  151  Mass.  481,  484,  24 


SUPPLEMENTARY   LIST  OF  CASES  ON   PARTNERSHIP  45 

N.  E.  1083 :  "The  scrip  holders  are  cestuis  que  trust,  and  are  enti- 
tled to  their  share  of  the  avails  of  the  property  when  the  same  is  sold," 
and  that  is  all  to  which  they  were  entitled.  In  Mayo  v.  Moritz  the 
scrip  holders  had  a  common  interest  in  the  trust  fund  in  the  same 
sense  that  the  members  of  a  class  of  life  tenants  and  the  members  of 
a  class  of  remaindermen  (amon.«^  whom  the  income  of  a  trust  fund 
and  the  corpus  are  to  be  distributed  respectively)  have  a  common 
interest.  But  in  Mayo  v.  Moritz  there  was  no  association  among  the 
certificate  holders  just  as  there  is  no  association  although  a  common 
interest  aipong  the  life  tenants  or  the  remaindermen  in  an  ordinary 
trust.  For  a  decision  in  this  commonwealth  somewhat  like  Mayo  v. 
Moritz,  ubi  supra,  see  Ilussey  v.  Arnold,  185  Mass.  202,  70  N.  E.  87. 
See,  also,  in  this  connection  Makin  v.  Savings  Institution,  23  Me.  350, 
41  Am.  Dec.  389;   Burt  v.  Lathrop,  52  Mich.  106,  17  N.  W.  716. 

There  is  a  case  in  England  (Smith  v.  Anderson,  15  Ch.  D.  247)  in 
which  the  distinction  between  cases  like  Hoadley  v.  County  Commis- 
sioners and  Mayo  v.  Moritz  was  pointed  out  and  established,  and 
that  case  is  now  the  established  law  in  England.  In  Smith  v.  Ander- 
son (decided  by  the  Court  of  Appeals  in  1880)  the  trust  deed  provid- 
ed for  the  purchase  by  trustees  of  shares  in  the  capital  stock  of  11 
different  submarine  telegraph  companies.  The  money  was  to  be  fur- 
nished by  subscribers  to  whom  transferable  certificates  were  to  be 
issued.  The  income  derived  from  the  submarine  shares  and  the  pro- 
ceeds of  any  sales  of  them  were  to  be  applied  by  the  trustees  (1)  in 
paying  6  per  cent,  interest  on  the  trust  certificates  issued  under  the 
trust;  (2)  in  redeeming  these  trust  certificates  at  $120;  and  finally, 
when  (3)  all  the  certificates  had  been  redeemed,  the  surplus,  if  any, 
was  to  be  divided  among  the  former  certificate  holders.  It  was  held 
that  this  was  a  trust  and  not  a  company,  association,  or  partnership 
which  had  to  be  registered  under  Companies  Act  of  1862  (25  &  26 
Vict.  c.  89)  §  4.  That  act  provided  that  "no  company,  association 
or  partnership  *  *  *  shall  be  formed  *  *  *  for  the  pur- 
pose of  carrying  on  any  other  business  [that  is  to  say,  any  business 
other  than  banking]  that  has  for  its  object  the  acquisition  of  gain  by 
the  company,  association  or  partnership,  or  by  the  individual  members 
thereof  unless  it  is  registered."  This  conclusion  was  reached  on  the 
ground  that  there  is  a  dilTerence  between  a  partnership  where  money 
raised  by  the  issue  of  transferable  certificates  is  to  be  held  by  so- 
called  trustees  who  are  really  managing  agents,  and  a  trust  where 
money  raised  by  the  issue  of  transferable  certificates  is  to  be  held  by 
trustees  properly  so  called,  and  that  the  distinction  between  the  two 
is  that  which  we  have  just  stated  in  detail. 

The  decision  in  Smith  v.  Anderson  is  the  law  of  England  to-day, 
although  by  reason  of  some  special  facts  in  that  case  and  the  way  in 
which  the  question  arose  doubts  as  to  the  conclusion  reached  in  that 
case  have  been  thrown  out  by  two  or  three  individual  judges.  For 
the  subsequent  cases  see  Crowther  v.  Thorley,  32  W.  R.  330;    In  re 


4C  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

Siddall,  29  Ch.  D.  1;  In  re  Jones,  [1898]  2  Ch.  83,  91.  For  two 
cases  where  the  distinction  between  managing  agents  who  hold  the 
legal  title  and  trustees  properly  so  called  is  reaffirmed,  see  In  re  Thom- 
as,- 14  O.  B.  D.  379,  383 ;  In  re  Faure  Electric  Accumulator  Co.,  40 
Ch.  D.  141.  151,  152. 

This  brings  us  to  the  question  of  the  character  of  the  Boston  Per- 
sonal Property  Trust.  It  is  plain  that  it  is  a  trust  and  not  a  partner- 
ship. By  the  terms  of  the  indenture  of  trust  the  property  contributed 
by  the  certificate  holders,  or  that  bought  with  money  contributed  by 
them  (the  original  trust  property  could  be  acquired  in  both  ways  by 
the  terms  of  the  indenture  of  trust),  was  to  be  held  by  the  trustees 
in  trust  to  pay  the  income  to  the  holders  of  the  certificates,  and  on 
the  termination  of  the  trust  to  divide  the  trust  fund  or  the  proceeds 
thereof  among  them.  The  certificate  holders  are  throughout  called 
"cestuis  que  trustent."  The  certificate  holders,  or  "cestuis  que  trust- 
ent,"  are  in  no  way  associated  together,  nor  is  there  any  provision  in 
the  indenture  of  trust  for  any  meeting  to  be  held  by  them.  The  only 
act  which  (under  the  trust  indenture)  they  can  do  is  to  consent  to  an 
alteration  or  amendment  of  the  trust  created  by  the  indenture  or  to 
a  termination  of  it  before  the  time  -fixed  in  the  deed.  But  they  can- 
n,ot  force  the  trustees  to  make  such  alteration,  amendment  or  termina- 
tion. It  is  for  the  trustees  to  decide  whether  they  will  do  any  one 
of  these  things.  All  that  the  certificate  holders  or  "cestuis  que  trust- 
ent" can  do  is  to  give  or  withhold  their  consent  to  the  trustees  taking 
such  action.  And  the  giving  or  withholding  of  consent  by  the  cestuis 
que  trust  is  not  to  be  had  in  a  meeting,  but  is  to  be  given  by  them  in- 
dividually. As  we  have  said,  no  meeting  of  the  cestuis  que  trust  for 
that  or  any  other  purpose  is  provided  for  in  the  trust  indenture.  The 
trustees  of  the  Boston  Personal  Property  Trust  have  a  right  to  sell 
the  trust  securities  and  reinvest  the  proceeds,  and  also  a  limited  pow- 
er to  borrow  on  the  security  of  the  trust  property.  The  certificate 
holders,  or  "cestuis  que  trustent,"  as  they  are  called  in  the  trust  deed, 
have  a  common  interest  in  precisely  the  same  sense  that  the  members 
of  a  class  of  life  tenants  (among  whom  the  income  of  a  trust  fund  is 
to  be  distributed)  have  a  common  interest,  but  they  are  not  socii,  and 
it  is  the  trustees,  not  the  certificate  holders,  who  are  the  masters  of 
the  trust  property.  The  sole  right  of  the  cestuis  que  trust  is  to  have 
the  property  administered  in  their  interest  by  the  trustees,  who  are 
the  masters,  to  receive  income  while  the  trust  lasts,  and  their  share 
of  the  corpus  when  the  trust  comes  to  an  end. 

It  has  been  urged  by  the  learned  counsel  for  the  city  of  Boston  that 
these  certificate  holders  or  "cestuis  que  trustent"  are  in  efifect  carry- 
ing on  the  business  of  buying  and  selling  securities  through  the  trus- 
tees as  managing  agents  or  directors,  and  he  refers  to  two  facts  which 
(he  argues)  bear  him  out  in  that  contention,  namely:  (1)  That  the 
trustees  on  April  1,  1911,  had  on  hand  undivided  income  to  the  amount 
of  $51,516.93,  and  a  "surplus  capital"  amounting  to  $488,566.35.     By 


SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP  47 

the  terms  of  the  trust  the  trustees  are  authorized  to  set  aside  from  time 
to  time  such  portion  of  the  net  income  as  shall  not  be  required  for 
dividends  for  a  "surplus  fund,"  which  surplus  fund  may  be  subse- 
quently used  by  them  in  their  discretion  in  payment  of  dividends.  It 
appears  that  the  face  value  of  the  outstanding  certificates  is  $2,090,- 
500.  The  surplus  fund  of  undivided  income  therefore  amounts  to 
about  2V-;  per  cent,  of  the  cori>us  of  the  fund.  The  surplus  capital 
of  $488,566.35  is  about  23 '/l-  per  cent,  of  the  face  value  of  the  out- 
standing certificates.  That  is  not  an  extraordinary  increase  in  the 
value  of  the  corpus  of  the  trust  fund  during  a  period  of  18  years. 
I'ut  this  contention  brings  out  a  fact  in  addition  to  those  already  re- 
ferred to,  which  shows  that  the  Boston  Personal  Property  Trust  is 
not  a  partnership,  but  a  trust,  and  nothing  but  a  trust.  When  per- 
sons engage  as  partners  in  buying  and  selling  stocks,  bonds  and  other 
securities  for  their  mutual  profit,  the  gains  made  by  purchases  and 
sales  are  profits  of  the  partnership,  divisible  as  such  among  those  en- 
titled to  the  profits  of  the  partnership.  In  case  of  a  trust,  on  the 
other  hand,  any  gain  made  by  a  change  of  investments  is  an  accre- 
tion belonging  to  the  corpus  of  the  trust  fund  and  belongs  to  those 
who  own  the  corpus  of  the  fund.  Such  gains  become  part  of  the  cor- 
pus as  much  as  the  original  money  contribution  to  the  trust  fund.  On 
them  the  certificate  holders  or  "cestuis  que  trustent"  are  entitled  to 
income  while  the  trust  lasts,  and  to  their  share  of  them  (because  they 
are  included  in  the  corpus  of  the  trust  fund)  when  the  trust  ends  and 
there  is  a  distribution  of  the  corpus  among  the  cestuis  que  trust.  That 
is  the  way  in  which  the  trustees  of  the  Boston  Personal  Property 
Trust  have  dealt  with  gains  made  by  changes  of  investment  of  the 
securities  of  that  trust.  That  is  to  say,  the  trustees  have  treated  gains 
from  sales  of  securities  not  as  profits  of  a  partnership  organized  to 
buy  and  sell  stock  for  a  profit,  but  as  gains  on  a  change  made  in  the 
investments  of  a  trust  fund. 

It  was  lai-gely  with  respect  to  the  gains  made  by  sales  of  the  se- 
curities of  the  trust  that  the  special  circumstances  in  Smith  v.  Ander- 
son raised  a  doubt  as  to  that  being  a  trust  for  investment  and  not  a 
"business  that  has  for  its  object  the  acquisition  of  gain."  It  was  pro- 
vided in  the  trust  deed  in  Smith  v.  Anderson  that  the  submarine  tele- 
graph shares  should  not  be  sold  unless  they  brought  a  premium  of  30 
per  cent.,  and  that  the  proceeds  of  such  sales  should  be  used  in  the 
same  way  that  the  annual  income  derived  from  the  submarine  tele- 
graph shares  should  be  used,  namely,  in  paying  interest  on  the  trust 
certificates  and  in  retiring  those  certificates  at  $120  a  share.  They 
were  issued  originally  at  $90  per  share.  In  that  respect  the  trust  in 
question  in  Smith  v.  Anderson  was  quite  different  from  the  Boston 
Personal  Property  Trust.  There  is  nothing  in  the  trust  deed  of  the 
Boston  Personal  Property  Trust  which  is  in  any  way  different  from 
a  trust  under  a  will  except  that  there  are  no  limitations  over  and  the 


48  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

interests  of  the  cestuis  que  trust  are  represented  by  transferable  and 
transmissible  certificates. 

Up  to  this  time  we  have  not  alluded  to  the  declaration  in  the  inden- 
ture of  trust  here  in  question  that  it  was  the  intention  of  the  parties 
to  it  to  create  a  trust  and  not  a  partnership.  It  is  what  the  parties 
did  that  is  decisive.  If  there  had  been  doubt  as  to  what  they  did,  what 
they  intended  to  do  would  have  been  a  matter  entitled  to  some  consid- 
eration in  determining  what  they  did. 

It  was  stated  in  a  passing  remark  made  by  this  court  in  Williams 
v.  Johnson,  208  Mass.  544,  552,  95  N.  E.  90,  that  in  the  trust  before 
the  court  in  that  case  the  certificate  holders  were  partners  within  the 
meaning  of  that  word  in  St.  1909,  c.  490,  pt.  1,  §  27.  While  that  trust 
provided  for  meetings  of  the  shareholders  and  in  that  respect  for 
some  association  of  and  among  them,  an  examination  of  the  original 
papers  shows  that  it  was  a  trust  and  not  a  partnership.  This  remark 
was  in  no  way  essential  to  the  decision  in  Williams  v.  Johnson. 

In  the  Boston  Personal,  Property  Trust  the  property  is  the  proper- 
ty of  the  trustees,  to  be  managed  for  the  benefit  of  the  certificate  hold- 
ers, but  to  be  managed  by  the  trustees  and  not  by  the  certificate  hold- 
ers. There  is  no  association  of  or  among  the  certificate  holders.  The 
rights  of  the  certificate  holders  are  limited  to  each  receiving  his  share 
of  the  income  of  the  trust  investments  during  the  continuance  of  the 
trust  and  his  share  of  the  corpus  of  the  trust  when  the  trust  comes  to 
an  end.     It  is  in  every  respect  an  investment  trust  and  nothing  more. 

It  follows  (1)  that  the  property  held  by  the  plaintiff  as  trustees  of 
the  Boston  Personal  Property  Trust  was  not  taxable  as  partnership 
property,  and  that  in  the  petition  brought  by  them  against  the  city 
of  Boston  they  are  entitled  to  an  abatement;  and  (2)  that  their  prop- 
erty was  taxable  as  property  held  in  trust,  the  income  of  which  was 
payable  to  another,  and  the  taxes  assessed  by  the  assessors  of  the  city 
of  Waltham  and  by  the  assessors  of  the  inhabitants  of  Milton  and  of 
Brookline  were  properly  assessed,  and  that  the  petitions  again^st  those 
municipalities  should  be  dismissed. 

It  is  so  ordered. 


CROCKER  et  al.  v.  M ALLEY,  Collector  of  Internal  Revenue. 

(Supreme  Court  of  the  United  States,  1919.     249  U.  S.  223,  39  Sup.  Ct.  270, 
63  L.  Ed.  573,  2  A.  L.  R.  IGOl.) 

On  Writ  of  Certiorari  to  the  United  States  Circuit  Court  of  Ap- 
peals for  the  First  Circuit. 

Action  by  Alvah  Crocker  and  others,  trustees,  against  John  F.  Mal- 
ley,  Collector  of  Internal  Revenue.  Judgment  of  the  District  Court 
for  plaintififs  was  reversed  by  the  Circuit  Court  of  Appeals,  and  plain- 
tiffs bring  certiorari. 

Mr.  Justice  Holmes  delivered  the  opinion  of  the  Court. 


SUPPLEMENTAUY    LIST   OF   CASES   ON    PARTNERSHIP  40 

This  is  an  action  to  recover  taxes  paid  under  protest  to  the  Collector 
of  Internal  Revenue  by  the  petitioners,  the  plaintiffs.  The  taxes  were 
assessed  to  the  plaintiffs  as  a  joint-stock  association  within  the  mean- 
ing of  the  Income  Tax  Act  of  October  3,  1913,  c.  16.  section  II,  G 
(a),  38  Stat.  114,  166,  172,  and  were  levied  in  respect  of  dividends  re- 
ceived from  a  corporation  that  itself  was  taxable  upon  its  net  income. 
The  plaintiffs  say  that  they  were  not  an  association  but  simply  trus- 
tees, and  subject  only  to  the  duties  imposed  upon  fiduciaries  by  sec- 
tion II,  D.  The  Circuit  Court  of  Appeals  decided  that  the  plaintiffs, 
together,  it  woidd  seem,  with  those  for  whose  benefit  they  held  the 
property,  were  an  association,  and  ordered  judgment  for  the  defendant, 
reversing  the  judgment  of  the  District  Court.  250  Fed.  817,  163  C. 
C.  A.  131. 

The  facts  are  these:  A  Maine  paper  manufacturing  corporation 
with  eight  shareholders  had  its  mills  on  4he  Nashua  River  in  Massa- 
chusetts and  owned  outlying  land  to  protect  the  river  from  pollution. 
In  1912  a  corporation  was  fonned  in  Massachusetts.  The  Maine 
corporation  conveyed  to  it  seven  mills  and  let  to  it  an  eighth  that  was 
in  process  of  construction,  together  with  the  outlying  lands  and  tene- 
ments, on  a  long  lease,  receiving  the  stock  of  the  Massachusetts  cor- 
poration in  return.  The  Maine  corporation  then  transferred  to  the 
plaintiff's  as  trustees  the  fee  of  the  property  subject  to  lease,  left  the 
Massachusetts  stock  in  their  hands,  and  was  dissolved.  By  the  dec- 
laration of  trust  the  plaintiffs  declared  that  they  held  the  real  estate 
and  all  other  property  at  any  time  received  by  them  thereunder,  sub- 
ject to  the  provisions  thereof,  "for  the  benefit  of  the  cestui  que  trusts 
(who  shall  be  trust  beneficiaries  only,  without  partnership,  associate  or 
other  relation  whatever  inter  sese)"  upon  trust  to  convert  the  same 
into  money  and  distribute  the  net  proceeds  to  the  persons  then  holding 
the  trustees'  receipt  certificates — the  time  of  distribution  being  left  to 
the  discretion  of  the  trustees,  but  not  to  be  postponed  beyond  the  end 
of  twenty  years  after  the  death  of  specified  persons  then  living.  In 
the  meantime  the  trustees  were  to  have  the  powers  of  owners.  They 
were  to  distribute  what  they  determined  to  be  fairly  distributable  net 
income  according  to  the  interests  of  the  cestui  que  trusts  but  could 
apply  any  funds  in  their  hands  for  the  repair  or  development  of  the 
property  held  by  them,  or  the  acquisition  of  other  property,  pending 
conversion  and  distribution.  The  tmst  was  explained  to  be  because  of 
the  determination  of  the  Maine  corporation  to  dissolve  without  wait- 
ing for  the  final  cash  sale  of  its  real  estate  and  was  declared  to  be  for 
the  benefit  of  the  eight  shareholders  of  the  Maine  Company  who  were 
to  r>eceive  certificates  subject  to  transfer  and  subdivision.  Then  fol- 
lowed a  more  detailed  statement  of  the  power  of  the  trustees  and  pro- 
vision for  their  compensation,  not  exceeding  one  per  cent,  of  the  gross 
income  unless  with  the  written  consent  of  a  majority  in  interest  of 
the  cestui  que  trusts.  A  similar  consent  was  required  for  the  filling  of 
Si'PP^Gil.Part.-- 4 


50  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

a  vacancy  among  the  trustees,  and  for  a  modification  of  the  terms  of 
the  trust.  In  no  other  matter  had  the  beneficiaries  any  control.  The 
title  of  the  trust  was  fixed  for  convenience  as  The  Massachusetts 
Realty  Trust. 

The  declaration  of  trust  on  its  face  is  an  ordinary  real  estate  trust 
of  the  kind  familiar  in  Massachusetts  unless  in  the  particular  that  the 
trustees'  receipt  provides  that  the  holder  has  no  interest  in  any  spe- 
cific property  and  that  it  pui-ports  only  to  declare  the  holder  entitled 
to  a  certain  fraction  of  the  net  proceeds  of  the  property  when  converted 
into  cash  "and  meantime  to  income."  The  only  property  expressly 
mentioned  is  the  real  estate  not  transferred  to  the  Massachusetts  cor- 
poration. Although  the  trustees  in  fact  have  held  the  stock  of  that 
corporation  and  have  collected  dividends  upon  it,  their  doing  so  is  not 
contemplated  in  terms  by  the  instrument.  It  does  not  appear  very 
clearly  that  the  eight  Maine  thareholders  might  not  have  demanded  it 
had  they  been  so  minded.  The  function  of  the  trustees  is  not  to  man- 
age the  mills  but  simply  to  collect  the  rents  and  income  of  such  prop- 
erty as  may  be  in  their  hands,  with  a  large  discretion  in  the  application 
of  it,  but  with  a  recognition  that  the  receipt  holders  are  entitled  to  it 
subject  to  the  exercise  of  the  powers  confided  to  the  trustees.  In  fact, 
the  whole  income,  less  taxes  and  similar  expenses,  has  been  paid  over 
in  due  proportion  to  the  holders  of  the  receipts. 

There  can  be  little  doubt  that  in  Massachusetts  this  arrangement 
would  be  held  to  create  a  trust  and  nothing  more.  "The  certificate 
holders  *  *  *  are  in  no  way  associated  together  nor  is  there  any 
provision  in  the  *  *  *  [instrument]  for  any  meeting  to  be  held  by 
them.  The  only  act  which  (under  the  [declaration  of]  trust  *  *  *) 
they  can  do  is  consent  to  an  alteration  *  *  *  of  the  trust"  and  to 
the  other  matters  that  we  have  mentioned.  They  are  confined  to  giv- 
ing or  withholding  assent,  and  the  giving  or  withholding  it  "is  not  to  be 
had  in  a  meeting  but  is  to  be  given  by  them  individually."  "The  sole 
right  of  the  cestuis  que  trust  is  to  have  the  property  admini.stered  in 
their  interest  by  the  trustees,  who  are  the  masters,  to  receive  income 
while  the  trust  lasts,  and  their  share  of  the  corpus  when  the  trust 
comes  to  an  end."  Williams  v.  Milton,  215  Mass.  1,  8,  10,  11,  102  N. 
E.  355,  358.  The  question  is  whether  a  dififerent  view  is  required  by 
the  terms  of  the  present  act.  As  by  D  above  referred  to  trustees  and 
associations  acting  in  a  fiduciary  capacity  have  the  exemption  that  in- 
dividual stockholders  have  from  taxation  upon  dividends  of  a  corpo- 
ration that  itself  pays  an  income  tax,  and  as  the  plaintiffs  undeniably 
are  trustees,  if  they  are  to  be  subjected  to  a  double  liability  the  lan- 
guage of  the  statute  must  make  the  intention  clear.  Gould  v.  Gould, 
245  U.  S.  151,  153,  38  Sup.  Ct.  53,  62  L.  Ed.  211;  United  States  v. 
Isham,  17  Wall.  496,  504,  21  L.  Ed.  728. 

The  requirement  of  G  (a)  is  that  the  normal  tax  thereinbefore  im- 
posed upon  individuals  shall  be  paid  upon  the  entire  net  income  accru- 
ing from  all  sources  during  the  preceding  year  "to  every  corporation. 


SUrPLEMENTAUY    LIST   OF   OASES   ON    PARTNERSHIP  f^l 

joint-Stock  company  or  association,  and  every  insurance  company,  or- 
ganized in  the  United  States,  no  matter  how  created  or  organized,  not 
including  partnerships."  The  trust  that  has  been  described  would  not 
fall  under  any  familiar  conception  of  a  joint-stock  association,  wheth- 
er formed  under  a  statute  or  not.  Smith  v.  Anderson,  15  Ch.  D.  247, 
273,  274,  277.  282:  Kliot  v.  Freeman,  220  U.  S.  178,  186,  31  Sup.  Ct. 
360,  55  L.  Ed.  424.  If  we  assume  that  the  words  "no  matter  how 
created  or  organized"  apply  to  "association"  and  not  only  to  "insurance 
company,"  still  it  would  be  a  wide  departure  from  normal  usage  to 
call  the  beneficiaries  here  a  joint-stock  association  when  they  are  ad- 
mitted not  to  be  partners  in  any  sense,  and  when  they  have  no  joint 
action  or  interest  and  no  control  over  the  fund.  On  the  other  hand,  the 
trustees  by  themselves  cannot  be  a  joint-stock  association  within  the 
meaning  of  the  act  unless  all  trustees  with  discretionary  powers  are 
such,  and  the  special  provision  for  trustees  in  D  is  to  be  made  mean- 
ingless. We  perceive  no  ground  for  grouping  the  two — beneficiaries 
and  trustees — together,  in  order  to  turn  them  into  an  association,  by 
uniting  their  contrasted  functions  and  powers,  although  they  are  in 
no  proper  sense  associated.  It  seems  to  be  an  unnatural  perversion  of 
a  well-known  institution  of  the  law. 

We  do  not  see  either  that  the  result  is  affected  by  any  technical 
analysis  of  the  individual  receipt  holder's  rights  in  the  income  received 
by  the  trustees.  The  description  most  in  accord  with  what  has  been 
the  practice  would  be  that,  as  the  receipts  declare,  the  holders,  until 
distribution  of  the  capital,  were  entitled  to  the  income  of  the  fund  sub- 
iect  to  an  unexercised  power  in  the  trustees  in  their  reasonable  discre- 
tion to  divert  it  to  the  improvement  of  the  capital.  But  even  if  it  were 
said  that  the  receipt  holders  were  not  entitled  to  the  income  as  such  un- 
til they  got  it,  we  do  not  discern  how  that  would  turn  them  into  a  joint- 
stock  company.  Moreover  the  receipt  holders  did  get  it  and  the  ques- 
tion is  what  portion  it  was  the  duty  of  the  trustees  to  withhold. 

We  presume  that  the  taxation  of  corporations  and  joint-stock  com- 
panies upon  dividends  of  corporations  that  themselves  pay  the  income 
tax  was  for  the  purpose  of  discouraging  combinations  of  the  kind 
.now  in  disfavor,  by  which  a  corporation  holds  controlling  interests 
in  other  corporations  which  in  their  turn  may  control  others,  and  so  on, 
and  in  this  way  concentrates  a  power  that  is  disapproved.  There  is 
nothing  of  that  sort  here.  Upon  the  whole  case  we  are  of  opinion 
that  the  statute  fails  to  show  a  clear  intent  to  subject  the  dividends  on 
the  Massachusetts  corporation's  stock  to  the  extra  tax  imposed  by  G  (a). 

Our  view  upon  the  main  question  opens  a  second  one  upon  which  the 
Circuit  Court  of  Appeals  did  not  have  to  pass.  The  District  Court 
while  it  found  for  the  plaintiffs,  ruled  that  the  defendant  was  entitled 
to  retain  out  of  the  sum  received  by  him  the  amount  of  the  tax  that 
they  should  have  paid  as  trustees.  To  this  the  plaintiffs  took  a  cross 
writ  of  error  to  the  Circuit  Court  of  Appeals.  There  can  be  no  ques- 
tion that  although  the  plaintiffs  escape  the  larger  liability,  there  was 


52  SUPPLEMENTARY    LIST  OF   CASES   ON   PARTNERSHIP 

probable  cause  for  the  defendant's  act.  The  Commissioner  of  Inter- 
nal Revenue  rejected  the  plaintiff's  claim,  and  the  statute  does  not  ^eave 
the  matter  clear.  The  recovery  therefore  will  be  from  the  United 
States.  Rev.  St.  §  989  (Comp.  St.  §  1635).  The  plaintiffs,  as  they 
themselves  alleged  in  their  claim,  were  the  persons  taxed,  whether  they 
were  called  an  association  or  trustees.  They  were  taxed  too  much.  If 
the  United  States  retains  from  the  amount  received  by  it  the  amount 
that  it  should  have  received,  it  cannot  recover  that  sum  in  a  subsequent 
suit. 

judgment  of  the  Circuit  Court  of  Appeals  reversed. 

judgment  of  the  District  Court  affirmed. 


HECHT  et  al.  v.  MALLEY,  Former  Collector  of  Internal  Revenue. 
(Supreme  Court  of  the  United  States,  1924.    44  Sup.  Ct.  462,  68  L.  Ed.  .) 

On  Writs  of  Certiorari  to  the  United  States  Circuit  Court  of  Appeals 
lor  the  First  Circuit. 

Actions  at  law  by  Simon  Hecht  and  another,  by  Arthur  L.  Howard_ 
and  another,  trustees,  and  by  Alvah  Crocker  and  others,  trustees,  against 
John  F.  Malley,  former  Collector  of  Internal  Revenue,  and  by  Arthur 
L.  Howard  and  another,  trustees,  against  Andrew  J,  Casey,  former 
Acting  Collector  of  Internal  Revenue.  Judgments  for  plaintiffs  (276 
Fed.  830)  were  reversed  and  remanded  by  the  Circuit  Court  of  Ap- 
peals (281  Fed.  363),  and  plaintiffs  petition  for  certiorari.  Affirmed  in 
part,  and  reversed  in  part. 

Mr.  Justice  Sanford  delivered  the  opinion  of  the  Court. 

These  four  cases,  which  were  heard  together,  involve  the  question 
whether  the  trustees  of  three  "Massachusetts  Trusts"  are  subject  to 
the  special  excise  taxes  imposed  upon  certain  associations"  by  the  Reve- 
nue Act  of  1916  (39  Stat.  756,  c.  463),  and  the  Revenue  Act  of  1918 
(40  Stat.  1057,  c.  18),  based  upon  the  value  of  their  capital  stock. 

The  petitioners  in  Case  No.  99  are  the  trustees  of  the  "Hecht  Real 
Estate  Trust";  in  Nos.  100  and  101,  the  trustees  of  the  "Ilaymarket 
Trust";  and  in  No.  119,  the  trustees  of  the  "Crocker,  Burbank  &  Co. 
Ass'n."  Excise  taxes  were  assessed  against  them  under  these  Acts  and 
paid  under  protest.  They  then  brought  suits  for  refund  in  the  Fed- 
eral District  (^ourt  in  Massachusetts,  and  had  recoveries.  276  Fed. 
830.  The  judgments  in  their  favor  were  reversed  by  the  Circuit  Court 
of  Appeals.  281  Fed.  363.  And  these  writs  of  certiorari  were  granted. 
260  U.  S.  715,  717,  43  Sup.  Ct.  93,  67  L.  Ed.  478. 

The  "Massachusetts  Trust"  is  a  form  of  business  organization,  com- 
mon in  that  State,  consisting  essentially  of  an  arrangement  whereby 
property  is  conveyed  to  trustees,  in  accordance  with  the  terms  of  an  in- 


SUPPLKMENTARY    LIST   OF   CASKS   ON    PARTNERSHIP  53 

strumcnt  of  trust,  to  be  held  and  managed  for  the  I^nefit  of  such  per- 
sons as  may  from  time  to  time  be  the  holders  of  transferable  certifi- 
cates issued  by  the  trustees  showing  the  shares  into  which  the  beneficial 
interest  in  the  property  is  divided.  These  certificates,  which  resemble 
certificates  for  shares  of  stock  in  a  corporation  and  are  issued  and 
transferred  in  like  manner,  entitle  the  holders  to  share  ratably  in  the 
income  of  the  property,  and,  upon  termination  of  the  trust,  in  the  pro- 
ceeds. 

Under  the  Massachusetts  decisions  these  trust  instruments  are  held 
to  create  either  pure  trusts  or  partnerships,  according  to  the  way  in 
which  the  trustees  are  to  conduct  the  affairs  committed  to  their  charge. 
If  they  are  the  principals  and  are  free  from  the  control  of  the  certifi- 
cate holders  in  the  management  of  the  property,  a  trust  is  created;  but 
if  tlie  certificate  holders  are  associated  together  in  the  control  of  the 
property  as  principals  and  the  trustees  are  merely  their  managing 
agents,  a  partnership  relation  between  the  certificate  holders  is  created. 
Williams  v.  Milton,  215  Mass.  1,  5,  102  N.  E.  355;  Frost  v.  Thomp- 
son. 219  Mass.  360,  365,  106  N.  E.  1009 ;  Dana  v.  Treasurer,  227  Mass. 
562,  565,  116  N.  E.  941  ;  Priestly  v.  Treasurer,  230  Mass.  452,  455, 
120  K.  E.  100. 

These  trusts — whether  pure  trusts  or  partnerships^are  unincorpo- 
rated. They  are  not  organized  under  any  statute;  and  they  derive  no 
power,  benefit  or  privilege  from  any  statute.  The  Massachusetts  stat- 
utes, however,  recognize  their  existence  and  impose  upon  them,  as  "as- 
sociations," certain  obligations  and  liabilities. 

The  TTecht  Real  Estate  Trust  was  established  by  the  members  of  the 
Hecht  family  upon  real  estate  in  Boston  used  for  ofiices  and  business 
pur]ioscs,  which  they  owned  as  tenants  in  common.  It  is  primarily  a 
family  affair.  The  certificates  have  no  par  value:  the  shares  being  for 
one-thousandths  of  the  beneficial  interest.  They  are  transferable ;  but 
must  be  offered  to  the  trustees  before  being  transferred  to  any  person 
outside  of  the  family.  The  trustees  have  full  and  complete  powers  of 
management ;  but  no  power  to  create  any  liability  against  the  certifi- 
cate holders.  There  are  no  meetings  of  certificate  holders ;  but  they 
may,  by  written  instrument,  increase  the  number  of  trustees,  rem6vc 
a  trustee,  appoint  a  new  trustee  if  there  be  none  remaining,  modify  the 
declaration  of  trust  in  any  particular,  terminate  the  trust,  or  give  the 
trustees  any  instructions  thereunder. 

The  Haymarket  Trust  is  strictly  a  business  enterprise.  It  was  es- 
tablished by  the  original  subscribers  who  furnished  the  money  for  the 
purchase  of  a  building  in  Boston  used  for  store  and  office  purposes. 
The  shares  are  of  the  par  value  of  $100  each.  Except  as  otherwise 
restricted,  the  trustees  have  general  and  exclusive  powers  of  manage- 
ment, but  no  power  to  bind  the  certificate  holders  personally.  At  any 
annual  or  special  meeting  of  the  certificate  holders,  they  may  fill  any  va- 
cancies in  the  number  of  trustees,  depose  any  or  all  the  trustees  and 


54  SUPPLEMENTARY   LIST  OF  CASES  ON   PARTNERSHIP 

elect  others  in  their  place,  authorize  the  sale  of  the  property  or  any 
part  thereof,  and  alter  or  amend  the  agreement  of  trust. 

The  Crocker,  Burbank  &  Co.  Ass'n  is  also  a  business  enterprise. 
It  was  formerly  entitled  the  Wachusett  Realty  Trust.  The  certifi- 
cates have  no  par  value ;  the  shares  being  for  ninety-six  thousandths 
of  the  beneficial  interest  in  the  property.  The  trustees  originally  held 
the  fee  of  certain  lands  subject  to  a  long  lease  and  the  stock  of  a  Mas- 
sachusetts corporation  engaged  in  manufacturing  paper  and  owning 
and  operating  several  mills.  In  Crocker  v,  ]\Ialley,  249  U.  S.  223,  39 
Sup.  Ct.  270!  63  L.  Ed.  573,  2  A.  L.  R.  1601  (1919),  in  which  the  orig- 
inal trust  instrument  was  before  the  court,  it  was  held  that  the  trustees 
were  not  subject  as  to  the  dividends  received  from  the  corporation  to 
the  tax  imposed  by  the  Income  Tax  Act  of  1913  (38  Stat.  172)  upon 
the  net  income  of  "every  corporation,  joint-stock  company  or  associa- 
tion, *  '■■'  *  organized  in  the  United  States,"  but  were  subject  only 
to  the  duties  imposed  by  the  Act  tipon  trustees.  The  original  trust 
agreement  involved  in  that  case  has  now,  however,  been  modified,  with 
the  assent  of  the  certificate  holders.  By  this  modification  "the  fonn  of 
[the]  organization"  was  specifically  "changed  to  that  of  an  association," 
under  its  present  name.  The  trustees  were  authorized  to  surrender 
the  stock  of  the  manufacturing  corporation,  to  acquire  instead  its  en- 
tire property,  and  to  carry  on  the  business  theretofore  conducted  by 
it,  or  any  substantially  similar  business.'  The  title  to  all  the  trust  prop- 
erty "and  the  right  to  conduct  all  the  business"  were  vested  exclusive- 
ly in  the  trustees,  who  were  authorized  to  designate  from  their  number 
a  president  and  other  officers  and  to  prescribe  their  duties.  The  cer- 
tificate holders  were  authorized,  at  any  meeting,  to  remove  any  trustee 
and  elect  trustees  to  fill  any  vacancies.  Since  the  modification  of  the 
trust  agreement  the  trustees  have  carried  on  the  manufacturing  busi- 
ness in  substantially  the  same  manner  as  it  was  formerly  conducted 
by  the  corporation. 

To  determine  rightly  the  scope  and  effect  of  the  Revenue  Acts  now 
in  question  it  is  necessary  to  bear  in  mind  the  previous  legislation  on 
the  same  subject,  and  the  interpretation  given  it  by  the  decisions  of  this 
Court. 

Section  38  of  the  Act  of  August  5,  1909,  c.  6,  36  Stat.  11,  12— com- 
monly called  the  Corporation  Tax  Law — provided : 

"That  every  corporation,  joint  stock  company  or  association,  or- 
ganized for  profit  and  having  a  capital  stock  represented  by  shares, 
and  every  insurance  company,  now  or  hereafter  organized  under  the 
laws  of  the  United  States  or  of  any  State  or  Territory,  *  *  *  or 
now  or  hereafter  organized  under  the  laws  of  any  foreign  country 
and  engaged  in  business  in  any  State  or  Territory  of  the  United  States 
*  *  *  shall  be  subject  to  pay  annually  a  special  excise  tax  with  re- 
spect to  the  carrying  on  or  doing  business,  *  *  *  equivalent  to 
one  per  centum  upon  the  entire  net  income  over  and  above  five  thou- 
sand dollars  received  by  it  from  all  sources ;      *    *    *    or  if  organized 


SUPPLEMENTARY   LIST   OF   CASES   ON    PARTNERSHIP  55 

under  the  laws  of  any  foreign  country,     ♦    *     *     from  business  trans- 
acted and  capital  invested  within  the  United  States  and  its  Territories. 

*  *     +  >> 

In  Flint  V.  Stone  Tracy  Co.,  220  U.  S.  107,  31  Sup.  Ct.  342,  55  L. 
Ed.  389,  Ann.  Cas.  19121;,  1312  (1911),  the  court,  in  sustaining  the 
constitutionality  of  this  section  of  the  Act,  said  that  the  domestic  cor- 
porations, joint  stock  companies  or  associations,  as  well  as  the  insur- 
ance companies,  "must  be  such  as  are  now  or  hereafter  organized 
under  the  laws  of  the  United  States  or  of  any  State  or  Territory,"  and 
that  the  tax  was  imposed  "upon  the  doing  of  business  with  the  ad- 
vantages which  inhere  in  the  peculiarities  of  corporate  or  joint  stock 
organizations  of  the  character  described,"  that  is,  "upon  the  exercise 
of  the  privilege  of  doing  business  in  a  corporate  capacity,  as  such  busi- 
ness is  done  under  authoritv  of  state  franchises." 

In  Eliot  V.  Freeman,  220  U.  S.  178,  185,  31  Sup.  Ct.  360,  361,  55  L. 
Ed.  424  (1911),  it  was  held  that  tliis  excise  tax  did  not  apply  to  two 
typical  Massachusetts  trusts.     The  court  said: 

"Under  the  terms  of  the  Corporation  Tax  Law,  corporations  and 
joint  stock  associations  must  be  such  as  are  'now  or  hereafter  organized 
under  the  laws  of  the  United  States  or    of  any    State  or   Territory. 

*  *  * '  The  language  *  *  *  'now  or  hereafter  organized  under 
the  laws  of  the  United  States,'  etc.,  imports  an  organization  deriving 
j-)0wer  from  statutory  enactment.  *  *  *  The  description  of  the 
'-orporation  or  joint  stock  association  as  one  organized  under  the  laws 
of  a  State  at  once  suggests  that  they  are  such  as  are  the  creation  of 
>tatutory  law,  from  which  they  derive  their  powers  and  are  qualified 
to  carry  on  their  operations.  *  *  *  Entertaining  the  view  that  it 
was  the  intention  of  Congress  to  embrace  within  the  corporation  tax 
statute  only  such  corporations  and  joint  stock  associations  as  are  or- 
ganized under  some  statute,  or  derive  from  that  source  some  quality 
or  benefit  not  existing  at  the  common  law,  we  are  of  opinion  that  the 
real  estate  trusts  involved  in  these  two  cases  are  not  within  the  terms 
of  the  act." 

We  come  now  to  the  consideration  of  the  Acts  involved  in  the  pres- 
ent cases. 

1.  Revenue  Act  of  10 J 6. —SecUon  407,  title  4,  of  this  Act  provides 
(39  Stat.  p.  789  [Comp.  St.  §  5980a])  that: 

"Every  corporation,  joint-stock  company  or  association,  now  or 
hereafter  organized  in  the  United  States  for  profit  and  having  a  capital 
stock  represented  by  shares,  and  every  insurance  company,  vow  or 
hereafter  organized  under  the  lazvs  of  the  United  States,  or  any  State 
or  Territory,  *  *  *  shall  pay  annually  a  special  excise  tax  with 
respect  to  the  earning  on  or  doing  business,  *  *  *  equivalent  to 
50  cents  for  each  $1,000  of  the  fair  value  of  its  capital  stock,"  includ- 
ing the  surplus  and  undivided  profits,  but  less  an  exemption  of  $99,000 
from  the  capital  stock. 


56  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

And,  in  a  separate  paragraph,  that: 

"Every  corporation,  joint-stock  company  or  association;  or  insur- 
ance company,  now  or  hereafter  organized  for  profit  under  the  laws 
of  any  foreign  country  and  engaged  in  business  in  the  United  States 
shall  pay  annually  a  special  excise  tax,  *  *  *  equivalent  to  50  cents 
for  each  $1,000  of  the  capital  actually  invested  in  the  transaction  of 
its  business  in  the  United  States." 

Section  10,  title  1  (Comp.  St.  §  6336j),  also  provides  that  there  shall 
be  paid  annually  a  tax  of  two  per  centum  upon  the  net  income  re- 
ceived "by  every  corporation,  joint-stock  company  or  association,  or 
insurance  company,  organized  in  the  United  States,  no  matter  how 
created  or  organized." 

The  bill  as  introduced  in  the  House  of  Representatives  contained 
this  provision  for  an  income  tax,  but  no  provision  for  an  excise  tax. 
It  was  amended  in  the  Senate  so  as  to  impose  on  every  corporation, 
ioint-stock  company  or  association,  as  defined  and  limited  in  section 
10,  title  1,  that  is,  ''organized  in  the  United  States,  no  matter  how  cre- 
ated or  organized,"  a  special  tax  of  50  cents  for  each  $1,000  "of  cap- 
ital, surplus  and  undivided  profits  used  in  any  of  the  activities  or  func- 
tions of  their  business."  The  Chairman  of  the  Senate  Committee  on 
Finance,  in  reporting  the  bill  with  this  amendment,  referred  to  it  as 
"imposing  a  small  tax  upon  corporations  in  the  nature  of  a  license 
tax  for  doing  business."  The  House,  however,  did  not  agree  to  this 
amendment.  And  later,  pursuant  to  the  report  of  a  Conference  Com- 
mittee, there  was  inserted  in  the  bill,  in  lieu  of  the  Senate  amendment, 
the  provision  for  a  special  excise  tax  now  contained  in  section  407  of 
the  Act,  in  which  the  words  "no  matter  how  created  or  organized" 
were  omitted,  and  the  words  "organized  under  the  laws  of  the  United 
States,  or  any  State  or  Territory,"  which  had  been  contained  in  the 
Act  of  1909,  were  inserted.  64th  Cong.  1st  Sess.  H.  R.  16763,  and  Sen. 
Rep.  No.  793,  pt.  1,  p.  2;  53  Cong.  Rec.  pt.  11,  p.  10663  and  part  13. 
p.  14020. 

It  thus  appears  that  Congress  intended  to  make  a  clear  distinction 
between  the  provisions  relating  to  the  income  tax  and  to  the  excise  tax. 
and  purposely  framed  them,  as  shown  by  the  amendment  incorporated 
in  the  bill  before  its  final  passage,  so  that  while  the  income  tax  pro- 
vision should  apply  to  all  domestic  corporations,  joint-stock  companies 
or  associations,  no  matter  how  created  or  organized,  the  excise  tax 
provision  should  only  apply  to  such  as  were  organized  under  statiltory 
law.  See  United  States  v.  PubHshing  Co.,  219  U.  S.  1,  13,  31  Sup.  Ct. 
212,  55  L.  Ed.  65,  21  Ann.  Cas.  942 ;  United  States  v.  St.  Paul  Rail- 
way, 247  U.  S.  310,  318,  38  Sup.  Ct.  525,  62  L.  Ed.  1130. 

The  words,  "now  or  hereafter  organized  under  the  laws  of  the  Unit- 
ed States  or  any  State  or  Territory"  appear  in  the  Act  of  1916  in  pre- 
cisely the  same  place  with  reference  to  the  preceding  words  "every  cor- 
poration, joint-stock  company  or  association"  as  in  the  Act  of  1909, 
and  are  separated  from  them  in  like  manner  by  the  phrase  "and  every 


SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP  57 

insurance  company,"  followed  by  the  like  comma.  And  it  is  clear  that 
in  the  intermediate  phrase  "now  or  hereafter  organized  in  the  United 
States  for  profit  and  having  a  capital  stock  represented,  by  shares," 
the  words  "in  the  United  States"  were  inserted  in  the  Act  of  1916 
after  the  word  "organized"  merely  by  reason  of  the  fact  that  this  Act 
refers  to  domestic  and  foreign  corporations,  joint-stock  companies  and 
associations  in  two  separate  paragraphs  instead  of  in  the  same  para- 
graph as  in  the  Act  of  1909.  The  words  "organized  in  the  United 
States"  have  no  diiTerent  eflfect,  as  applied  to  domestic  corporations, 
joint-stock  companies  and  associations,  from  the  word  "organized"  as 
used  in  the  Act  of  1909,  and  in  no  wise  remove  the  ensuing  general 
limitation  that  they  must  be  such  as  are  "organized  under  the  laws 
of  the  United  States,  or  any  State  or  Territory." 

And  since  these  limiting  words,  when  used  in  the  Act  of  1909,  had 
been  held  by  this  Court,  in  Eliot  v.  Freeman,  to  show  the  intention  of 
Congress  to  embrace  within  the  statute  only  such  corporations  and 
joint-stock  ass^ociations  as  "are  organized  under  some  statute,  or  de- 
rive from  that  source  some  quality  or  benefit  not  existing  at  the  com- 
mon law,"  they  must  be  given  the  same  meaning  and  effect  when  used 
in  the  Act  of  1916.  In  adopting  the  language  used  in  an  earlier  act 
Congress  must  be  considered  to  have  adopted  also  the  construction 
given  by  this  Court  to  such  language,  and  made  it  a  part  of  the  en- 
actment. ■  Sessions  v.  Romadka,  145  U.  S.  29,  43,  12  Sup.  Ct.  799.  36 
L.  Ed.  609;  Latimer  v.  United  States,  223  U.  S.  501,  504,  32  Sup.  Ct. 
242,  56  L.  Ed.  526.  And  here  the  legislative  history  of  the  excise  tax 
provision  of  the  Act  of  1916,  and  the  marked  contrast  between  its  lan- 
guage and  that  of  the  income  tax  provision  of  the  same  Act,  plainly 
show,  aside  from  this  rule  of  statutory  construction,  that  this  is  what 
Congress  in  fact  intended. 

We  conclude  that  as  the  trusts  involved  in  these  four  cases  are  not 
organized  under  any  statute  and  derive  from  such  source  no  quality 
or  benefit,  they  are  not  within  the  terms  of  the  excise  tax  provision  of 
the  Act  of  1916. 

2.  Rc7'cn.ne  Act  of  J0J8.— Section  1  of  this  Act  provides  (40  Stat, 
p.  1057  [Comp.  St.  Ann.  Supp.  1919,  §  637114a])  that  when  used  in 
the  Act — the  "term  'corporation'  includes  associations,  joint-stock  com- 
panies, and  insurance  companies" ;  the  "term  'domestic'  when  applied 
to  a  corporation  or  partnership  means  created  or  organized  in  the  Unit- 
ed States;"  and  the  "term  'foreign'  *  *  *  •  nieans  created  of  or- 
ganized outside  the  United  States." 

Section  lOOOra),  being  Comp.  St.  Ann.  Supp.  1919.  §  5980n,  pro- 
vides that  in  lieu  of  the  tax  imposed  by  section  407  of  the  Revenue  Act 
of  1916 — "Every  domestic  corporation  shall  pay  annually  a  special 
excise  tax  with  respect  to  carrs-ing  on  or  doing  business,  equivalent 
to  $1  for  each  $1,000  of  so  much  of  the  fair  average  value  of  its  cap- 
ital stock  for  the  preceding  year,"  including  the  suit)1us  and  undivided 
profits,  as  is  in  excess  of  S5,000;   and  every  "foreign  corporation  shall 


58  SUPPLEMENTARY   LIST  OF   CASES   ON   PARTNERSHIP 

pay  annually  a  special  excise  tax  with  respect  to  carrying  on  or  doing 
business  in  the  United  States,  equivalent  to  $1  for  each  $1,000  of  the 
average  amount  of  capital  employed  in  the  transaction  of  its  business 
in  the  United  States  during  the  preceding  year." 

By  section  1400(a),  being  Comp.  St.  Ann.  Supp.  1919,  §  6371 '^^a, 
title  4  of  the  Revenue  Act  of  1916— including  section  407  relating  to 
excise  taxes — is  specifically  repealed,  except  for-  the  assessment  and 
collection  of  taxes  accrued  thereunder  and  the  imposition  and  collec- 
tion of  penalties  and  forfeitures. 

Reading  together  the  defining  and  enacting  sections  of  the  Act  it 
is  as  if  section  1000(a)  provided  in  terms  that:  Every  corporation,  as- 
sociation, joint-stock  company  and  insurance  company,  "created  or 
organized  in  the  United  States,"  shall  pay  a  special  excise  tax,  as  pre- 
scribed, with  respect  to  the  carrying  on  or  doing  business.  And  it 
must  be  given  effect  as  thus  read. 

The  terms  of  this  Act  are  in  marked  and  significant  contrast  with 
those  of  the  Acts  of  1909  and  1916.  Not  only  is  the  Act  of  1916  spe- 
cifically repealed,  but  the  well-defined  words  of  limitation  "organized 
under  the  laws  of  the  United  States,  or  any  State  or  Territory,"  that 
had  been  used  in  that  Act  as  well  as  in  the  Act  of  1909,  are  omitted ; 
and  in  lieu  thereof  the  excise  tax  is  extended,  broadly,  to  every  "as- 
sociation" created  or  organized  in  the  United  States  and  carrying  on  or 
doing  business  therein.  And  thereby,  in  our  opinion,  the  intention  of 
Congress  is  plainly  shown  to  extend  the  tax  from  one  imposed  solely 
upon  organizations  exercising  statutory  privileges,  as  theretofore,  to 
include  also  organizations  exercising  the  privilege  of  doing  business  as 
associations  at  the  common  law. 

It  is  true  that  the  Chairman  of  the  Ways  and  Means  Committee 
of  the  House  of  Representatives  in  a  statement  as  to  "the  general  prin- 
ciples of  the  bill"— which  included' many  kinds  of  taxes— while  saying 
that  the  committee  had  made  an  important  change  in  the  rates  and  ex- 
emptions in  the  capital  stock  tax,  made  no  reference  to  any  enlarge- 
ment to  the  class  or  organizations  to  which  the  tax  would  apply,  ^nd 
that  the  Chairman  of  the  Senate  Committee  on  Finance,  in  reporting  on 
the  bill,  while  stating  that  it  "provided  for  the  continuance  of  the  cap- 
ital stock  tax  on  the  basis  of  the  fair  average  value  of  the  capital  stock 
of  the  corporation,"  and  made  certain  changes  in  rates,  likewise  made 
no  reference  to  any  such  enlargement  in  the  scope  of  its  provisions. 
56  Cong.  Rec.  pt.  12.  App.  p.  698;  65th  Cong.  3d  Sess.,  Sen.  Rep.  No. 
617,  p.  17.  We  canhot,  however,  regard  the  slight  negative  inference 
which  might  be  drawn  from  the  failure  of  these  chairmen  to  point  out 
the  enlargement  of  the  class  of  organizations  made  subject  to  the  ex- 
cise tax,  as  sufficient  to  overcome  the  evidence  of  the  legislative  inten- 
tion drawn  from  the  plain  and  unambiguous  language  of  the  Act  it- 
self, emphasized  by  the  contrast  with  that  of  the  Act  of  1916  which 
it  supplanted. 


Sl>PPLEMENTARY    LIST   OF   CASRS   ON    PARTNERSHIP  59 

Nor  can  we  agree  with  the  contention  that  the  definition  clause  of 
the  Act  is  not  to  be  held  applicable  to  the  excise  tax  provision  on  the 
ground  that  the  Act  consolidated  many  former  taxing  acts  and  its  gen- 
eral definitions  may  have  been  inadvertently  extended  to  the  excise  tax 
provision  without  any  actual  intention  of  departing  from  the  language 
of  the  former  statute  in  this  respect.  This  is  not  a  mere  revision  and 
consolidation  of  former  statutes  to  which  a  new  interpretation  is  not 
to  be  given  without  some  substantial  change  in  phraseolo.'Lcy.  McDon- 
Md  V.  Hovey,  110  U.  S.  619,  4  Sup.  Ct.  142,  28  L.  Ed.  269;  Buck- 
Stove  Co.  v.  Vickers,  226  U.  S.  205,  33  Sup.  Ct.  41,  57  L.  Ed.  189. 
It  is  a  new  statute,  supplanting  and  changing  the  former  statutes  in 
many  respects,  and  in  which  there  is  a  signiiicant  change  of  phrase- 
ology, incorporated  in  the  general  definition  clause  made  applicable, 
expressly,  to  every  provision  of  the  Act. 

Nor  does  the  language  of  the  Act  in  this  respect  call  for  the  applica- 
tion of  the  established  rule  that  in  the  interpretation  of  statutes  levy- 
ing taxes  their  provisions  are  not  to  be  extended  by  implication  beyond 
the  clear  import  of  the  language  used,  and  in  case  of  doubt  are  to  be 
construed  most  strongly  against  the  Government  and  in  favor  of  the 
taxpayer.  Gould  v.  Gould,  245  U.  S.  151,  153,  38  Sup.  Ct.  53,  62  L. 
Ed.  211;   United  States  v.  Merriam,  263  U.  S.  179,  187,  44  Sup.  Ct. 

69,  68  L.  Ed. .    Here  the  language  of  the  Act  is  specific,  leaving  no 

substantial  doubt  as  to  its  meaning ;    and  the  taxpayers  are  seeking  by 
implication  to  limit  its  clear  import. 

3.  We  also  conclude  that  these  three  trusts  are  "associations"  cre- 
ated or  organized  in  the  United  States  and  engaged  in  business,  within 
the  meaning  of  the  Act.  The  trustees  of  the  Hecht  and  Haymarket 
Trusts  insist  that  they  are  not  such  "associations."  The  trustees  of  the 
Crocker  Association  on  the  other  hand  admitted  in  the  Circuit  Court 
of  Appeals  and  at  the  bar,  that  since  the  modification  of  the  original 
trust  agreement,  the  trust  constitutes  an  "association." 

The  word  "association"  appears  to  be  used  in  the  Act  in  its  ordinary 
meaning.  It  has  been  defined  as  a  term  "used  throughout  the  United 
States  to  signify  a  body  of  persons  united  without  a  charter,  but  upon 
the  methods  and  forms  used  by  incorporated  bodies  for  the  prosecution 
of  some  common  enterprise."  1  Abb.  Law  Diet.  101  (1879);  1  Bouv. 
Law  Diet.  (Rawle's  3d  Rev.)  269;  3  Am.  &  Eng.  Enc.  Law  (2d  Ed.) 
162;  and  Allen  v.  Stevens,  33  App.  Div.  485,  54  N.  Y.  Supp.  8,  23,  in 
which  this  definition  was  cited  with  approval  as  being  in  accord  with 
the  common  understanding.     Other  definitions  are : 

"In  the  United  States,  as  distinguished  from  a  corporation,  a  body 
of  persons  organized,  for  the  prosecution  of  some  purpose,  without  a 
charter,  but  having  the  general  form  and  mode  of  procedure  of  a  cor- 
poration."   Webst.  New  Internat.  Diet. 

"fU.  S.]  An  organized  but  unchartered  body  analogous  to  but  dis- 
tinguished from  a  corporation."    Pract.  Stand.  Diet. 

And  see  Malley  v.  Bowditch,  259  Fed.  809,  812,  170  C.  C.  A.  609, 


60  SUPPLEMENTARY   LIST   OF   CASES   OX   PARTNERSHIP 

7  A.  L.  R.  60S;  Chicago  Title  Co.  v.  Smietanka  (D.  C.)  275  Fed.  60: 
also  United  Mine  Workers  v.  Coronado  Co.,  259  U.  S.  344,  392,  42 
Sup.  Ct.  570,  66  L.  Ed.  975,  27  A.  L.  R.  762,  in  which  unincorporated 
labor  unions  were  held  to  be  "associations"  within  the  meaning  of  the 
Anti-Trust  Law. 

We  think  that  the  word  "association"  as  used  in  the  Act  clearly  in- 
cludes "Massachusetts  Trusts"  such  as  those  herein  involved,  having 
quasi-corporate  organizations  under  which  they  are  engaged  in  carrying 
on  business  enterprises.  What  other  form  of  "associations,"  if  any, 
it  includes,  we  need  not,  and  do  not,  determine. 

It  is  true  that  in  Eliot  v.  Freeman,  supra,  at  page  186  (31  Sup.  Ct. 
361),  it  was  said  that  the  two  trusts  there  involved  could  "hardly  be 
said  to  be  organized  within  the  ordinary  meaning  of  that  term."  How- 
ever the  decision  was  based  solely  upon  the  ground  that  they  were  not 
subject  to  the  tax  imposed  by  the  Act  of  1909  because  they  were  not 
organized  under  any  statute ;  and  the  inference  from  the  entire  opin- 
ion is  that  if  the  Act  had  not  required  such  a  statutory  organization  they 
would  have  been  held  to  be  within  its  terms.  And  we  think  that  the 
present  trusts  are  both  "created"  and  "organized"  in  the  United  States 
within  the  meaning  of  the  Act. 

The  trustees  of  the  Hecht  and  Haymarket  Trusts  earnestly  rely, 
however,  upon  the  decision  in  Crocker  v.  Malley,  supra,  as  conclusively 
determining  that  they  cannot  be  held  to  be  "associations"  unless  the 
trust  agreements  vest  the  shareholders  with  such  control  over  the 
trustees  as  to  constitute  them  more  than  strict  trusts  within  the  Massa- 
chusetts rule.  This  case  arose  under  section  2,  G(a),  of  the  Income 
Tax  Act  of  1913  imposing  a  tax  upon  the  net  income  of  "every  cor- 
poration, joint-stock  company  or  association,  *  *  *  organized  in 
the  United  States,  no  matter  how  created  or  organized."  Section  2, 
D,  provided  that  trustees  or  other  fiduciaries  were  exempt  from  this 
tax  upon  dividends  received  from  corporations  taxable  upon  their  net 
income.  The  precise  question  was  whether  the  trustees  of  The  Wa- 
chusett  Realty  Trust  were  subject  to  the  income  tax  upon  dividends  re- 
ceived from  a  Massachusetts  corporation  that  was  itself  taxable  upon 
its  net  income.  The  trustees  insisted  that  they  were  not  an  "asso- 
ciation" subject  to  this  tax,  under  G(a),  but  merely  trustees  and  entitled 
to  the  exemption  as  fiduciaries  under  D.  The  trust  had  been  created 
by  a  Maine  corporation  which  contemplated  dissolution,  for  the  bene- 
fit of  its  shareholders.  It  had  transferred  to  the  trustees  the  fee  of 
certain  lands  leased  to  a  Massachusetts  manufacturing  corporation  en- 
gaged in  operating  several  mills,  and  also  the  stock  in  that  corporation 
which  it  held.  The  purpose  of  the  trust  was  to  convert  this  property 
into  money  and  distribute  the  net  proceeds  to  the  beneficiaries,  within 
a  period  left  to  the  discretion  of  the  trustees.  Meanwhile  they  were  to 
distribute  the  net  income, 'but  could  apply  any  funds  for  the  repair 
and  development  of  the  property  or  the  acquisition  of  other  property, 
pending  conversion  and  distribution.     Their  function,  as  emphasized 


SUPPLEMENTAKY    LIST   OF   CASES   ON    I'AUTNERSHIP  Gl 

in  the  opinion,  was  not  to  manage  the  mills,  but  simply  to  collect  the 
rents  and  income,  with  a  large  discretion  in  its  application.  The  bene- 
ficiaries had  no  control  except  in  certain  matters  in  wliich  tluMr  con- 
sent was  required. 

The  court,  after  stating  that  tlie  declaration  of  trust  on  its  lacc  was 
"an  ordinary  real  estate  trust  of  the  kind  familiar  in  Ma'^sachusetts," 
and  that  there  "could  be  little  doubt  that  in  Massachusetts  this  ar- 
rangement would  be  held  to  create  a  trust  and  nothing  more,"  said 
that  "as  the  plaintiffs  undeniably  are  trustees,  if  they  are  to  be  sub- 
jected to  a  double  liability  the  language  of  the  statute  must  make  the 
intention  clear,"  and  that : 

"It  would  be  a  wide  departure  from  normal  usage  to  call  the  bene- 
ficiaries here  a  joint-stock  association  when  they  are  admitted  not 
to  be  partners  in  any  sense,  and  when  they  have  no  joint  action  or  in- 
terest and  no  control  over  the  fund.  On  the  other  hand,  the  trustees  by 
themselves  cannot  be  a  joint-stock  association  within  the  meaning  of 
the  act  unless  all  trustees  with  discretionary  powers  are  such,  and  the 
special  provision  for  trustees  in  D.  is  to  be  made  meaningless.  We  per- 
ceive no  ground  for  grouping  the  two — beneficiaries  and  trustees — to- 
gether, in  order  to  turn  them  into  an  association,  by  uniting  their  con- 
trasted functions  and  powers,  although  they  are  in  no  proper  sense, 
associated.  *  *  *  We  presume  that  the  taxation  of  corporations 
and  joint-stock  companies  upon  dividends  of  corporations  that  them- 
selves pay  the  income  tax  was  for  the  pui-pose  of  discouraging  com- 
binations of  the  kind  now  in  disfavor,  by  which  a  corporation  holds 
controlling  interests  in  other  corporations  which  in  their  turn  may 
control  others,  and  so  on,  and  in  this  way  concentrates  a  power  that  is 
disapproved.  There  is  nothing  of  that  sort  here.  Upon  the  whole 
case  we  are  of  opinion  that  the  statute  fails  to  show  a  clear  intent  to 
subject  the  dividends  on  the  Massachusetts  corporation's  stock  to  the 
extra  tax  imposed  by  G(a)." 

This  opinion  is  based  primarily  upon  the  view  that  the  Income  Tax 
Act,  considering  its  purpose,  did  ,not  show  a  clear  intention  to  impose 
upon  the  trustees  as  an  "association"  a  double  liability  in  reference  to 
the  dividends  on  stock  in  the  corporation  that  itself  paid  an  income  tax, 
when  considered  as  "trustees"  they  were  by  another  provision  of  the 
Act  exempt  from  such  payment.  And  the  language  used  arguendo  in 
reaching  this  conclusion  that  the  trustees  could  not  be  deemed  an  as- 
sociation unless  all  trustees  with  discretionary  powers  are  such,  and 
that  there  was  no  ground  for  grouping  together  the  beneficiaries  and 
trustees  in  order  to  turn  them  into  an  association — is  to  be  read  in  the 
light  of  the  trust  agreement  there  involved,  under  which  the  trustees 
were,  in  substance,  merely  holding  property  for  the  collection  of  the 
income  and  its  distribution  among  the  beneficiaries,  and  were  not  en- 
gaged, either  by  themselves  or  in  connection  with  the  beneficiaries,  in 
the  carr\-ing  on  of  anv  business.     Zonne  v.  Western   Syndicate,  220 


62  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

U.  S.  187,  190,  31  Sup.  Ct.  361,  55  L.  Ed.  428.    And  see  Smith  v.  An- 
derson, L.  R.,  15  Ch.  Div.  247. 

It  results  that  Crocker  v.  Malley  is  not  an  authority  for  the  broad 
proposition  that  under  an  Act  imposing  an  excise  tax  upon  the  privi- 
lege of  carrying  on  a  business,  a  Massachusetts  Trust  engaged  in  the 
carrying  on  of  business  in  a  quasi-corporate  form,  in  which  the  trus- 
tees have  similar  or  greater  powers  than  the  directors  in  a  corporation, 
is  not  an  "association"  within  the  meaning  of  its  provisions. 

We  conclude,  therefore,  that  when  the  nature  of  the  three  trusts 
here  involved  is  considered,  as  the  petitioners  are  not  merely  trustees 
for  collecting  funds  and  paying  them  over,  but  are  associated  together 
in  much  the  same  manner  as  the  directors  in  a  corporation  for  the  pur- 
pose of  carrying  on  business  enterprises,  the  trusts  are  to  be  deemed  as- 
sociations within  the  meaning  of  the  Act  of  1918;  this  being  true  in- 
dependently of  the  large  measure  of  control  exercised  by  the  beneficia- 
ries in  the  Hecht  and  Haymarket  Cases,  which  much  exceeds  that  ex- 
ercised by  the  beneficiaries  under  the  Wachusett  Trust.  We  do  not 
believe  that  it  was  intended  that  organizations  of  this  character — de- 
scribed as  "associations"  by  the  Massachusetts  statutes,  and  subject  to 
duties  and  liabilities  as  such — should  be  exempt  from  the  excise  tax 
on  the  privilege  of  carrying  on  their  business  merely  because  such  a 
slight  measure  of  control  may  be  vested  in  the  beneficiaries  that  they 
might  be  deemed  strict  trusts  within  the  rule  established  by.  the  Massa- 
chusetts courts. 

That  the  Crocker  Association  is  engaged  in  carrying  on  business 
within  the  meaning  of  the  Act,  is  obvious.  And  so  of  the  Hecht  and 
Haymarket  Trusts.  A  corporation  owning  and  renting  an  office  build- 
ing is  engaged  in  business  within  the  meaning  of  an  excise  statute. 
Flint  V.  Stone-Tracy  Co.,  supra,  page  171  (31  Sup.  Ct.  342);  Zonne 
v.  Western  Syndicate,  supra,  at  page  190  (31  Sup.  Ct.  361). 

4.  It  is  urged,  however,  by  the  trustees  of  the  Crocker  Association 
that  they  are  not  subject  to  an  excise  tax  under  the  Act  of  1918,  because 
the  tax  imposed  on  a  domestic  "association"  is  measured  by  "the  fair 
average  value  of  its  capital  stock" ;  the  argument  being  that  this  tax, 
of  necessity,  can  apply  only  to  "associations"  having  a  fixed  "capital 
stock"  represented  by  shares,  that  is,  a  designated  share  capital  whose 
amount  is  fixed  by  the  articles  of  association  or  trust  agreement. 
Hence,  it  is  insisted,  the  tax  cannot  apply  to  this  Association,  which, 
it  is  claimed,  has  no  "capital  stock"  within  the  meaning  of  the  Act. 
The  trustees  of  the  Hecht  Trust  do  not  make  this  contention. 

The  certificates  in  this  Association,  as  stated,  have  no  par  value; 
the  shares  being  for  ninety-six  thousandthsjof  the  beneficial  interest  in 
the  property.  No  "capital"  account  is  kept  by  the  trustees ;  but  they 
have  a  profit  and  loss  account;  in  which  they  are  charged  with  all  the 
property  transferred  to  them,  at  a  valuation,  against  which  liabilities 
and  reserves  are  shown,  the  balance  being  carried  as  the  net  interest 
of  the  shareholders.     And  their  books  show  the  "dividends"  disbursed 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  G3 

\ 

to  shareholders.  The  amount  of  the  present  tax  was  assessed  by  the 
Collector  by  taking  the  fair  value  of  the  assets  of  the  Association  over 
its  liabilities,  and  calling  the  difference  its  capital  stock. 

It  is  true  that,  generally  speaking,  in  the  technical  sense,  the  capital 
stock  of  a  corporation  is  a  sum  fixed  by  its  corporate  charter  as  the 
amount  paid  or  to  be  paid  in  by  the  stockholders  for  the  prosecution 
of  the  business  of  the  corporation  and  the  benefit  of  its  creditors.  1 
Cook  on  Corporations  (7th  Ed.)  38,  and  cases  cited  in  note  2."  How- 
ever, in  statutes  relating  to  taxation,  sometimes  drawn  without  regard 
to  the  technical  meaning  of  the  words,  the  courts  will  construe  "cap- 
ital stock"  to  mean  the  actual  property  of  the  corporation,  when  nec- 
essary to  carry  out  the  intent  of  the  statute.  Id.  p.  39 ;  Security  Co. 
V.  Hartford,  61  Conn.  89,  101,  23  Atl.  699;  Henderson  Bridge  Co.  v. 
Commonwealth,  99  Ky.  623,  641,  31  S.  W.  486,  29  L.  R.  A.  78.  And 
see  People  v.  Coleman,  126  N.  Y.  433.  439.  27  N.  E.  818,  12  L.  R.  A. 
762.  , 

We  think  that  in  the  Act  of  1918,  in  which  the  tax  upon  an  asso- 
ciation is  based  upon  the  average  value  of  its  "capital  stock,"  includ- 
ing surplus  and  undivided  profits,  these  words  are  not  to  be  given  a 
technical  meaning,  but  should  be  interpreted,  in  their  entirety,  and,  in 
the  absence  of  a  fixed  share  capital,  as  equivalent  to  the  capital  invest- 
ed in  the  business,  that  is,  the  net  value  of  the  property  owned  by  the 
association  and  used  in  its  business.  As  was  said  by  the  Circuit  Court 
of  Appeals,  the  phrase  in  the  statute  as  to  "including  surplus  and  un- 
divided profits  puts  beyond  doubt  the  question  of  the  congressional  in- 
tent to  measure  this  tax  by  business  and  financial  realties,  not  by  book- 
keeping forms  or  mere  names."  And  this  construction  is  in  harmony 
with  the  provision  as  to  the  excise  tax  on  a  foreign  association,  which 
is  fixed  upon  the  value  "of  its  capital  actually  invested  in  the  transac- 
tions of  its  business  in  the  United  States." 

We  therefore  conclude  that  the  Crocker  Association  was  also  sub- 
ject to  the  tax,  and  that  this  was  properly  measured  by  the  Collector 
by  the  net  value  of  its  property — no  question  being  made  as  to  the 
correctness  of  his  valuation. 

5.  A  question  remains  in  Cases  Nos.  100  and  119 — which  has  not 
been  argued  by  counsel — as  to  the  taxes  for  the  years  ending  June  30. 
1919,  which  were  assessed  against  the  trustees  of  the  Haymarket  Trust 
and  the  Crocker  Association  under  the  Act  of  1916,  and  paid  by  them 
before  the  passage  of  the  Act  of  1918.  The  latter  Act,  which  was  ap- 
proved and  became  effective  February  24,  1919,  was  retroactive  in  its 
provisions  and  covered  the  year  ending  June  30,  1919  (40  Stat,  at 
page  1126).  Thereafter  additional  taxes  were  assessed  against  the 
trustees,  representing  the  differences  between  the  amount  of  the  taxes 
which  they  had  paid  under  the  Act  of  1916  and  those  prescribed  by 
the  Act  of  1918.    See  note  2,  supra. 

In  view  of  the  retroactive  provision  of  the  Act  of  1918,  we  are  of 
opinion  that  the  taxes  for  the  year  ending  June  30,  1919,  cannot  now 


G4  SUPPLEMENTARY  LIST  OF  CASES  ON  PARTNERSHIP 

be  recovered,  even  though  originally  their  assessment  under  the  Act  of 
1916  was  unauthorized,  since  they  thereafter  became  due  under  the 
Act  of  1918 ;  and  that  thev  mav  now  be  retained  by  the  United  States. 
See  Anderson  v.  Loan  &  Trust  Co.,  241  Fed.  322,  325,  154  C.  C.  A.  202. 
and  New  York  Life  Ins.  Co.  v.  Anderson,  263  Fed.  527,  530;  also 
Crocker  v.  Malley,  supra,  at  page  235  (39  Sup.  Ct.  270). 

The  decrees  qf  the  Circuit  Court  of  Appeals,  are  accordingly  af- 
firmed in  cases  Nos.  100,  101,  and  119;  and  in  No.  99  affirmed  as  to 
the  taxes  assessed  for  the  years  ending  June  30,  1919,  and  June  30, 
1920.  and  reversed  as  to  those  assessed  for  the  six  months  ending  June 
30.  1917,  and  the  year  ending  June  30,  1918. 

Affirmed  in  part. 

Reversed  in  part. 

Mr.  Justice  Holmes  and  Mr.  Justice  Brandl:is  took  no  part  in  the 
decision  of  these  cases. 


DANA  V.  TREASURER  AND  RECEIVER  GENERAL  et  al. 
(Supreme  Judicial  Court  of  Massachusetts,  1917.    227  Mass.  562,  116  N.  E.  941.) 

Bill  for  instructions  by  Richard  H.  Dana,  executor  of  Edith  L. 
Dana,  deceased,  against  the  Treasurer  and  Receiver  General  and  an- 
other.    From  the  decree  rendered,  Dana  appeals. 

LoRiNG,  J.^"  Edith  L.  Dana  died  domiciled  in  Massachusetts  and 
possessed  of  75  shares  in  the  Amoskeag  Manufacturing  Company, 
130  shares  in  the  Boston  Ground  Rent  Trust,  and  an  "interest  under 
the  Duluth  &  Gladstone  Real  Estate  Trust."  A  succession  duty  was 
imposed  upon  each  of  these  pieces  of  property.  Mrs.  Dana's  hus- 
band, the  sole  residuary  devisee  and  legatee  under  her  will,  made  the 
claim  that  the  three  pieces  of  property  in  question  or  "so  much  of" 
them  as  consists  of  an  equitable  interest  in  real  estate  situate  outside 
the  territorial  limits  of  the  state  were  not  the  subject  of  a  sncaession 
duty  in  this  commonwealth.  Thereupon  the  executor  brought  a  bill 
for' instructions  in  the  probate  court,  making  the  treasurer  and  re- 
ceiver general  and  Mrs.  Dana's  husband  the  parties  defendant.  The 
probate  court  decided  that  said  property  was  subject  to  a  succession 
duty.     From  that  decree  Mr.   Dana  took  the  appeal  which   is  now 

before  us. 

1.  Mr.  Dana's  contention  is  that  an  equitable  estate  in  land  lying 
outside  of  the  commonwealth,  although  owned  l7y  one  domiciled  in 
it  at  the  date  of  his  death,  is  not  subject  to  a  succession  duty  here. 
There  is  no  question  of  the  correctness  of  that  proposition.  See,  for 
example.  Attorney  General  v.  Barney,  211  Mass.  134,  97  N.  E.  750, 
39  L.  R.  A.   (N.  S.)    1024;    Walker  v.  Treas.  &  Recvr.  Genl,  221 

loi'art  of  the  opinion  Is  omitted. 


SUPPLEMENTARY    IJST   OF   CASES   ON    PAUTNEUSHIP  C>0 

Mass.  600,  109  N.  E.  647.  The  questujn  which  we  liave  to  decide  is 
how  far  that  principle  of  law  is  applicable  in  this  case. 

2.  We  take  up  first  Mrs.  Dana's  shares  in  the  Amoskeag  Manu- 
facturing Conijjany.  The  Amoskeag  Manufacturing  Company  was 
the  name  by  wliich  the  trustees  under  a  declaration  of  trust  were  to 
be  known  in  their  collective  capacity  as  matter  of  convenience  in  the 
practical  conduct  of  the  business  carried  on  by  them  under  that  dec- 
laration of  trust.  The  trust  was  created  to  take  over  the  factory  and 
manufacturing  business  theretofore  owned  and  carried  on  by  a  New 
Hampshire  corporation  known  as  the  Amoskeag  Manufacturing  Com- 
pany. The  factory  in  question  and  the  tangible  personal  property 
held  under  the  trust  are  situate  in  the  state  of  New  Hampshire.  "The 
beneficial  interest  in  this  trust"  is  divided  into  shares.  These  shares 
are  represented  by  transferal)le  certificates.  It  is  provided  in  the  dec- 
laration of  trust  that  the  death  of  a  shareholder  shall  not  operate  to 
determine  the  trust  nor  entitle  the  legal  representatives  of  a  deceased 
shareholder  to  an  accounting,  but  that  the  executors,  administrators 
and  assigns  of  the  deceased  shareholder  shall  succeed  to  the  rights 
of  the  decedent  and  be  entitled  to  a  certificate  in  their  own  names  up- 
on surrender  of  the  old  certificate.  It  is  also  provided  therein  that 
the  ownership  of  shares  thereunder  shall  not  entitle  the  shareholder 
to  any  title  in  or  to  the  trust  property  or  right  to  call  for  partition  or 
division  of  the  same,  or  for  an  accounting.  The  declaration  of  trust 
provides  for  meetings  of  the  shareholders,  and  that  at  these  meet- 
ings the  shareholders  shall  have  power  to  elect  the  trustees  and  to 
alter  and  amend  the  declaration  of  trust.  It  is  further  provided  there- 
in that  on  the  expiration  of  21  years  after  the  death  of  certain  per- 
sons therein  named  the  trustees  shall  wind  up  the  afifairs  of  the  trust, 
liquidate  its  assets  and  distribute  the  same  among  the  holders  of 
shares.  There  is  a  provision  in  it  whereby  the  time  for  winding  up 
its  affairs  can  be  shortened  or  extended  by  the  shareholders  at  share- 
holders' meetings.  In  addition  there  is  a  provision  which  authorizes 
the  trustees  in  case  they  elect  so  to  do  "to  distribute  the  shares,  securi- 
ties or  obligations  instead  of  cash"  in  case  of  the  liquidation  of  the 
assets  of  the  trust.  But  there  is  no  provision  authorizing  them  to 
di«:tribute  among  the  shareholders  the  real  property  by  the  trust. 

This  declaration  of  trust  created  a  partnership.  Upon  that  point 
Phillips  v.  Blatchford,  137  Mass.  510,  is  decisive.  In  addition  the 
trust  is  well  within  the  distinction  between  trusts  which  create  part- 
nerships and  trusts  .which  are  pure  trusts,  stated  at  length  in  Williams 
V.  Mihon,  215  Mass.  1,  102  N.  E.  355,  where  the  cases  are  collected. 
For  the  last  case  in  which  this  distinction  was  applied  and  the  trust 
held  to  have  created  a  partnership  see  Frost  v.  Thompson,  219  Mass. 
360,  106  N.  E.  1009. 

It  is  alleged  in  the  petition  and  admitted  by  the  answer  that  at  the 
date  of  Mrs.  Dana's  death  over  75  per  cent,  of  the  property  of  the 

SlTPl'.GlL.P.VRT.— -5 


66  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

Amoskeag  Manufacturing  Company  consisted  of  real  estate  situate  in 
New  Hampshire  and  23  per  cent,  of  it  "consisted  of  tangible  person- 
al property  in  Xew  Hampshire  in  the  shape  of  raw  material  and  goods 
finished  and  in  process  of  manufacture,"  the  other  2  per  cent,  seems 
to  have  been  made  up  of  intangible  personalty. 

It  is  the  contention  of  the  "appellant  that  a  person  dying  possessed 
of  one  of  the  shares  of  this  trust  dies  possessed  of  real  estate  to  the 
extent  to  which  the  assets  of  the  trust  at  the  time  of  the  decedent's 
death  consist  of  real  estate  and  of  personal  property  to  the  extent  to 
which  those  assets  consist  of  personal  property  at  that  time.  And 
we  see  no  escape  from  that  result  if  the  rule  as  to  partnership  real 
estate  which  obtains  in  this  commonwealth  in  case  of  ordinary  part- 
nerships applies  to  a  partnership  like  the  Amoskeag  Manufacturing 
Company. 

In  case  of  an  ordinary  partnership  there  is  no  practical  difficulty 
in  carrying  out  the  Massachusetts  rule  as  to  partnership  real  estate, 
namely,  that  so  far  as  necessary  to  pay  the  debts  of  the  firm  partner- 
ship real  estate  is  personalty,  but  that  for  all  other  purposes  it  is  real 
property.  In  an  ordinary  case  a  partnership  comes  to  an  end  upon 
the  death  of  each  partner  and  by  reason  of  that  fact  the  partnership 
afifairs  have  to  be  wound  up  at  that  time.  In  such  a  case  there  is  no 
practical  difficulty  in  winding  up  the  estate  of  the  decedent  partner 
under  the  Massachusetts  rule  as  to  partnership  real  estate.  But  the 
same  rule  applied  to  partnership  real  estate  in  a  partnership  like  the 
Amoskeag  J\Ianufacturing  Company  partnership  would  raise  great 
practical  difficulties.  Take  the  case  of  a  person  who  dies  owning  one 
share  in  the  Amoskeag  Manufacturing  Company  partnership.  If  the 
Massachusetts  rule  as  to  partnership  real  estate  applies, 'that  one  share 
(as  we  have  said  already)  is  real  estate  to  an  amount  determined  by 
ascertaining  the  proportion  of  the  real  estate  owned  by  the  partner- 
ship to  all  its  assets  and  is  personal  property  to  the  amount  determined 
by  ascertaining  the  proportion  between  its  personal  property  and  those 
assets.  If  that  be  so  that  one  share  must  be  dealt  with  accordingly 
in  winding-up  the  estate  of  the  decedent;  that  is  to  say,  so  far  as  that 
one  share  is  real  estate  it  cannot  be  sold  without  a  license  from  the 
probate  court  to  sell  it  as  real  estate  although  so  far  as  it  is  personal 
property  it  can  be  sold  by  the  executor  or  administrator  by  virtue  of 
his  office. 

Wilcox  V.  Wilcox,  13  Allen,  252,  is  the  case  in  which  the  rule  as 
to  partnership  real  estate  in  case  of  ordinary  partnerships  was  finally 
established  in. this  commonwealth.  It  was  pointed  out  in  that  case  (13 
Allen,  at  page  254)  that  "upon  examination  of  the  earlier  English 
cases,  from  which  this  doctrine  [the  English  doctrine  that  in  case  of 
partnership  real  estate  there  is  an  out  and  out  conversion  of  it  into 
personal  property  for  all  purposes]  has  grown,  it  will  be  found  that, 
in  several  of  them,  there  was  an  express  agreement  between  the  co- 
partners, the   specific  performance  of   which   would  of  itself  convert 


SUPPLEMKNTARY    LIST   OF   CASES   ON    PARTNERSHIP  G7 

tlie  real  estate  into  personal  assets.  The  conversion  was  worked,  there- 
fore, not  merely  from  the  relation  of  copartnership,  but  on  the  grpund 
that  the  deceased  partner  had,  by  the  very  contract  under  which  he 
became  joint  owner,  stamped  upon  the  realty  the  character  and  in- 
cidents of  personalty." 

From  an  examination  of  the  authorities  before  the  court  in  Wilcox 
V.  Wilcox,  it  is  plain  that  one  of  the  cases  thus  referred  to  was  Rip- 
ley V.  Waterworth,  7  Vesey,  425.  The  agreement  in  Ripley  v.  Water- 
worth  was  an  agreement  that  on  the  conclusion  of  the  partnership  all 
the  partnership  property  should  be  sold  and  reduced  to  cash.  That  is 
to  say  the  agreement  which  it  was  held  in  at  least  one  of  the  early 
cases  referred  to  in  Wilcox  v.  Wilcox,  to  work  an  out  and  out  conver- 
sion was  an  agreement  of  the  same  kind  as  the  agreement  in  the  case 
of  Amoskeag  Manufacturing  Company  partnership.  Since  the  de- 
cision in  Ripley  v.  Waterworth  it  has  been  held  and  is  now  estab- 
lished in  England  (for  reasons  based  on  practical  considerations)  that 
partnership  realty  is  converted  out  and  out  to  personalty  in  the  ab- 
sence of  an  agreement,  and  that  this  conversion  dates  from  the  be- 
ginning of  the  partnership.  For  this  reason  no  late  cases  bearing  on 
the  case  at  bar  are  to  be  found  there.  It  was  not  necessary  in  Ripley  v. 
Waterworth  to  decide  what  the  time  was  from  which  the  real  estate 
was  converted  into  personalty  by  force  of  this  agreement.  That  point, 
however,  is  covered  (so  far  as  the  case  now  before  us  is  concerned) 
by  the  decision  in  Fletcher  v.  Ashburner,  1  Bro.  C.  C.  497.  In  that 
case  a  testator  devised  his  real  and  personal  property  to  trustees  to 
permit  his  widow  to  enjoy  the  residue  during  her  life  and  after  her 
decease  to  sell  the  same  and  distribute  the  proceeds  between  his  son 
and  his  daughter  or  in  case  his  widow  should  marry  again  then  and 
in  that  case  to  sell  all  the  estate  and  effects  given  her  for  life  and  to 
divide  the  proceeds  between  his  wife,  his  son  and  his  daughter  share 
and  share  alike;  and  in  case  either  the  son  or  the  daughter  should 
die^  before  his  or  her  legacy  should  become  due,  the  share  or  legacy 
of  him  or  her  so  dying  was  to  go  to  the  survivor.  The  son  survived 
the  daughter.  Both  died  during  the  lifetime  of  the  widow.  Upon 
the  death  of  the  widow  it  was  held  that  the  property  went  to  the  next 
of  kin  of  the  son  and  not  to  his  heirs.  This  conclusion  was  I'eached 
on  the  ground  that  the  testator  had  in  eft'ect  provided  that  his  real 
and  personal  property  should  be  one  fund  from  the  beginning.  It 
was  decided  in  terms  in  Fletcher  v.  Ashburner  that  the  gift  to  the 
son  and  daughter  vested  at  the  date  of  the  death  of  the  testator  sub- 
ject to  each  being  divested  by  the  gift  to  the  survivor  in  case  of  the 
death  of  the  legatee  in  question  before  the  legacy  came  into  possession. 
That  is  to  say  it  was  held  that  the  fund  was  personal  property  at  the 
date  of  the  death  of  the  son  which  took  place  during  the  life  of  the 
widow  and  so  before  the  sale  was  to  take  place  which  in  fact  made 
the  real  property  personalty.  And  it  is  plain  that  on  principle  this  is 
correct,     \\niere  real  property  is  held  to  be  converted  into  personalty 


68  SUPPLEMENTARY   LIST   OF   CASES   OX   PARTNERSHIP 

because  Avith  personal  property  it  is  made  one  fund  and  all  the  fund 
is  ultimately  to  be  personalty,  it  cannot  be  one  fund  from  the  begin- 
ning unless  the  conversion  takes  place  from  the  beginning.  In  the 
declaration  of  trust  creating  the  Amoskeag  Manufacturing  Company 
partnership  it  is  provided  that  upon  the  termination  of  the  trust  all 
the  partnership  real  estate  shall  be  converted  into  personalty,  and  it 
is  provided  that  throughout  the  life  of  the  partnership  the  beneficial 
interest  in  it  shall  be  represented  by  transferable  certificates ;  in  this 
way  it  is  provided  that  the  property  of  the  trust  partnership  shall  con- 
stitute one  fund.  It  follows  that  the  conversion  into  personalty  must 
be  taken  to  date  from  the  beginning  to  make  the  fund  one  fund  from 
the  beginning. 

It  follows  that  the  shares  of  the  Amoskeag  Manufacturing  Com- 
pany partnership  owned  by  Mrs.  Dana  at  the  time  of  her  death  were 
personal  property  and  passed  to  her  executor  by  virtue  of  the  laws  of 
this  commonwealth  because  of  her  domicile  in  this  state  at  that  time. 
Since  they  were  personal  property  a  succession  duty  was  rightly  im- 
posed upon  them.     *     *     * 

We  are  of  opinion  that  the  succession  duty  imposed  upon  Mrs. 
Dana's  shares  in  the  Amoskeag  Manufacturing  Company  was  valid. 

3.  We  are  of  opinion  that  the  same  conclusion  must  be  reached  with 
respect  to  the  succession  duty  imposed  upon  the  130  shares  in  the 
Boston  Ground  Rent  Trust  held  by  Mrs.  Dana  at  the  date  of  her  death. 

At  the  date  of  Mrs.  Dana's  death  85  per  cent,  of  the  property  of 
that  trust  consisted  of  real  estate  situated  outside  of  Massachusetts. 
On  the  allegations  contained  in  the  petition  and  admitted  by  the  an- 
swer it  must  be  taken  that  the  balance  of  15  per  cent,  consisted  of 
personal  property.  The  beneficial  interest  in  this  trust  was  divided 
into  shares,  and  for  these  shares  transferable  certificates  were  issued 
by  the  trustees.  The  declaration  of  trust  provided  for  meetings  of 
the  shareholders  at  which  they  might  instruct  the  trustees  in  any  man- 
ner not  inconsistent  with  the  declaration  of  trust  and  at  which  the 
declaration  of  trust  might  be  altered  or  added  to  accordingly.  It  fur- 
ther provided  that  at  a  time  fixed  in  the  trust  "or  at  such  earlier  time 
as  three  quarters  in  value  of  the  shareholders  should  direct,"  the  trus- 
tees should  terminate  the  trust  by  selling  all  property  then  held  by 
them  and  dividing  the  proceeds  among  the  shareholders.  The  princi- 
pal difference  between  the  Ground  Rent  Trust  and  the  Amoskeag 
Manufacturing  Company  is  that  the  personal  property  (amounting  to 
15  per  cent,  of  all  the  property  of  the  trust  at  Mrs.  Dana's. death)  did 
not  come  into  existence  until  after  the  creation  of  the  trust.  It  came 
into  existence  by  virtue  of  a  clause  in  the  declaration  of  trust  provid- 
ing that  the  trustees  might  set  aside  not  more  than  10  per  cent,  of 
the  annual  income  for  a  contingent  fund  or  sinking  fund  or  both.  It 
appears,  therefore,  that  the  property  of  the  Ground  Rent  Trust  was 
ultimately  to  be  reduced  into  personal  property,  and  that  the  trust 
property  (in  part  real  and  in  part  pe^rsonal  property)  was  to  be  one. 


SUPPLEMENTAia'    LIST   OF   CASES   ON   PARTNERSHIP  00 

Under  these  circumstances  we  are  of  opinion  that  the  same  conclu- 
sion must  be  reached  in  this  trust  as  in  the  Amoskeag  Manufacturing 
Comparry.  It  follows  that  the  succession  duty  inii)osed  on  the  130 
shares  in  the  Boston  Ground  Rent  Trust  was  properly  imposed  upon 
them  as  personal  property,  held  by  a  person  domiciled  in  this  com- 
monwealth at  the  date  of  her  death. 

The  conclusion  which  we  have  reached  as  to  Mrs.  Dana's  interest 
in  the  Boston  Ground  Rent  Trust  seems  to  be  in  conflict  with  the 
conclusion  reached  in  Bartlctt  v.  Gill  (D.  C.)  221  Fed.  476,  as  to  the 
character  of  shares  in  City  Associates,  Commonwealth  Land  Trust, 
Boston  Real  Estate  Trust,  Bedford  Building  Association,  and  the 
Municipal  Real  Estate  Trust.  It  does  not  affirmatively  appear  that 
personal  propert\-  as  well  as  real  estate  was  held  by  the  trustees  of 
those  trusts.  But  it  was  assumed  in  Bartlett  v.  Gill  that  that  might 
have  been  the  case.  We  have  examined  the  authorities  cited  in  Bart- 
lett V.  Gill  and  fmd  nothing  in  them  inconsistent  with  the  conclusion 
which  we  have  reached;  so  far  as  the  decision  in  that  case  is  in  con- 
flict with  the  conclusion  here  reached  we  are  of  opinion,  after  giving 
due  consideration  to  it,  that  it  ought  not  to  te  followed.  Beal  v.  Car- 
penter, 235  Fed.  273,  148  C.  C.  A.  633,  is  the  only  other  case  which 
has  come  to  our  attention  in  which  these  matters  are  discussed. 

4.  The  "interest,"  or,  speaking  more  accurately,  the  interests,  of 
the  decedent  in  the  Duluth  &  Gladstone  Real  Estate  Trust  are  quite 
different. 

W^ithout  going  into  details  we  are  of  opinion  that  by  the  true  con- 
struction of  that  trust  the  decedent  had  interests  in  it  of  two  kinds. 
The  property  of  that  trust  consisted  of  real  estate  and  real  estate 
alone.  The  p<Srsons  interested  in  the  trust  were  Mrs.  Dana  (the  de- 
cedent), Mr.  Dana  (her  husband)  and  a  ]\Ir.  Hale.  The  real  estate 
consisted  of  one  parcel  of  land  in  Duluth  in  the  state  of  Minnesota 
and  one  parcel  of  land  in  Gladstone  in  the  state  of  ^Michigan.  We 
are  of  opinion  that  by  the  true  construction  of  the  declaration  of  trust 
the  decedent  and  her  husband  each  owned  one  undivided  equitable 
quarter  interest  in  the  Duluth  real  estate,  and  that  Mr.  Hale  owned 
the  other  two-quarters  undivided  equitable  interest  in  that  part  of  the 
trust  realty  (i.  e.,  in  the  Duluth  land)  subject  to  a  lien  on  his  (Mr. 
Hale's)  .two  quarters  held  by  the  decedent  to  secure  the  payment  to 
her  of  the  sum  of  $9,033.  The  beneficial  interest  in  the  Gladstone  real 
estate  was  all  owned  by  Mr.  Hale,  but  it  was  subject  (1)  to  a  lien 
tar  the  payment  to  Mr.  Dana  of  v'?2,50O;  and  (2)  to  a  lien  in  favor 
of  the  decedent  for  payment  of  the  same  $9,033,  for  which  she  had 
a  lien  upon  Mr.  Hale's  undivided  beneficial  interest  in  the  land  in 
Duluth. 

There  was  no  provision  in  the  declaration  of  trust  for  meetings  of 
the  owners  of  the  beneficial  interests  in  this  trust  property.  The  own- 
ers of  the  beneficial  interest  had  a  common  interest  but  they  were  not 
associated  togetl'ier  in  anv  wav.     As  we  have  alreadv  said  there  was 


70  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

no  personal  property  held  by  the  trustee  and  there  was  no  provision 
for  the  issue  of  certificates  to  represent  the  shares  to  those  who  held 
the  beneficial  interests  in  the  trust.  There  was  a  provision-  putting 
restrictions  upon  the  assignment  of  their  interests  by  the  owners  of 
the  beneficial  property,  but  that  is  the  only  provision  of  the  declara- 
tion of  trust  in  that  connection.  It  was  provided  that  the  real  estate 
remaining  unsold  at  the  end  of  20  years  should  be  sold  and  the  pro- 
ceeds divided  as  stated  above.  As  there  was  a  provision  directing  that 
all  real  estate  should  be  sold  at  the  end  of  the  trust  there  was  a  pro- 
vision for  a  conversion  of  the  real  estate  into  personal  property.  But 
in  such  a  case  no  conversion  takes  place  until  the  date  when  the  sale 
is  directed  to  be  made  and  at  Mrs.  Dana's  death  her  interests  as  a  hold- 
er of  one  undivided  fourth  of  the  land  in  Duluth  was  an  interest  in 
real  estate  outside  the  commonwealth,  and  so  not  subject  to  a  tax  in 
Massachusetts.     *     * 

But  Mrs.  Dana's  interest  created  by  this  declaration  of  trust  which 
secured  to  her  the  payment  of  $9,033,  by  a  pledge  of  Mr.  Hale's  bene- 
ficial interest  to  the  extent  of  one-half  of  the  land  in  Duluth,  and  his 
beneficial  interest  in  the  whole  of  the  land  in  Gladstone  was  subject 
to  a  succession  tax  in  Massachusetts.  This  interest  was  of  the  same 
kind  as  the  interest  of  the  holder  of  a  note  secured  by  mortgage  on 
land  lying  outside  the  commonwealth.  In  both  cases  the  debt  is  per- 
sonal property;  it  passes  by  succession  to  her  executor  or  adminis- 
trator by  force  of  the  laws  of  Massachusetts,  and  so  is  subject  to  a 
succession  duty  here. 

The  Attorney  General  has  contended  that  the  undivided  fourth  in- 
terest of  Mrs.  Dana  is  personal  property  because  it  is  impliedly  pro- 
vided that  it  shall  pass  by  assignment.  The  exact  provisions  of  the 
declaration  of  trust  are  as  follows : 

"5.  No  assignment  of  a  subscriber's  interest  shall  be  made  of  less 
than  one-half  his  original  interest  and  not  to  more  than  one  person, 
though  more  than  one  person  may  take  under  a  will  or  as  distributee. 
Any  assignment  to  be  valid  must  be  in  duplicate,  each  countersigned 
by  the  trustee  and  one  preserved  by  him.  On  any  new  assignment  of 
the  same  interest  the  old  one  must  be  delivered  to  the  trustee  to  be 
canceled  to  the  amount  of  the  interest  assigned." 

And  he  has  made  the  same  contention  with  respect  to  Mrs.  Dana's 
interests  in  Amoskeag  Manufacturing  Company  and  in  the  Boston 
Ground  Rent  Trust,  This  contention  is  not  of  consequence-  in  con- 
nection with  the  Amoskeag  Manufacturing  Company  and  the  Boston 
Ground  Rent  Trust  because  we  have- reached  the  conclusion  that  Mrs. 
Dana's  interest  in  those  trusts  was  personal  property.  The  argument 
of  the  Attorney  General  is  that  a  beneficial  interest  in  real  estate  can 
be  conveyed  by  deed  only;  in  other  words,  that  so  far  as  the  convey- 
ance or  transfer  of  the  equitable  ownership  in  real  property  is  con- 
cerned the  same  rule  applies  as  that  which  governs  the  conveyance 
of  a  legal  title  to  land,  and  since  it  is  provided   (at  least  impliedly) 


SUPPLEMEXTAUY    LIST   OF   CASKS   ON    PAUTNEItSMIP  «1 

that  these  equitable  interests  can  be  assigned  without  a  deed,  it  is  pro- 
vided that  they  are  persqnalty.  But  although  support  for  that  conten- 
tion is  to  be  found  in  Eartlett  v.  Gill,  ubi  supra  (D.  C.)  221  Fed.  at 
page  485,  it  is  without  foundation.  Conveyances  of  legal  estates  are 
the  outcome  of  feudal  tenures,  and  arc  founded  on  the  doctrine  of 
feoffment  with  livery  of  seizin.  The  transfer  of  an  equitable  interest 
in  real  estate  has  nothing  to  do  with  feudal  tenures,  and  is  not  de- 
pendent on  the  doctrine  of  feofTment  with  livery  of  seisin.  The  only 
provision  of  law  regulating  the  transfer  of  an  equitable  estate  in  land 
is  the  third  section  of  statute  of  frauds  (St.  29  Car.  II,  c.  3)  re-en- 
acted at  the  present  time  in  this  commonwealth  in  R.  L.  c.  127,  §  3,  and 
that  provision  is  that  the  assignment  must  be  in  writing.  In  other 
words  the  method  of  transfer  adopted  (i.  e.,  by  an  assignment  in  writ- 
ing) is  as  applicable  to  a  transfer  of  an  equitable  estate  in  land  as  it 
is  to  *a  transfer  of  personal  property. 

Another  contention  of  the  Attorney  General  is  that  Mrs.  Dana's 
interest  as  owner  of  one  undivided  fourth  part  of  the  Duluth  real  es- 
tate is  subject  to  a  succession  tax  in  this  commonwealth  because  the 
sole  trustee  was  and  is  a  resident  of  this  commonwealth,  and  he  con- 
tends for  that  reason  that  a  succession  duty  upon  that  interest  comes 
within  the  decision  made  in  Bliss  v.  Bliss,  ubi  supra,  as  to  registered 
bonds  of  the  commonwealth. 

We  do  not  need  to  decide  whether  that  contention  would  have  been 
correct  had  nothing  more  appeared  in  the  case.  But  more  does  ap- 
pear; it  is  alleged  in  the  petition  that:  "Said  interest  [Mrs.  Dana's] 
under  the  Duluth  &  Gladstone  Real  Estate  Trust  consists  of  an  equi- 
table interest  in  real  estate  situated  entirely  outside  of  Massachusetts 
in  the  states  of  Minnesota  and  Michigan.  It  is  the  law  of  each  ot 
said  states  that  the  trust  is  to  be  enforced  as  to  the  real  estate  in  each 
of  those  states  by  the  courts  in  those  states  respectively  without  re- 
course to  the  laws  or  the  courts  of  Massachusetts." 

This  allegation  was  admitted  by  the  Attorney  General  in  his  an- 
swer. Whether  the  statutes  of  Minnesota  and  Michigan  do  or  do 
not  provide  for  an  enforcement  of  a  trust  with  respect  to  real  estate 
situate  within  their  territorial  limits  when  the  trustee  resides  out  of 
the  state  are  questions  of  fact.  Counsel  for  Mr.  Dana- has  contend- 
ed that  the  allegations  set  forth  above  are  allegations  of  the  existence 
of  such  statutes,  and  we  are  of  opinion  that  in  this  contention  he  is 
right.  It  follows  that  on  the  record  it  must  be  taken  to  be  the  fact 
that  without  resorting  to  the  courts  of  this  commonwealth  :Mrs.  Dana 
and  her  successor  in  title  could  have  asserted  their  rights  as  owners 
of  one  undivided  fourth  part  in  the  beneficial  property  in  the  Duluth 
real  estate,  and  this  interest  does  not  come  within  the  decision  in  Bliss 
v.  Bliss,  ubi  supra.     *     *     * 

It  must  be  taken  on  the  record  that  the  succession  duty  imposed 
upon  Mrs.  Dana's  "interest  under  the  Duluth  and  Gladstone  Real  Es- 
tate Trust"  was  imjiosed  upon  all  the  interests  which  she  had  under 


72  SUPPLEMENTARY    LIST   OP   CASES   OX   PARTNERSHIP 

that  trust.  That  is  to  say  both  upon  her  interest  as  the  holder  of  a 
debt  secured  by  pledge  of  Mr.  Hale's  equitably  interest  under  the  trust 
and  as  holder  of  an  undivided  equitable  fee  in  that  portion  of  the 
trust  property  which  consisted  of  -land  in  Duluth.  So  far  as  the  lat- 
ter is  concerned  the  property  was  not  subject  to  a  succession  tax.  To 
that  extent  the  decree  of  the  probate  court  was  wrong;  so  far  as  the 
former  is  concerned  it  is  right. 

It  does  not  appear  whether  the  succession  duty  imposed  upon  Mrs. 
Dana's  "interest  under  the  Duluth  and  Gladstone  Real  Estate  Trust" 
was  imposed  on  her  interest  by  way  of  a  lien  for  the  payment  of  the 
$9,033  or  upon  her  interest  as  owner  of  an  undivided  quarter  bene- 
hcial  fee  in  the  land  in  Duluth  or  on  both.  It  follows  that  the  decree 
of  the  probate  court  was  wrong  so  far  as  it  declared  that  the  succes- 
sion duty  imposed  upon  Mrs.  Dana's  "interest  under  the  Duluth  and 
Gladstone  Real  Estate  Trust"  was  valid. 

5.  It  is  alleged  in  the  petition  that  the  rate  of  duty  depends  upon 
the  duties  imposed  upon  all  the  three  pieces  of  property  being  valid. 
It  follows  that  the  whole  decree  must  be  reversed  and  the  case  stand 
for  hearing  before  a  single  justice. 

It  is  so  ordered. 


PRIESTLEY  V.  BURRILL,  Treasurer  and  Receiver  General. 
(Supreme  Judicial  Court  of  Massachusetts,  1918.    230  Mass.  452,  120  N.  E.  100.) 

Appeal  from  Supreme  Judicial  Court,  Suflfolk  County. 

Petition  bv  Neville  George  De  Bretton  Priestley,  ancillary  executor 
of  the  will  of  Charles  Homans  Priestley,  against  Charles  L.  Burrill, 
Treasurer  and  Receiver  General.  From  a  decree  of  the  probate  court, 
respondent  appealed  to  the  Supreme  Judicial  Court,  a  single  justice 
of  which  affirmed  the  decree  and  remanded  the  cause  to  the  probate 
court,  and  respondent  appeals  to  the  full  court.  Decree  of  the  pro- 
bate court  affirmed  in  part  and  in  part  reversed,  and  decree  ordered 
as  indicated. 

The  real  estate  trusts  are  evidenced  by  the  following  instruments : 
*      *     *ii 

De  Courcy,  J.  Charley  Homans  Priestley  died  on  September  4. 
1916,  domiciled  in  England.  The  petitioner,  who  is  the  ancillary 
executor  of  his  will,  has  brought  this  petition  to  determine  whether 
certain  shares  in  tru.sts  of  Massachusetts  real  estate  are  subject  to  a 
legacy  and  succession  tax. 

Undoubtedly  these  shares  constitute  property  within  the  jurisdic- 
tion of  the  commonwealth,  and  would  have  been  taxable  to  nonresi- 
dents before  the  enactment  of  St.  1912,  c.  678.  Peabody  v.  Treasur- 
er and  Receiver  General,  215  Mass.  129,  102  N.  E.  435.     That  stat- 

11  Part  of  the  statement  of  facts  is  omitted. 


SLTPLEMEXTAItY    LIST   OF   CASES   ON    PAUTNERSIIIP  73 

lite,  cor.tinued  by  St.  1916,  c.  26S,  §  1,  confined  the  tax  in  case  of 
nonresident  decedents,  to  "real  estate  within  the  commonwealth,  or 
any  interest  therein."  If  the  shares  owned  by  this  nonresident  de- 
cedent, constitute  real  estate  or  an  interest  therein  they  are  taxable, 
but  not  otherwise. 

In  the  recent  case  of  Dana  v.  Treasurer  and  Receiver  General,  227 
Mass.  562,  116  N.  E.  941,  the  question  arose  whether  similar  shares 
in  the  Amoskeag  Manufacturing  Company  and  the  Boston  Ground 
Rent  Trust  (two  real  estate  trusts),  were  real  or  personal  estate  or 
partly  each.  The  beneficial  interest  in  the  trust  was  divided  into  trans- 
ferable shares;  the  real  estate  and  personal  property  constituted  one 
trust  fund,  and  it  was  expressly  provided  that  at  the  termination  of 
the  trust  the  trustees  should  liquidate  the  assets  and  distribute  the 
same  among  the  shareholders,  but  there  was  no  provision  authorizing 
the  trustees  to  divide  the  real  property  among  them.  It  was  held  that 
the  regl  estate  was  to  be  considered  as  converted  into  personal  estate 
from  the  beginning,  and  that  consequently  the  shares  were  personal 
property. 

As  respects  the  shares  in  the  Homans  Real  Estate  Trust  and  the 
share  in  the  Boston  Real  Estate  Trust,  the  present  case  cannot  be  dis- 
tinguished in  principle  from  the  Dana  Case.  The  essential  facts  are 
similar,  and  the  general  scheme  of  each  of  these  trusts  worked  a  con- 
version of  all  the  property  of  the  trust  into  personalty  as  one  fund 
from  the  outset.  The  deceased  testator  had  no  interest  in  the  real 
estate  which  would  go  to  his  heirs,  but  an  interest  in  the  net  proceeds 
of  the  trust  fund,  after  the  sale  of  all  the  property.  Indeed  the  Ho- 
mans Real  Estate  Trust  Agreement  expressly  provided  that  "shares 
hereunder  shall  be  personal  property."  We  are  of  opinion  that  these 
shares,  belonging  to  the  estate  of  a  nonresident,  and  not  constituting 
any  interest  in  real  estate,  are  not  subject  to  a  succession  tax. 

In  the  trust  agreement  of  the  Warren  Chambers  Trust,  however, 
there  is  no  such  imperative  requirement  that  the  property  shall  be  sold, 
and  the  proceeds  distributed  among  the  shareholders.  The  trustees 
may  transfer  the  property  to  a  corporation  if  instructed  by  the  share- 
holders to  organize  one ;  but  they  are  authorized  to  sell  the  property 
at  the  expiration  of  the  trust  only  in  default  of  action  relative  there- 
to by  the  shareholders.  The  agreement  contains  no  provision  that 
the  shares  shall  be  personal  property  as  to  title,  whatever  the  legal  ef- 
fect of  such  a  clause  may  be.  See  Peabody  v.  Treasurer  and  Receiv- 
er General,  215  Mass.  129,  130,  102  N.  E.  435.  That  there  was  no 
equitable  conversion  of  this  real  property  into  personalty  at  the  cre- 
ation of  the  trust,  or  at  the  death  of  the  testator,  is  virtually  settled 
by  the  decision  in  the  Dana  Case  relating  to  the  Duluth  and  Glad- 
stone Real  Estate  Trust. 

This  trust  agreement,  in  our  opinion,  created  a  partnership  relation 
among  the  certificate  holders,  as  distinguished  from  a  pure  trust. 
They  are  associated  together,  have  a  fixed  annual  meeting,  and  special 


I  4  SUPPLEMENTARY   LIST   OF   CASES   ON    PARTNERSHIP 

meetings  upon  the  written  request  of  the  holders  of  one-tenth  of  the 
shares;  they  are  empowered  to  fill  any  vacancy  existing  in  the  num- 
ber of  trustees,  and  may  remove  any  or  all  of  them  and  elect  others  in 
their  place.  After  the  erection  of  the  new  building  the  trustees  can 
incur  no  debt  or  liability  excepf'such  as  may  be  incidental  to  the  man- 
agement of  the  property  held  by  them,  and  then  only  for  an  amount 
not  exceeding  in  the  aggregate  at  any  one  time  ten  thousand  dollars ; 
they  are  specially  authorized  to  mortgage  the  premises  purchased  and 
the  buildings  they  may  erect  thereon  for  a  specified  amount  but  not 
for  a  larger  amount ;  and  no  sale  of  the  real  estate  can  be  made  by 
them  unless  authorized  by  vote  of  the  shareholders.  In  short  the 
certificate  holders  are  associated  together,  they  control  the  property, 
and  for  convenience  have  placed  the  legal  title  to  it  in  trustees  as  their 
managing  agents.    Williams  v.  Milton,  215  Mass.  1,  102  N.  E.  355. 

Under  the  IMassachusetts  rule,  while  partnership  real  estate  is  per- 
sonalty so  far  as  necessary  to  pay  the  debts  of  the  firm,  it  is  real  prop- 
erty for  all  other  purposes.  The  decedent,  as  one  of  the  partners,  had 
a  beneficial  or  equitable  interest  in  the  real  estate  of  the  Warren  Cham- 
bers Trust;  and  however  that  interest  may  be  defined,  it  was  "real 
estate  within  the  Commonwealth  or  any  interest  therein,"  and  as  such 
was  subject  to  a  succession  tax  by  the  express  terms  of  St.  1909,  c. 
490,  part  4,  §  1,  as  amended  by  St.  1912,  c.  678,  and  St.  1916,  c.  268. 
Kinney  v.  Treasurer  and  Receiver  General,  '207  Mass.  368,  93  N.  E. 
586,  35  L.  R.  A.  (N.  S.)  784,  Ann.  Cas.  1912A,  902;  Kennedy  v. 
Hodges,  215  Mass.  112,  102  N.  E.  432;  Peabody  v.  Treasurer  and 
Receiver  General,  215  Mass.  129,  131.  102  N.  E.  435;  Frost  v.  Thomp- 
son, 219  Mass.  360,  106  N.  E.  1009.  See  Ha'wkridge  v.  Treasurer 
and  Receiver  General,  223  Mass.  134,  111  N.  E.  707. 

It  is  strongly  urged  by  the  petitioner  that  great  practical  difficulty 
will  arise  by  applying  to  such  an  association  as  the  Warren  Chambers 
Trust  the  rule  applicable  to  ordinary  partnerships.  See  Wilcox  v. 
Wilcox,  13  Allen,  252.  But  those  results  legally  follow  from  the  part- 
nership form  of  organization  voluntarily  adopted  by  the  parties.  The 
court  has  no  power  to  suspend  the  operation  of  the  established  rules 
of  law  applicable  to  partnership  real  estate,  and  the  interest  of  the 
individual  partners  therein,  where  the  agreement  does  not  provide 
for  the  equitable  conversion  of  the  real  into  personal  estate.  If  what 
is  desired  in  order  to  carry  out  the  purposes  of  a  real  estate  trust  is 
an  organization  with  a  distinct  entity,  intermediate  between  a  corpo- 
ration and  a  partnership  or  pure  trust,  and  with  its  own  rights  and 
obligations,  the  Legislature  and  not  the  courts  must  be  resoi:ted  to. 
W^'ightington  on  Unincorporated  Associations, '78. 

The  decree  of  the  probate  court  is  affirmed  so'  far  as  it  relates  to 
the  shares  of  the  Homans  Real  Estate  Trust  and  the  share  of  the  Bos- 
ton Real  Estate  Trust.  As  to  the  shares  of  the  Warren  Chambers 
Trust  the  decree  is  reversed,  and  a  decree  is  to  be  entered  declaring 


SUPPLEMENTARY    LIST   OF   CASES   ON    PAUTNERSHIP  (O 

that  so  much  of  these  shares  as  represents  an  interest  in  real  estate 
owned  by  the  Warren  Chambers  Trust  is  subject  to  a  succession  tax 
under  the  statute. 
Decree  accordingly. 


HOME  LUMBER  CO.  et  al.  v.  HOPKINS,  Atty.  Gen.,  et  al. 
(Supreme  Court  of  Kausas,  1920.    107  Kaii.  l."3,  100  Pac.  GOl,  10  A.  L.  K.  &79.i 

Original  mandamus  proceedings  by  the  Home  Lumber  Company,  a 
trust  estate,  and  J.  K.  Stanland  and  others,  as  trustees  of  such  estate, 
against  Richard  J.  Hopkins,  Attorney  General  of  the  state  of  Kansas, 
and  others,  composing  the  State  Charter  Board  of  the  state  of  Kan- 
.sas,  to  compel  the  board  to  consider  plaintiff  lumber  company's  ap- 
plication for  permission  to  sell  its  stock  in  the  state  and  to  find  wheth- 
er plaintiff  had  complied  with  statutes  and  is  entitled  to  sell  its  stock 
within  the  state. 

Johnston,  C.  J.*^  This  proceeding  was  brought  by  the  plaintiff  to 
compel  the  state  charter  board  to  consider  its  application  for  permis- 
sion to  sell  its  stock  and  securities  within  the  state,  and  to  find  and 
determine  whether  the  plaintiff  had  complied  with  the  statutes  of  the 
state  and  is  entitled  to  dispose  of  securities  and  stock  in  Kansas.  The 
plaintifT,  an  unincorporated  association,  submitted  its  agreement  or 
declaration  of  trust  under  which  it  was  organized  and  its  plan  of 
operations  to  the  charter  board,  with  a  request  that  it  be  permitted 
to  sell  its  stock  and  securities  within  the  state.  That  tribunal  con- 
cluded that  the  agreement  created  a  partnership  and  was  not  such  an 
organization  as  was  entitled  to  sell  securities  and  stock  in  Kansas,  be- 
cause the  agreement  created  partnership  liabilities  and  the  plan  of 
business  was  inequitable  and  unfair.  The  board  therefore  declined 
to  investigate  or  consider  the  solvency  of  the  company,  whether  its 
plan  of  business  was  otherwise  honest  and  fair  to  investors,  its  adver- 
tising matter  free  from  deception,  and  whether  or  not  the  reasonable 
value  had  been  placed  upon  the  assets  of  the  company  which  was  of- 
fered in  exchange  for  property  and  securities.  Having  determined 
that  each  shareholder  became  liable  as  a  copartner  and  that  the  busi- 
ness of  the  sale  of  its  securities  and  stock  was  to  be  conducted  upon 
a  plan  regarded  to  be  unfair  and  inequitable,  the  board  deemed  it  un- 
necessary to  proceed  further  with  the  investigation. 

The  first  and  principal  question  presented  for  determination  is 
whether  the  company  as  organized  constitutes  a  partnership.  If  the 
shareholders  are  not  partners  liable  for  the  debts  of  the  company,  and 
the  business  contemplated  is  not  contrary  to  law  or  public  policy,  it 
was  the  duty  of  the  charter  board  to  investigate  and  determine  the 
merits  of  the  plaintiff's  application.  '  The  agreement  is  a  declaration 

1*  Parts  of  the  opinion  are  omitted. 


76  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

of  trust  in  which  parties  trarisfer  to  trustees  certain  property  interests, 
and  for  the  purpose  of  defining  the  interest  of  each  subscriber  in  the 
estate  tlie  trustees  were  to  issue  negotiable  certificates  of  shares  to  the 
extent  of  150,000,  each  of  the  value  of  $1,  and  which  they  might,  if 
they  deemed  it  expedient,  increase  to  1,000,000  shares.  They  engaged 
to  use  the  property  and  proceeds  of  the  shares  sold  in  a  general  manu- 
facturing, mercantile,  or  commercial  business,  in  any  and  all  of  its 
branches,  to  buy,  sell,  hypothecate,  or  otherwise  deal  in  bonds  and 
stocks,  debentures,  notes,  and  all  forms  of  obligations  of  corporations, 
countries,  states,  counties,  and  municipalities  or  persons.  In  fact  they 
were  authorized  to  buy,  sell,  and  deal  all  kinds  of  property  and  to  car- 
ry on  all  kinds  of  business  not  inconsistent  with  law.  It  was  stipulated 
that  the  trustees  should  not  be  less  than  three  nor  more  than  five  in 
number,  to  be  elected  annually  by  the  shareholders  at  their  meetings, 
and  vacancies  in  the  number  of  trustees  are  to  be  filled  by  the  remain- 
ing trustees. 

In  respect  to  the  functions,  obligations,  and  liabihties  of  the  trus- 
tees, it  is  provided: 

"The  trustees  shall  hold  the  legal  title  to  all  property  at  any  time 
belonging  to  the  trust,  ^md  shall  have  and  exercise  the  exclusive  man- 
agement and  control  of  the  same ;  they  shall  assume  all  contracts  for, 
and  obligations  and  liabilities  in  connection  with  or  growing  out  of, 
the  property  assigned  to  them  by  the  subscriber  and  mentioned  in  the 
schedule  filed  with  the  trustees,'  also,  in  the  management  of  the  same, 
and  to  the  extent  of  the  value  of  such  property  and  business,  but  not 
personally,  shall  agree  to  hold  the  subscriber  and  any  persons  asso- 
ciated with  and  acting  with  him  harmless  and  indemnified  from  and 
against  any  loss,  cost,  expense,  or  liability  upon,  or  by  reason  of,  or 
in  connection  with  any  contract,  obligation,  or  liability.     *      *     * 

"So  far  as  strangers  to  this  trust  are  concerned,  a  resolution  of  the 
trustees  authorizing  a  particular  act  to  be  done  shall  be  conclusive  evi- 
dence in  favor  of  such  strangers  that  such  act  is  within  the  powers 
of  the  trustees,  and  no  purchaser  from  the  trustees  or  one  loaning 
money  to  the  trustees  shall  be  bound  to  see  the  application  of  the  pur- 
chase money  or  other  consideration  paid  or  delivered  by  or  from  said 
purchaser  or  loaner  to  or  for  said  trustee." 

Other  provisions  in  the  agreement  are  to  the  effect  that  the  trustees 
may  make,  amend,  and  repeal  by-laws,  may  elect  officers  and  appoint 
agents  and  fix  their  compensation,  may  pay  themselves  such  compen- 
sation as  they  deem  to  be  reasonable,  and  they  shall  not  be  liable  for 
errors  of  judgment,  and  shall  pay  only  such  dividends  as  they  deem 
advisable,  the  amount  of  such  dividends  to  be  left  wholly  to  their 
discretion.  The  trust  is  to  continue  not  longer  than  20  years,  and 
when  ended  the  trustees  are  to  wind  up  its  affairs,  liquidate  its  assets, 
and  distribute  the  same  among  the  holders  of  the  shares  according 
to  the  number  of  shares  held  by  each.  It  was  also  provided  that  the 
death  of  the  shareholder  should  not  determine  the  trust  nor  entitle 


SUI'PLKMENTARY   LIST  OF   CASES   ON   PARTNERSHIP  il 

the  legal  rei)resentatives  of  such  shareholder  to  an  accounting  or  to 
take  any  action  in  any  court  or  elsewhere  against  the  trustees,  but  that 
the  regular  representatives  of  the  deceased  sharehulder  should  suc- 
ceed to  the  rights  of  the  decedent.  There  were  further  provisions 
that  "the  ownership  ^f  shares  hereunder  shall  not  entitle  the  share- 
holders to  any  title  in  or  to  the  trust  property  whatsoever  or  right  to 
call  for  a  partition  or  division  of  same,  or  for  an  accounting,  or  for 
any  voice  or  control  whatsoever  of  the  trust  proi)erty  or  of  the  man- 
agement of  said  property  or  business  connected  therewith  by  the  trus- 
tees. The  trustees  shall  have  no  power  to  bind  the  shareholders  per- 
sonally, and  the  subscriber  and  his  assigns  and  all  persons  and  corpo- 
rations extending  credit  to,  contracting  wit'h,  or  having  any  claim 
against  the  trustees  shall  look  only  to  the  funds  and  property  of  the 
trust  for  payment  under  such  contract  or  claim,  or  for  the  payment 
of  any  debt,  damage,  judgment,  or  decree,  or  of  any  money  that  may 
otherwise  become  due  or  payable  to  him  from  the  trustees,  so  that 
neither  the  trustees  nor  the  shareholders,  present  or  future,  shall  be 
personally  liable  therefor.  In  every  written  order,  contract,  or  obli- 
gation which  the  trustees  shall  give  or  enter  into,  it  shall  be  the  duty 
of  the  trustees  to  stipulate  that  nfellher  the  trustees  nor  the  sharehold- 
ers shall  be  held  for  any  personal  liability,  under  or  by  reason  of  such 
contract,  order,  or  obligation." 

As  will  be  observed,  the  title  as  well  as  the  exclusive  management 
and  control  of  the  property  of  the  trust  are  absolutely  vested  in  the 
trustees.  The  shareholders  have  no  voice  or  control  in  the  property 
or  its  management  and  no  right  even  to  call  for  an  accounting  by  the 
trustees.  They  can  exercise  no  authority  as  individuals  nor  in  associa- 
tion except  to  elect  the  trustees,  and  when  new  trustees  are  elected 
thev  have  the  same  absolute  authority  and  control  that  are  specified  in 
the  declaration  of  trust.  It  is  expressly  stated  that  no  personal  lia- 
bility of  a  shareholder  can  arise  by  reason  of  any  contract  the  trustees 
may  make,  any  obligation  they  may  assume,  or  any  judgment  ren- 
dered against  them,  and  to  put  the  matter  of  personal  liability  beyond 
cavil  it  is  provided  that  in  every  written  order,  contract,  or  obliga- 
tion, given  or  entered  into  by  tjie  trustees,  they  are  required  to  write 
into  it  the  provision  that  the  shareholders  as  well  as  the  trujitees  shall 
be  free  from  any  personal  liability.  Under  the  declaration  all  per- 
sons extending  credit  to  the  trustees  or  entering  into  contracts  with 
them  must  look  alone  to  the  funds  and  property  of  the  trust  estate 
for  payment. 

Whether  an  agreement  committing  the  possession  and  control  of 
property  to  trustees  for  the  benefit  of  shareholders  creates  a  trust  or 
partnership  depends  upon  the  interest  transferred  and  the  extent  of 
the  control  given  to  the  trustees.  If  the  title  is  transferred  to  them 
and  they  are  given  the'  exclusive  power  to  act  as  principals  in  the 
management  of  the  trust  property,  a  true  trust  is  created,  but,  if  the 
shareholders  are  coproprietors  and  the  trustees  are  subject  to  the^  con- 


7S  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

trol  of  the  shareholders  in  the  management  of  the  trust,  it  is  deemed 
to  be  a  partnership.  Such  a  test  has  been  apphed  in  JNIassachusetts, 
where  a  large  volume  of  business  is  done  under  trust  agreements.  The 
cases  of  Hoadley  v.  County  Commissioners,  105  Mass.  519;  Whit- 
man V.  Porter.  107  j\Iass.  522;  Phillips  v.  Blatchford,  137  Mass.  510; 
Ricker  v.  American  Loan  &  Trust  Co.,  140  Mass.  346,  5  N.  E.  284 ; 
Williams  V.  Boston,  208  Mass.  497,  94  N.  E.  848 ;  Frost  v.  Thomp- 
son, 219  Mass.  360,  106  N.  E.  1009;  Priestly  v.  Treasurer  &  Receiv- 
er General,  230  Mass.  452,  120  N.  E.  100— are  examples  of  those 
which  fall  on  the  partnership  side  of  the  line.  On  the  other  hand, 
Mayo  V.  IMoritz,  151  Mass.  481,  24  N.  E.  1083,  and  Williams  v.  Mil- 
ton, 215  Mass.  1,  102  N.  E.  355,  illustrate  the  type  of  agreements 
which  are  held  to  create  a  pure  trust.  In  the  Williams  v.  Milton  Case 
there  is  a  full  discussion  of  the  elements  entering  into  the  two  classes 
(if  agreements,  and  the  line  dividing  them  is  clearly  pointed  out. 
*     *     * 

Another  case  in  line  with  the  theory  of  Williams  v.  Milton,  supra,  is 
the  Wells-Stone  Mercantile  Co.  v.  Grover,  7  N.  D.  460,  75  N.  W.  911, 
41  L.  R.  A.  252,  where  a  deed  of  trust  was  executed  by  a  debtor  in 
which  creditors  joined.     *     *     * 

Still  another  case  closely  in  point  is  Rhode  Island  Hospital  Trust 
Co.  v.  Copeland,  39  R.  I.  193,  98  Atl.  273.  *  ^••'  *  See,  also,  Hussey 
v.  Arnold.  185  Mass.  202.  70  N.  E.  87;  In  re  Associated  Trust  (D. 
C.)  222  Fed.  1012;  Crocker  v.  Malley,  249  U.  S.  223,  39  Sup.  Ct.  270, 
63  L.  Ed.  573,  2  A.  L.  R.  1601;  Cox  v.  Hickman,  8  H.  C.  L.  268; 
Smith  v.  Anderson,  15  Ch.  Div.  247;  Crowther  v.  Thorley,  32  W.  R. 
330 ;  In  re  Siddall,  29  Ch.  Div.  1 ;  In  re  Thomas,  14  Q.  B.  Div.  379 ; 
In  re  Faure  Electric  Accumulator  Co.,  40  Ch.  Div.  141 ;  Wrightington 
on  Unincorporated  Associations,  p.  49 ;  Chandler  on  Express  Trusts 
under  the  Common  Law,  p.  19. 

Following  the  rule  of  the  authorities,  it  is  clear  that  the  shareholders 
herein  cannot  be  regarded  as  partners.  They  had  surrendered  pro- 
prietorship in  the  property  to  the  trustees  and  have  no  control  over  it 
or  of  the  business  done  by  the  company,  and  neither  can  they  be  held 
liable  upon  any  contract  or  obligation  of  the  trustees.  The  latter  act 
as  proprietors  and  principals,  and  conduct  the  business  free  frpm  the 
control  of  the  shareholders,  and  may  make  and  change  investments 
whenever  they  deem  best  and  make  or  withhold  dividends  in  their  dis- 
cretion. They  do  not  take  orders  or  directions  from  shareholders 
and  are  in  no  sense  the  agents  of  the  shareholders.  While  stock  is 
issued  to  shareholders,  the  shares  give  no  right  except  to  furnish  a  ba- 
sis for  the  division  of  profits  and  for  a  distribution  of  the  property 
and  funds  when  the  trust  is  concluded.  The  stock  measures  the  vot- 
ing strength  of  shareholders  wl^en  trustees  are  elected,  but  the  fact 
that  they  choose  trustees  with  the  powers  conferred  by  the  declaration 
of  trust  is  not  such  control  as  to  make  the  trustees  their  agents  or  give 
the  shareholders  the  character  of  partners.     It  follows  that  the  state 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  79 

charter  board  was  not  warranted  in  denying  the  appHcation  of  the  plain- 
tiff upon  the  ground  that  it  was  a  partnership. 

It  does  not  follow,  however,  that  the  plaintiff  as  organized  is  enti- 
tled to  a  permit  to  sell  its  stock  and  securities  even  if  it  is  found  to  be 
solvent,  its  assets  substantial  and  sufficient,  and  its  plan  of  business 
such  as  would  be  fair  and  equitable  towards  investors.  To  meet  the 
requirements  of  our  law  the  company  must  bring  itself  within  the  rules 
applicable  to  corporations  and  conform  to  the  regulations  imposed  by 
statute  on  corporations.  The  Constitution  expressly  provides  that  "the 
term  'corporations,'  as  used  in  this  article,  shall  include  all  associations 
and  joint-stock  companies  having  powers  and  privileges  not  possessed 
by  individuals  or  partnerships;  and  all  corporations  may  sue  and  be 
sued  in  their  corporate  names."    Const,  art.  12,  §  6. 

The  first  section  of  article  12  provides  that  corporations  may  be 
created  under  general  laws,  and  that  no  special  act  conferring  corpo- 
rate powers  may  be  passed  by  the  Legislature.  It  requires  no  argu- 
ment to  show  that  the  plaintiff  has  and  is  proposing  to  exercise  pow- 
ers and  privileges  not  possessed  by  individuals  and  copartnerships. 
There  is  first  the  limited  liability  under  which  both  shareholders  and 
trustees  are  exefnpted  from  all  personal  liability.  The  corpus  or  joint 
l^roperty  is  to  be  continued  during  the  existence  of  the  trust  freed 
from  the  rules  of  joint  tenancy  or  tenancy  in  common,  and  the  or- 
ganization is  not  dissolved  by  the  death  of  a  shareholder  or  trustee. 
The  interest  of  the  shareholder  is  represented  and  measured  by  nego- 
tiable shares  of  stock,  which  gives  voting  power  much  the  same  as 
does  corporate  stock.  A  common  seal  is  to  be  adopted  and  used  sutv 
stantially  as  is  done  by  corporations,  and  the  trustees  "may  elect  of^- 
cers  who  shall  have  the  authority  and  duties  usually  incident  to  like 
officers  in  corporations."  It  is  not  necessary  to  the  validity  of  the  ac- 
tion of  the  trustees  that  there  should  be  a  concurrence  of  all  of  them, 
but  it  is  provided  that  a  majority  of  those  present  and  voting  at  any 
meeting  shall  be  sufficient.  Other  provisions  already  mentioned  give  the 
company  powers  and  privileges  beyond  those  possessed  by  individuals 
and  partnerships,  and  within  the  rule  of  the  Constitution  the  organiza- 
tion is  to  be  regarded  as  a  corporation.  Many  statutory  provisions 
have  been  enacted  for  the  organization  and  regulation  of  corporations 
which  are  wholly  inconsistent  with  the  organization  and  plan  of  the 
plaintifif  company,  and  with  which  it  will  manifestly  be  unable  to  con- 
form. For  this  reason  the  writ  of  mandamus  applied  for  is  denied. 
BuRCH,  Mason.  Porter,  West,  and  Marshall,  JJ.,  concurring. 
Dawson,  J.,  dissenting. 

On  Motion  for  IModification. 
Johnston,  C.  J.    The  plaintilT  asks  for  a  modification  of  the  deci- 
sion and  judgment  formerly  rendered  as  to  the  right  of  the  plaintifF 
to  sell  its  stock  in  Kansas,  or  rather  as  to  the  duty  of  the  state  charter 
.board  to  examine  and  pass  upon  its  application  to  sell  shares  of  stock 


so  SrPPLEMEXTARY    LIST   OF   CASES   ON   PARTNERSHIP 

in  the  state.  From  expressions  employed  in  the  pleadings  and  briefs 
of  the  plaintiff,  it  was  assumed  that  the  application  filed  with  the  state 
charter  board  asked  permission  to  sell  not  only  shares  of  stock  but 
other  securities  as  well.  As  one  of  the  purposes  for  which  the  com- 
pany is  organized  is  to  buy,  sell,  and  hypothecate  bonds,  debentures, 
notes,  obligations,  and  other  securities  issued  by  private  and  public 
corporations  and  individuals,  it  was  assumed  that  plaintiff  was  asking 
for  permission  to  carry  on  the  business  of  dealing  in  securities  in  Kan- 
sas. It  now  appears  that  it  is  not  asking  for  permission  to  do  busi- 
ness in  the  state,  but  only  that  it  may  sell  shares  of  its  stock  within 
the  state.  Because  of  this  misapprehension,  some  language  was  used 
at  the  close  of  the  former  opinion  that  was  not  appropriate  to  the  real 
question  involved. 

The  principal  controversy  which  divided  the  parties  was  whether  the 
plaintiff  as  organized  was  a  true  trust  or  a  partnership,  and  it  was  de- 
termined that  the  trust  agreement  created  a  trust,  and  that  the  share- 
holders are  not  under  any  partnership  or  personal  liability  for  the  ob- 
ligations or  indebtedness  of  the  trust.  Upon  a  somewhat  cursory  ex- 
amination the  state  charter  board  decided  that  the  plaintiff  was  a  part- 
nership and  that  the  shareholders  were  personally  liable  for  the  debts 
of  the  trust,  and  therefore  declined  to  go  further  in  the  examination 
of  the  application  or  to  pass  upon  its  merits.  The  board  assumed  that 
plaintiff  was  seeking  to  do  business  in  Kansas  under  an  organization 
not  recognized  in  the  state.  The  permission  sought,  however,  was  not 
admission  into  the  state  for  the  purpose  of  doing  business,  and  was 
no  more  than  an  opportunity  to  sell  shares  of  stock  with  a  view  of  rais- 
ing money  on  which  to  do  business.  The  general  holding  of  the  courts 
is  that  the  doing  of  business  is  the  exercise  of  some  of  the  functions 
and  the  carrying  on  of  the  ordinar}^  business  for  which  the  company 
is  organized.  3  Words  and  Phrases,  §  2155;  Thompson  on  Law  of 
Corporations,  §  7936;  Barse  Live  Stock  Co.  v.  Range  V.  C.  Co.,  16 
Utah,  59,  50  Pac.  630.  Single  and  isolated  transactions  do  not  ordi- 
narily constitute  the  "doing  of  business"  (Osborne  v.  Shilling,  74  Kan. 
675,  88  Pac.  258,  11  Ann.  Cas.  319),  and  neither  can  the  sale  of  shares 
or  the  ownership  of  stock  of  a  nonresident  company  be  regarded  as 
within  that  term  (Payson  v.  Withers,  19  Fed.  Cas.  29,  No.  10,864: 
United  States  v.  American  Bell  Telephone  Co.  [C.  C]  29  Fed.  17). 

The  right  of  the  plaintiff  to  have  its  application  considered  is  to 
be  determined  by  what  it  is  proposing  to  do  now,  and  not  by  what  it 
may  hereafter  undertake  to  do.  It  has  been  rightly  decided  that  un- 
der the  Constitution  the  plaintiff  is  to  be  treated  as  a  corporation,  and 
if  it  should  apply  for  permission  to  do  business  in  the  state  it  would 
be  subject  to  the  corporation  law  so  far  as  the  same  is  applicable  to  that 
class  of  corporations.  Of  course  there  are  provisions  of  the  law  re- 
lating to  corporations  that  are  not  applicable  to  companies  like  the 
plaintiff,  and  the  Legislature  has  not  as  yet  enacted  statutes  peculiarly 
applicable  to  that  class  of  corporations.     It  will  be  time  enough  to- 


SUPPLEMENTARY   LIST  OF  CASES   OX    PARTNERSHIP  SI 

determine  what  regulations  should  be  applied  when  they  are  imposed 
upon  a  company  like  the*  plaintiff,  or  when  a  question  arises  as  to  their 
right  to  do  business  in  the  state.  Regardless  of  its  corporate  charac- 
ter, or  even  of  the  lack  of  it,  the  plaintiff  is  entitled  to  have  its  applica- 
tion considered  by  the  state  charter  board  upon  its  merits,  and  upon 
the  theory  that  there  is  no  personal  or  partnership  liability  of  share- 
holders, the  same  as  if  the  application  had  been  made  by  any  other 
person,  company,  or  corporation.  It  devolves  upon  the  board  to  in- 
quire as  to  the  solvency  and  responsibility  of  the  plaintilT,  the  suffi- 
ciency of  its  assets,  the  trustworthiness  of  those  representing  and  man- 
aging it,  the  fairness,  honesty,  and  equity  of  its  plan,  the  security 
afforded  investors,  that  its  funds  will  not  be  dissipated  or  misappropriat- 
ed, and  if  it  is  found  to  measure  up  to  the  statute  in  these  and  other 
respects  a  permit  may  be  issued  to  it.    Laws  1919,  c.  153. 

Having  determined  that  the  plaintiff  is  not  a  partnership,  and,  fur- 
ther, that  the  proposed  sale  of  shares  in  the  trust  is  not  the  "doing  of 
business,"  within  the  accepted  meaning  of  that  term,  it  was  the  duty 
of  the  state  charter  board  to  consider  and  pass  upon  the  merits  of 
plaintift''s  application,  and  the  writ  of  mandamus  as  prayed  for  will 
therefore  be  issued. 


All  the  Justices  concurring 


13 


SIMSON  et  al.  v.  KLIPSTEIN. 
(District  Court  of  the  United  States,  D.  New  Jersey.  1020.    262  Fed.  823.) 

At  Law.  Action  by  Leslie  N.  Simson  and  George  W.  Hunter,  trus- 
tees, against  Ernest  C.  Klipstein.  On  motion  to  dismiss  for  want  of 
jurisdiction. 

Davis,  District  Judge."  Defendant  in  the  above-stated  cause 
moved  to  dismiss  the  same  on  the  ground  that  this  court  is  without  ju- 
risdiction because  one  of  the  necessary  parties  plaintiff  and  the  de- 
fendant are  both  citizens  of  the  state  of  New  Jersey.  The  defendant 
further  asks  permission  to  take  testimony  to  establish  the  citizenship 
of  the  said  necessary  party  and  for  an  order  adding  the  name  of  said 
party  plaintiff  to  the  complaint. 

On  March  15,  1916,  the  plaintiffs,  Simson  and  Hunter,  by  an  in- 
strument purporting  to  be  a  declaration  of  trust,  called  "Articles  of 
Association  of  INIidvale  Chemical  Works,"  established  a  proposed  trust 
and  constituted  themselves  trustees  thereof.     Their  plan  contemplated 

13  It  has  been  held  that  assooiation.<5  formed  under  declarations  of  trust  are 
"cnnipnnies,"  within  the  meaninj;  of  Blue  Sky  Laws.  Peoplo  v.  Cluni.  21.3 
Mich.  Ord.  182  N.  W.  1.3G,  15  A.  L.  R.  253  (1921) ;  Schmidt  v.  Stortz,  20S  Mo. 
App.  4.39,  236  S.  W.  694  (1922). 

14  Part  of  the  opinion  is  omitted. 

StPP.GlL.PART.— 6 


82  SUPPLEMENTARY    LIST   OP   CASES   ON    PARTNERSHIP 

that,  as  trustees  of  the  Midvale  Chctiiical  Works,  the  name  of  the  pro- 
posed trust,  persons  would  give  to  them  money,  in  return  for  which 
they  would  issue  certificates  entitling  the  holders  thereof  to  share  in 
the  profits  resulting  from  their  management  of  the  enterprise  upon 
which  they  were  to  embark  with  said  money.  The  certificate  holders 
were  the  beneficial  owners  of  the  money  contributed  by  them,  in  that 
they  were  to  share  in  the  profits  earned  and  in  the  final  distribution  of 
the  assets  of  the  association,  in  accordance  with  the  terms  of  the  arti- 
cles of  association.  According  to  said  terms,  however,  the  legal  and 
equitable  title  to  the  property  is  vested  in  the  said  trustees. 

The  trustees  purchased  at  Elizabeth,  N.  J.,  some  considerable  real 
estate  and  estabHshed  and  operated  a  factory  thereon,  wherein  anjline 
oil,  etc.,  was  manufactured.  On  May  31,  1917,  the  "Midvale  Chemical 
Works,  by  George  W.  Hunter,  Leslie  N.  Simson,  trustees,"  entered  into 
an  agreement  with  the  defendant  for  the  sale  to  him  of  said  real  es- 
tate and  factory  for  the  sum  of  $150,000,  and  also  for  the  personal 
property,  including  the  raw  materials  on  hand,  an  inventory  of  which 
the  plaintift's  allege,  showed  it  to  be  worth  about  $45,000  in  addition. 
The  defendant  entered  into  possession  of  the  property,  but  it  develop- 
ed that  the  said  trustees  could  not  give  a  clear  title  to  the  real  estate 
and  the  defendant  refused  to  accept  a  deed  for  the  same.  During  the 
time  title  to  said  real  estate  was  being  determined  by  litigation  in  the 
Court  of  Chancery  of  New  Jersey,  the  defendant  continued  in  posses- 
sion of  the  property  and  operated  the  factory.  For  his  alleged  failure 
to  pay  for  the  personal  property  and -raw  materials,  for  his  refusal  to 
remove  from  the  premises  at  the  termination  of  the  litigation  in  ac- 
cordance with  the  terms  of  an  agreement  entered  into  while  litigation 
was  going  on,  and  for  damages  alleged  to  have  been  done  to  the  said 
property  while  in  possession  of  defendant,  plaintiffs  brought  this  ac- 
tion against  him  to  recover  the  sum  of  $141,870.78.  The  defendant  is 
before  this  court  on  motions  aS  aforesaid.  " 

Whether  or  not  an  association  is  a  trust  or  partnership  depends  up- 
on the  instrument  creating  it.  Real  estate  trusts,  such  as  this  claims 
to  be,  have  arisen  principally  in  Massachusetts  and  Missouri.  Upon  a 
careful  examination  of  the  articles  of  association  of  the  Midvale 
Chemical  Works  and  of  the  cases  bearing  upon  this  question,  I  am  of 
the  opinion  that  the  Midvale  Chemical  Works  is  a  partnership.  The 
test  is  the  power  of  control  of  the  management  of  the  association.  If 
the  certificate  holders  have  the  power  of  control,  the  association  is  a 
partnership ;  if  they  have  not,  and  the  power  of  control  is  in  the  trus- 
tees, it  is  a  trust.  "The  distinction,"  said  Judge  Morton,  in  the  case 
of  In  re  Associated  Trust  (D.  C.)  222  Fed.  1012,  "between  the  two 
turns  upon  the  provisions  of  the  trust  agreement  or  declaration.  In 
cases  where  by  the  declaration  of  trust,  the  shareholders  are  given  sub- 
stantial control  of  the  management  of  the  trust  property,  the  trust  is 
held  to  be  a  partnership ;  in  cases  where  shareholders  have  no  such 
control,  the  trust  is  held,  for  the  purposes  of  taxation,  to  be  of  the 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  S3 

same  sort  as  tlie  usual  testamentary  trust,  and  not  to  be  a  partnership." 
Hoadley  v.  Countv  Commissioners,  105  Mass.  519;  Whitman  v.  Por- 
ter, 107  Mass.  522;  Gleason  v.  McKay,  134  Mass.  419;  Phillips  v. 
RIatchford,  137  Mass.  510;  Ricker  v.  American  Loan  &  Trust  Co., 
140  Mass.  346.  5  N.  E.  284;  Mayo  v.  Moritz,  151  Mass.  481,  24  N. 
E.  1083;  Williams  v.  Boston.  208  Mass.  497,  94  N.  E.  808;  Williams 
V.  Milton,  215  Mass.  1,  102  N.  E.  355.    *    *    * 

It  was  held  in  New  Jersey  that  the  mere  sharing  in  profits  would 
make  persons  partners  as  to  third  parties,  even  though  there  was 
no  intention  to  become  partners.  Sheridan  v.  Medara,  10  N.  J.  Eq. 
469,  64  Am.  Dec.  464;  Voorhees  v.  Jones,  29  N.  J.  Law,  270.  Later 
this  rule  seems  to  have  been  modified,  so  that  profit  sharers  must  have 
the  power  of  control,  in  order  to  constitute  them  partners.  Wild  v. 
Davenport,  48  N.  J.  Law,  129,  7  Atl.  295,  57  Am.  Rep.  552.  It  is 
not  necessary  that  the  power  of  control  should  be  actually  exercised 
for  partnership  to  exist.  It  is  sufficient  if  the  power  is  given,  though 
never  exercised.  In  re  Associated  Trust  (D.  C.)  222  Fed.  1012,  supra. 
This  would  follow  as  a  necessary  corollary  from  the  statement  that 
whether  or  not  a  partnership  exists,  rather  than  a  trust,  depends  up- 
on the  terms  of  the  creative  instrument,  the  trust  declaration,  for  it 
could  not  be  determined  from  the  examination  of  such  instrument 
whether  or  not  the  power  given  by  it  had  been  exercised. 

Power  of  control  in  the  case  at  bar  is  given  to  the  certificate  hold- 
ers in  the  articles  of  association.  P.y  articles  X  and  XI  a  meeting  may 
be  called  at  any  time,  and  the  certificate  holders  may  amend  any  and 
all  of  the  articles  of  the  association,  except  in  three  particulars,  not 
essential  to  the  substantial  control  of  the  association  or  the  manage- 
ment of  the  property  thereof.  In  article  II,  it  is  provided  that  "the 
trustees  shall  have  the  power  to  contract  and  carry  on  in  the  name  of. 
and  for  the  association  any  business  which  could  be  lawfully  conducted 
or  carried  on  by  an  individual,  and,  in  the  conduct  of  such  business,  may 
use  and  invest  any  funds  of  the  association  and  shall  have  full  general 
power  and  authority  to  buy,  sell,  pledge,  mortgage,  grant,  convey  and 
exchange  property  of  every  description,  real,  personal  or  mixed,"  etc. 
Suppose  at  one  of  their  meetings  provided  for  in  article  XI.  the  certifi- 
cate holders  should  pass  a  resolution  amending  ar-ticle  II,  line  1,  by 
striking- out  the  w^ord  "trustees"  and  substituting  in  lieu  thereof  the 
w^ords  "certificate  holders,"  the  trustees  would  be  practically  stripped 
of  their  control  and  operation  of  the  enterprise. 

In  article  XXI,  it  is  provided  that  "the  trust  here  created  shall  ter- 
minate at  the  expiration  of  21  years  after  the  death  of  the  last  sur- 
vivor of  the  above  named  trustees,"  etc.  If  in  one  of  their  said  meet- 
ings the  certificate  holders  should  pass  a  resolution  amending  the 
said  article,  so  that  the  trust  .'^hould  terminate  forthwith,  the  trustees 
would  be  powerless  and  the  trust  would  come  to  an  end.  The  trustees 
have  no  vote  in  such  matters,  nor  have  they,  so  far  as  the  facts  be- 
fore me  disclose,  any  capital  of  their  own  in  the  enterprise  to  protect. 


84  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

It  is  evident  that  the  power  of  control  of  the  management  is  in  the  cer- 
tificate holders,  and  may  at  any  time  be  exercised  by  them,  notwith- 
standing any  opposition  the  trtistees  might  offer.  The  certificate  hold- 
ers are  associated  together  by  the  terms  of  the  creative  instrument. 
The  association  is  therefore  a  partnership,  and  not  a  trust. 

Does  it  thereupon  follow,  as  contended  by  the  defendant,  that  tlie 
names  of  the  certificate  holders  should  be  added  as  parties  plaintiff, 
one  of  Avhom,  it  is  alleged,  is  a  citizen  of  New  Jersey,  which  fact  ousts 
this  court  of  jurisdiction?  It  should  be  noted  that  the  association  is 
a  partnership,  the  certificate  holders,  themselves  being  the  partners, 
and  not,  as  defendant  seemed  to  think,  partners  with  the  trustees, 
who  are  not  certificate  holders.  There  is,  therefore,  no  trust  here,  and 
strictly  speaking  no  trustee.  The  so-called  trustees  represent  the 
certificate  holders.  The  certificate  holders  are  principals,'  and  the 
trustees,  the  plaintiffs,  are  their  mere  "managing  agents."  By  what- 
ever name,  however,  they  are  designated,  there  can  be  no  doubt  that 
they  have  full  authority  to  represent  the  certificate  holders  and  bind 
them  in  all  transactions  touching  the  property.  It  will  be  recalled  that 
by  article  II  the  "trustees"  "have  full  general  power  and  authority 
to  buy,  sell,  pledge,  mortgage,  grant,  convey,  and  exchange  property 
of  every  description,  *  *  *  and  do  all  things  necessary  to  the 
conduct  of  the  business  which  they  may  undertake."  It  is  further 
provided  in  article  IV  that  "the  trustees  shall  be  deemed  the  absolute 
owners  of  all  the  property  of  the  association  and  both  the  legal  and 
equitable  title  to  all  such  property  shall  be  vested  absolutely  in  them." 

The  defendant  in  all  his  dealing  with  the  plaintiffs,  has  regarded  and 
accepted  them  as  accredited  authoritative  agents  of  the  certificate 
holders,  with  full  power  to  deal  as  they  pleased  with  the  property  con- 
tributed by  said  certificate  holders.  That  the  present  plaintiffs  are  the 
proper  parties  plaintiff  in  a  suit  in  equity  in  New  Jersey  touching  said 
property  was  decided  in  the  case  of  Simson  et  al.  v.  Klipstein,  88  N.  J. 
Eq.  229.  102  Atl.  242.  The  parties  plaintiff  and  defendant  were  the 
same  in  that  case  as  in  the  instant  case  and  the  same  questions  which 
are  raised  here  as  to  proper  parties  were  raised  there,  and  decided 
against  the  defendant.  In  view  of  the  powers  conferred  upon  the  so- 
called  trustees  or  "-managing  agents"  by  the  articles  of  the  association, 
the  recognition  by  the  defendant  of  their  full  and  unquestioned  au- 
thority of  the  association,  and  the  decision  of  the  Court  of  Chancery 
of  New  Jersey  holding  that  the  plaintiffs  are  the  proper  parties  plain- 
tiff in  a  suit  touching  said  property,  I  am  of  the  opinion  that  Simson 
and  Hunter  are  proper  parties  plaintiff,  and  have  full  power  and  au- 
thority to  represent  the  certificate  holders  in  this  proceeding. 

It  is  settled  that  the  jurisdiction  of  federal  courts  depends  upon  the 
personal  citizenship  of  the  parties  to  the  record,  and  not  upon  the  cit- 
izenship of  the  parties  whom  they  represent.  Memphis  St.  Ry.  Co.  v. 
Bobo,  232  Fed.  708,  710,  146  C.  C.  A.  634.  To  put  it  in  another  way, 
representatives  may  stand  upon  their  own  citizenship  in  federal  courts, 


SUPPLEMKXTAUY    LIST  OF   CASES   ON    PARTNERSHIP  85 

irrespective  of  the  citizenship  of  the  persons  whom  they  represent — 
such  as  executors,  administrators,  guardians,  trustees,  receivers,  etc. 
The  evil  which  the  law,  proliihiting  the  creation  of  federal  jurisdiction 
by  assignments,  intended  to  obviate,  was  the  voluntary  creation  of  fed- 
eral jurisdiction  by  simulated  assignments  made  for  that  sole  purpose. 
But  assignments  or  conveyances  by  operation  of  law  creating  legal 
representatives  are  neither  within  the  mischief  nor  reason  of  the  law. 
New  Orleans  v.  Gaines,  Administrator,  138  U.  S.  595,  606,  11  Sup.  Ct. 
428,  34  L.  Ed.  1102;  Mexican  Central  R.  R.  Co.  v.  Eckman,  187  U. 
S.  429,  434,  23  Sup.  Ct.  211,  47  L.  Ed.  245.  The  plaintiffs  are  "man- 
aging agents,"  having  the  legal  and  equitable  title  to  the  property  in 
fjuestion,  and  are  proper  parties  to  the  record,  and  so  come  within  th.c 
above  exception. 

It  appears  from  the  complaint  that  Simson  is  a  citizen  of  New  York, 
and  Ilunter  of  Missouri,  while  the  defendant  is  a  citizen  of  New 
Jersey.  This  cause  of  action,  therefore,  being  a  controversy  exceeding 
exclusive  of  interest  and  costs,  the  sum  or  value  of  $3,000,  is  properK 
in  this  court,  and  the  motions  of  the  defendant  are  denied.  The  de- 
fendant may  have  20  days,  after  the  entry  of  order,  within  which  to 
answer. 


McCAMEY  v.  HOLLISTER  OIL  CO.  ct  al. 

(Court  of  Civil  Appeals  of  Texas,  1922.     241  S.  W.  089.) 

Dunklin,  J.^^  George  B.  McCamey  drilled  an  oil  well  for  the  Hol- 
lister  Oil  Company,  under  a  contract  in  writing  which  consisted  of  a 
written  proposition,  dated  at  Fort  Worth,  Tex.,  signed  by  McCamey 
and  addressed  to  the  "Hollister  Oil  Company,"  at  Fort  \Vorth,  Tex., 
and  accepted  by  that  company.  The  offer  made  by  McCamey  includ- 
ed his  proposition  to  drill  and  certain  material  mentioned  necessary 
thereto,  also  struing  $38,500  as  the  price  which  would  be  charged  for 

the  w^ork  and  material,  and  the  dates  for  the  payment  of  the  same. 
*      >:;     *  ,         " 

McCamey  instituted  this  suit  to  recover  the  balance  due  him  under 
that  contract,  and  the  recovery  was  sought,  not  only  against  the  Hol- 
lister  Oil  Company,  but  also  against  W^arren  H.  Hollister,  William 
Hettesheimer,  and  Charles  J.  Geiser,  who  were  likewise  made  parties 
defendants  in  the  suit.  It  was  alleged  that  the  Hollister  Oil  Company 
is  a  joint-stock  association  with  its  principal  place  of  business  in  Fort 
A\'orth,  Tarrant  county,  Tex. ;  that  the  defendant  Warren  H.  Hol- 
lister, who  resides  in  Tarrant  county,  is  its  president ;  that  William 
Hettesheimer  likewise  resides  in^  Tarrant  county,  Tex.,  and  that 
Charles  J.  Geiser  is  a  resident  citizen  of  New  York  state,  but  is  tem- 

15  Parts  of  this  opinion  and  tbe  opinion  on  uintion  for  reliearing  are 
omit  (0(1. 


86  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

porarily  residing  in  Tarrant  county.  Tex. ;    and  plaintiff  prayed   for 

service  of   citation  on  all  of   the  defendants  to  answer  his  petition. 
*     *     * 

The  defendants  jointly  filed  an  answer,  consisting  of  a  general  de- 
murrer, special  exception  by  Hollister,  Hettesheimer,  and  Geiser,  and 
a  general  denial  by  all  of  them.  The  answer  also  contained  the  fol- 
lowing special  plea:  "Further  answering,  if  required  defendants  show 
that,  if  plaintiff  is  entitled  to  any  relief  whatsoever,  it  is  against  the 
defendant  Hollister  Oil  Company,  and  its  trustees  and  the  assets  of 
said  company  in  their  hands,  and  not  against  the  other  defendants 
personally ;  that  at  all  times  mentioned  by  plaintiff'  said  Hollister  Oil 
Company  was  a  common-law  trust,  and  the  other  defer^dants  contract- 
ed with  plaintiff"  in  their  capacity  as  trustees  only  and  not  as  individu- 
als or  personally ;  that,  under  the  declaration  of  trust  of  said  Hol- 
lister Oil  Company,  plaintiff"  is  required  to  look  alone  to  the  property 
and  funds  of  said  company,  and  not  to  the  trustees  or  certificate  hold-  ■ 
ers  for  his  debt,  if  any;  and  the  defendants  Hollister,  Hettesheimer, 
and  Geiser,  specially  denying  plaintift''s  allegations  of  partnership, 
therefore  show  that  in  no  event  is  plaintiff  entitled  to  recover  against 
them." 

The  case  was  tried  before  the  court  without  a  jury,  and  judgment 
was  rendered  in  plaintiff's  favor  against  the  "Hollister  Oil  Company, 
a  trust  estate,"  for  the  sum  of  $23,385.50,  together  with  the  foreclo- 
sure of  the  lien  prayed  for  in  plaintiff's  petition  on  defendants'  lease- 
hold interest  in  the  land  upon  which  the  well  was  drilled,  together 
with  the  machinery,  supplies,  and  all  personal  property  and  improve- 
ments placed  on  the  lease  by  the  defendants.  But  the  plaintiff  was 
denied  a  recovery  of  personal  judgment  against  the  defendants  Hol- 
lister, Hettesheimer,  and  Geiser  for  the  debt  for  which  he  sued.  From 
the  judgment  so  rendered  in  favor  of  the  individual  defendants  last 
mentioned,  the  plaintiff  has  prosecuted  this  appeal.     *     *     * 

The  trial  judge  filed  his  conclusions  of  law  upon  which  his  judg- 
ment was  based,  and  which  are  as  follows : 

"1.  I  construe  the  declaration  of  trust  under  which  the  HolHster 
Oil  Company  was  operating  and  doing  business  to  have  created  and 
constituted  a  common-law  trust  of  the  type  generally  known  as  a 
'Massachusetts  Trust.' 

"2.  I  find  that  the  declaration  of  trust  under  which  the  Hollister 
Oil  Company  was  operating  did  not  constitute  a  joint-stock  associa- 
tion; and  therefore  I  further  find  that  neither  the  trustees  nor  the 
shareholders  of  the  Hollister  Oil  Company  were  personally  liable  for 
the  debts  and  contracts  of  the  Hollister  Company. 

"3.  I  find  that  plaintiff  is  entitled  to  recover  of  the  Hollister  Oil 
Company  the  sum  of  $23,385.50,  but  I  further  find  that  plaintiff  is 
not  entitled  to  recover  anything  from  W.  H.  Hollister  and  William 
Hettesheimer  and  Charles  J.  Geiser  as  shareholders  of  said  Hollister 
Oil  Company. 


SUPPLH.MKNTARV    LIST   OF   CASES   ON    PARTNERSHIP  87 

"4.  I  further  find  that  the  plaintiTt,  George  B.  McCamey,  is  entitled 
to  a  judgment  foreclosing  his  contractor's  lien  which  he  fded  and  per- 
fected against  the  property  of  the  Hollister  Oil  Coinpany,  which  lien 
is  fully  set  out  in  plaintiff's  petition." 

The  trial  was  upon  the  theory  and  assumption  that  the  Hollister  Oil 
Company  was  not  incorporated  under  the  laws  of  this  state,  and  also 
upon  the  assumption  that  the  plaintiff,  McCamey,  in  entering  into 
the  contract  was  not  chargeable  with  notice  that  the  company  was  do- 
ing business  under  a  declaration  of  trust  of  the  character  set  out 
above;  and,  since  the  case  has  been  briefed  here  upon  the  same  as- 
sumption, we  shall  consider  it  upon  the  theory  that  the  facts  so  as- 
sumed are  true.  Penn  v.  Brisco  County  (Tex.  Civ.  App.)  162  S.  W. 
916;  3  C.  J.  pp.  73S,  838. 

Appellant  in  his  brief  presents  these  three  propositions  as  the  basis 
for  his  contention  that  the  judgment  should  have  been  rendered  in 
his  favor  against  the  defendants  Hollister,  Hettesheimer,  and  Geiser 
individually,  as  well  as  against  the  Hollister  Oil  Company : 

"(1)  The  declaration  of  trust  under  which  the  Hollister  Oil  Com- 
])any  was  organized,  certain  articles  of  which  conferred  on  the  mem- 
bers or  shareholders  thereof  powers  of  control  over  iht  ofiftcers  or 
trustees  of  the  Hollister  Oil  Company,  created  a  joint-stock  associa- 
tion;  and  the  court  erred  in  failing  and  refusing  to  so  hold. 

"(2)  The  appellees  Hollister,  Hettesheimer,  and  Geiser,  who  were 
members  and  shareholders  of  the  Hollister  Oil  Company,  which  was  a 
joint-stock  association  under  and  by  virtue  of  certain  provisions  of 
its  declaration  of  trust,  were  personally  liable  for  the  debt  due  appel- 
lant by  the  Hollister  Oil  Company ;  and  the  court  erred  in  not  so 
holding. 

"(3)  Granting  that  the  court  did  not  err  in  holding  that  the  declara- 
tion of  trust  creating  the  Hollister  Oil  Company  constituted  a  com- 
mon-law trust  of  the  type  generally  known  as  a  'Massachusetts  trust,' 
yet  the  court  erred  in  failing  and  refusing  to  render  judgment  for  ap- 
pellant against  Hollister  and  Hettesheimer,  who  the  undisputed  evi- 
dence sho\\ed  were  trustees  and  who  the  undisputed  evidence  showed 
had  not  expressly  exempted  themselves  from  personal  liability  in  their 
contract  with  appellant." 

The  plan  of  transacting  commercial,  trading,  and  alrnost  every  oth- 
er character  of  business  for  profit,  under  articles  of  trust  of  the  gen- 
eral type  of  that  set  out  above,  was  first  adopted  and  put  in  use  in 
America  in  the  state  of  Massachusetts,  and  by  reason  of  that  fact  such 
associations  are  usually  denominated  "Massachusetts  Trusts,"  although 
sometimes  also  called  "business  trusts,"  "common-law  trusts,"  "''volun- 
tary associations,"  etc.  The  business  -planned  and  transacted  under 
the  declaration  of  trust  in  the  present  suit  was  designed  and  intend- 
ed solely  for  profit  to  the  shareholders  in  the  association  to  the  same 
extent  as  if  the  same  business  had  been  carried  on  under  a  copart- 
nership agrepment  or  a  contract  which  would  constitute  the  associa- 


88  SUPPLEMENTARY    LIST   OF   CASES   ON   PARTNERSHIP 

tion  a  joint-stock  company  under  the  common  law.  The  chief  pur- 
pose of  the  selection  of  that  form  of  contract  as  a  basis  for  the  trans- 
action of  business  was  to  avoid  personal  liability  of  the  shareholders 
for  the  legal  obligations  which  may  be  incurred  by  the  association  in 
the  transaction  of  the  business  proposed,  and  for  which  obligations 
such  beneficiaries  would  be  personally  liable  if  the  same  business  is 
transacted  under  a  partnership  or  joint-stock  agreement.     '''     *     "" 

The  rules  of  equity  jurisprudence  applicable  to  trust  estates  gen- 
erally constitute  the  foundation  stone  upon  which  the  plan  of  opera- 
tion of  such  an  association  is  founded.  By  embodying  in  the  articles 
of  association  stipulations  that  the  legal  title  to  all  assets  belonging 
to  the  association,  or  which  may  be  acquired  by  it  in  the  future,  shall 
be  vested  in  the  trustees  named  with  full  power  to  dispose  and  deal 
with  them  at  will  and  to  cafr}'  on  the  business  planned,  all  free  of 
control  or  interference  by  the  shareholders,  it  is  sought  to  make  such 
trustees  a  legal  entity  and  an  independent  party  to  the  contract,  sepa- 
rate and  distinct  from  the  body  of  shareholders  as  another  party,  and 
thus  to  avoid  the  legal  relation  of  principaland  agent  between  those 
two  parties,  and  also  to  avoid  any  warranted  inference  of  a  co- 
partnership or  joint-stock  relation.  Originally,  three  parties  were 
necessary  to  the  creation  of  an  express  trust,  as  evidenced  by  a  defini- 
tion quoted  by  Mr.  ?erry,  in  his  work  on  Trusts  (volume  1,  §  2), 
from  Starr's  Institutions  of  the  Laws  of  Scotland,  as  follows:  "A 
trust  is  in  the  nature  of  a  deposition  by  which  a  proprietor  transfers 
to  another  the  property  of  the  subject  intrusted,  not  that  it  should 
remain  with  him,  but  that  it  should  be  applied  to  certain  uses  for  the 
behoof  of  a  third  party." 

That  definition  applies  to  a  testamentary  trust.  However,  the  defi- 
nition adopted  by  the  author  is  sufficiently  comprehensive  to  embrace 
all  manner  of  trusts,  including  not  only  express  trusts  but  also  im- 
plied trusts,  resulting  trusts  and  constructive  trusts,  which  seem  to 
have  been  created  by  courts  of  equity  after  the  doctrine  of  express 
trust  had  first  obtained.'  The  author  defines  a  "trust"  as  "an  obliga- 
tion upon  a  person  arising  out  of  a  confidence  reposed  in  him  to  ap- 
ply property  faithfully  and  according  to  such  confidence."  And  in 
section  24  the  author  states  that  implied,  resulting,  and  constructive 
trusts  are  predicated  upon  a  judicial  presumption  arising  out  of  the 
language  of  an  instrument  or  transaction  of  the  parties  or  some  fiduci- 
ary relation  between  them  that  a  trust  was  intended  by  them.  Id.  §§ 
25,  26,  and  27.  When  there  are  three  parties  to  an  express  trust,  for 
example  a  testamentary  trust,  the  cestui  que  trust  takes  no  part  in 
its  creation,  and  the  benefits  he  receives  do  not  arise  from  a  contract 
on  his  part,  nor  does  he  have  any  voice  in  the  management  of  the  es- 
tate by  the  trustee.  Under  such  conditions,  it  is  clear  that  he  can- 
not be  held  liable  personally  for  debts  incurred  by  the  trustee.  For 
a  like  reason  the  beneficiary  of  an  implied  trust,  a  resuUing  trust,  or 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  89 

a  constructive  trust,  is  not  personally  liable  for  obligations  incurred 
by  the  ti-ustee. 

It  is  essential  to  the  creation  of  an  express  trust  that  the  legal  and 
equitable  titles  be  separated,  and  that  the  legal  title  be  vested  in  the 
trustee  and  the  equitable  title  in  the  cestui  que  trust;  and  the  authori- 
ties all  agree  that,  when  both  of  these  titles  unite  in  the  same  person, 
the  trust  terminates.  It  is  also  true  that  the  settlor  in  such  a  trust 
ordinarily  cannot  be  a  trustee  also,  although  under  some  circumstanc- 
es he  may  occupy  the  dual  relation  of  settlor  and  beneficiary  or  cestui 
que  trust.      ""     *     * 

The  difhculty  incident  to  formulating  a  plan  of  doing  the  ordinary 
commercial  or  trading  business  by  means  of  a  declaration  of  trust, 
of  the  Massachusetts  type,  for  the  sole  purpose  of  profit  to  sharehold- 
ers and  at  the  same  time  escape  the  statutory  restrictions,  regulations, 
and  burdens  applicable  to  private  corporations  and  also  the  liability 
of  shareholders  for  the  debts  contracted  by  trustees  for  the  benefit 
of  the  association,  has  given  rise  to  much  fine  reasoning  and  many 
technical  discriminations.  The  decisions  of  the  Supreme  Court  of 
Massachusetts  relative  to  such  companies  have  been  followed  with  ap- 
proval in  a  majority  of  the  states  in  which  that  plan  of  business  has 
been  recognized  as  valid  and  effective  for  the  purposes  intended.  We 
shall  not  undertake  a  lengthy  discussion  of  those  decisions,  or  of  the 
decisions  of  other  states  which  have  followed  them.  In  the  case  of 
Frost  v.  Thompson,  219  Mass.  360,  106  N.  E.  1009,  it  was  said  that 
the  test  for  determining  whether  a  declaration  of  trust  of  the  char- 
acter now  under  discussion  creates  a  trust  or  a  partnership  "depends 
upon  the  way  in  which  the  trustees  are  to  conduct  the  affairs  com- 
mitted to  their  charge.  If  they  act  as  principals  and  are  free  from 
the  control  of  the  certificate  holders,  a  trust  is  created,  but  if  they 
are  subject  to  the  control  of  the  certificate  holders,  it  is  a  partner- 
ship." That  test  seems  to  have  been  recognized  as  a  correct  test  in 
all  of  the  decisions  of  that  state  and  also  by  the  decisions  of  other 
states  following  them.  In  that  case  the  association  was  held  to  be 
a  partnership  because  the  shareholders  were  given  power  to  remove 
the  trustees  at  any  time,  to  fill  vacancies,  to  'terminate  the  trust  at 
will,  and  to  amend  the  declaration  of  trust.  In  the  case  of  Williams 
V.  Inhabitants  of  Milton,  215  Mass.  1,  102  N.  E.  355,  which  is  one 
of  the  leading  cases  of  that  state  and  in  which  the  former  decisions 
of  the  same  court  are  discussed  and  reviewed  at  length  the  instrument 
under  discussion  was  held  to  create  a  trust  and  not  a  partnership. 
*     *     * 

In  Dana  v.  Treasurer  and  Receiver  General,  227  Mass.  562,  116 
N.  E.  941,  it  was  held  that  a  declaration  of  trust  providing  for  meet- 
ing of  stockholders  with  power  at  such  meetings  to  elect  trustees  and 
to  alter  or  amend  the  declaration  of  trust  created  a  partnership.  See. 
also,  Priestlev  v.  Treasurer  and  Receiver  General,  230  ]\Iass.  452. 
120  N.  E.  100.     *     *     * 


90  SUPPLEMENTARY   LIST   OF   CASES   ON   PAKTNIOUSIIIP 

We  shall  not  undertake  a  further  review  of  those  decisions.  In 
many  of  them  the  trust  agreements  were  held  to  constitute  partner- 
ships, while  others  were  held  to  constitute  trusts.  The  powers  given 
to  the  trustees  in  the  different  instruments  vary,  and  no  two  instru- 
ments were  drawn  in  the  same  language.  See,  also,  Simson  v.  Klip- 
stein  (D.  C.)  262  Fed.  823;  In  re  Associated  Trust  (D.  C.)  222  Fed. 
1012;  Baker-McGrew  v.  Union  Seed  Fertilizer  Co.,  125  Ark.  146, 
188  S.  W.  571.     *     *     * 

As  will  be  seen  from  a  reading  of  the  de(:laration  of  trust  in  the 
present  suit,  all  the  title  to  assets  and  all  the  powers  of  control  over 
them  and  all  power  and  authority  to  transact  the  business  in  hand  are 
conferred  solely  by  the  terms  of  that  instrument.  Those  powers  were 
delegated  by  the  owners  of  the  beneficial  interests  in  the  trust,  who 
by  subdivision  6  of  article  XVII,  of  the  trust  agreement  reserved  the 
power  to  alter  or  amend  the  articles  of  association  in  any  manner  they 
might  deem  expedient.  That  contractual  right  to  alter  or  amend,  to 
which  the  trustees  assented,  unquestionably  included  the  power  to 
limit  and  restrict  the  control  of  the  trustees  over  the  assets  and  the 
conduct  of  the  business  to  any  extent  that  reasonably  may  be  sup- 
posed, even  though  the  legal  title  be  permitted  to  remain  in  the  trus- 
tees. And,  as  said  in  some  of  the  decisions,  the  articles  of  associa- 
tion must  be  looked  to  to  determine  the  question  of  power  of  the 
shareholders  to  control  the  action  of  the  trustees,  even  though  the 
power  is  never  exercised.  Accordingly  even  if  the  test  announced  by 
the  IMassachusetts  decisions,  namely,  the  right  of  the  trustees  to  full 
control,  be  accepted  as  the  correct  criterion  for  the  determination  of 
the  issues  presented  in  the  present  suit,  we  think  it  clear  that  the  ar- 
ticles of  association  in  controversy  in  this  suit  did  not  create  a  tru&t, 
but  did  create  a  joint-stock  company,  and  that  defendants  HoUister, 
'  Hettesheimer,  and  Geiser  by  reason  of  being  shareholders  in  the  as- 
sociation are  individually  liable  as  partners  to  plaintiff  for  the  debt 
sued  for,  and  that  judgment  should  have  been  rendered  against  them 
therefor.     *     *     * 

Thb  statutes  relating  to  corporations  and  limited  partnerships  are 
the  only  statutes  in  this  state  which  provide  for  and  allow  a  limita- 
tion of  the  individual  liability  of  the  members  of  any  association  of 
persons  formed  to  transact  business  for  profit  for  the  debts  legally 
incurred  by  the  association.  Under  the  rule,  "Expressio  unius  est 
exclusio  alterius,"  the  statutes  relating  to  limited  partnerships  imply 
a  denial  of  the  right  of  members  of  a  partnership  to  limit  their  lia- 
bility, under  the  common  law  in  any  other  manner,  since  "that  which 
is^mplied  in  a  statute  is  as  much  a  part  of  it  as  what  is  expressed." 
Sutherland  on  Statutory  Construction,  §  334;  25  R.  C.  L.  §  229,  pp. 
982,  983,'  36  Cyc.  1122,  1145.  And  the  statutes  referred  to  upon 
the  subjects  of  Corporations,  Limited  Partnerships,  and  Unincorpo- 
rated Joint-Stock  Companies  or  Associations,  all  considered  together 
reflect  the  public  policy  of  this  state  and  indicate  a  legislative  inten- 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  91 

tion  to  include  unincorporated  joint-stock  companies  of  every  char- 
acter which  are  organized  for  profit  within  the  class  of  those  men- 
tioned in  the  statutes. 

The  articles  of  association  of  the  HoUister  Oil  Company  come  strict- 
ly within  the  definitions  of  "joint-stock  company,"  quoted  above.  The 
fact-that  the  plan  adopted  to  appoint  trustees  clothed  with  the  pow- 
ers and  title  specified  as  a  convenient  means  for  the  accomplishment 
of  the  purpose  for  which  the  organization  was  formed,  namely,  profit 
to  the  shareholders,  did  not  make  the  association  any  the  less  a  joint- 
stock  company.  Hence  we  are  of  the  opinion  that  the  appellees  were 
liable  for  the  debt  in  controversy,  under  and  by  virtue  of  those  stat- 
utes relating-  to  unincorporated  joint-stock  companies  or  associations. 
Wells  V.  Mackay  Telegraph-Cable  Co.,  decided  by  the  Court  of  Civil 
Appeals  of  the  First  Supreme  Judicial  District  December  17,  1921, 
not  yet  [officially]  published,  239  S.  W.  1001,  and  other  decisions 
there  cited. 

If  for  any  possible  reason  it  can  be  said  that  neither  a  partnership 
nor  a  joint-stock  company  was  created  by  the  articles  of  the  associa- 
tion in  controversy,  nevertheless  the  shareholders  are  liable  for  the 
debt  sued  for  under  the  rules  of  law  api^licable  to  the  relation  of  prin- 
cipal and  agent.  A  partnership  or  joint-stock  company  could  have 
been  organized  for  the  purpose  of  transacting  the  same  business  that 
was  transacted  under  thp  declaration  of  trust.  Manifestly,  it  would 
be  unjust  to  visit  upon  the  plaintiff  the  loss  of  labor  and  material  fur- 
nished by  him  as  a  creditor  for  the  benefit  of  the  shareholders  in  that 
association,  when  the  debt  was  contracted  for  their  benefit  by  persons 
called  trustees  and  clothed  with  express  authority  from  the  sharehold- 
ers to  incur  it ;  and  the  injustice  of  such  a  result  is  the  basic  princi- 
ple of  individual  obligation  imposed  by  law  upon  each  member  of  a 
partnership  or  joint-stock  company  to  answer  for  all  the  debts  of  the 
firm  or  company.  To  allow  the  accomplishment  of  such  an  injustice 
through  a  resort  to  the  rules  of  equity  by  the  substitution  of  a  trust 
agreement  for  a  partnership  or  joint-stock  agreement  would  be  to  vio- 
late the  most  vital,  fundamental  principle  of  the  whole  doctrine  of 
equity  jurisprudence.  The  right  to  create  an  express  trust  is  sub- 
ordinate to  those  fundamental  principles,  and,  if  an  attempt  be  made 
to  create  an  express  trust  which  is  obnoxious  to  those  principles,  the 
same  must  fail,  and  the  relation  of  partnership,  joint-stock  company, 
or  principal  and  agent  necessarily  arises  under  the  rules  of  the  com- 
mon law.  Such,  in  effect,  was  the  decison  of  our  Supreme  Court  in 
the  case  of  Sergeant  v.  Goldsmith,  110  Tex.  482,  221  S.  W.  259,  10 
A.  L.  R.  742,  in  an  opinion  by  Chief  Justice  Phillips. 

And  this  vice  in  the  declaration  of  trust  in  controversy  is  a  further 
reason  why  it  should  be  held  to  create  a  partnership  or  a  joint-stock 
company  rendering  the  shareholders  liable  as  partners,  if  it  is  other- 
wise susceptible  of  that  construction,  and  that,  too,  in  the  absence  of 
the  statutes  relating  to  unincorporated  joint-stock  companies.     Equity 


92  SrrrLEMENTAUY    LIST   OF   CASES   ON    rAIiTXEUSHIP 

is  more  just  than  the  law.  1  Pom.  Eq.  Jur.  §  67.  In  order  to  reach 
the  ends  of  justice,  it  often  reHeves  against  the  hardships  of  the  rigor- 
ous rules  of  law ;  but  it  can  never  be  used  as  instrumentality  to  work 
an  injustice.  In  this  connection  attention  is  called  to  the  terms  of  the 
declaration  of  trust  of  the  Hollister  Oil  Company  in  which  the  non- 
liability of  shareholders  is  stressed  with  great  emphasis,  notwithstand- 
ing general  and  sweeping  authority  is  conferred  upon  the  trustees  to 
contract  every  character  of  indebtedness  for  their  benefit,  and  con- 
taining every  element  of  agency  on  the  part  of  the  trustees  to  bind 
the  shareholders  for  the  debts  created,  with  the  exception  of  the  use 
of  the  word  "trustees"  instead  of  the  word  "agents,"  or  language  cre- 
ating such  agency.  There  is  no  magic  in  the  word  "trustees"  which 
necessarily  excludes  the  idea  of  agency.  Even  the  Massachusetts 
courts  recognize  that  as  true,  as  reflected  in  those  decisions  in  which 
declarations  of  trust  were  held  to  create  partnerships.  "Equity  looks 
to  the  intent  rather  than  to  the  form,"  is  one  of  the  maxims  of  equity. 
1  Pom.  Eq.  Jur.  §  378.  See,  also,  1  Mechem  on  Agency,  §§  42,  43, 
and  the  decisions  and  authorities  noted  in  support  of  the  text. 

The  question  of  the  right  to  exclude  individual  liability  on  the  part 
of  the  shareholders  by  a  special  contract  with  the  creditors  is  not  in- 
volved in  this  case. 

For  the  reasons  indicated,  the  judgment  of  the  trial  court  denying 
appellant  a  recovery  against  appellees  Hollister,  Hettesheimer,  and 
Geiser  is  reversed,  and  judgment  is  here  rendered  in  favor  of  appel- 
lant against  them  jointly  and  severally  for  the  debt  sued  for;  but 
execution  shall  not  issue  against  their  individual  property,  until  exe- 
cution be  issued  against  the  property  of  the  Hollister  Oil  Company, 
and  returned  without  satisfaction. 

The  judgment  in  appellant's  favor  against  the  Hollister  Oil  Com- 
pany is  left  undisturbed. 

Reversed  and  rendered  in  part ;  undisturbed  in  part.^^ 

Buck,  J.  I  concur  in  the  judgment  of  this  court  as  expressed  in 
the  opinion  of  Justice  Dunklin,  but  I  do  not  think  it  is  necessary  to 

16  With  respect  to  a  declaration  of  trust  which,  among  other  provisions, 
authorized  the  holders  of  a  majority  of  the  common  shares  to  remove  any 
trustee  and  to  appoint  a  new  trustee,  and  conferred  upon  such  certificate 
holders,  with  the  consent  of  the  trustees  and  upon  a  two-tliirds  vote  of  the 
common  shareholders  to  amend  or  alter  the  declaration  of  trust,  except  as  re- 
gards the  provisions  for  the  nonlial)ility  of  the  trustees  and  the  certificate  hold- 
ers and  those  concerning  the  preferred  shares,  it  was  held,  on  a  bill  filed  for  in- 
structions by  an  executor  and  trustee,  who  held  under  the  terms  of  the  will 
625  shares  of  the  preferred  shares  in  such  association,  that  "such  agreement 
evidences  both  in  intention  and  in  law  a  tm^  trust  and  not  a  partnership."  The 
court  continued:  "It  is  therefore  our  decision  that,  under  said  agreement,  the 
persons  interested  therein,  the  holders  of  the  so-called  preferred  stock,  are  not 
under  individual  and  personal  liability  for  any  of  the  obligations  or  in- 
debtedness of  the  said  trust  or  association,  *  *  *  and  that  the  com- 
plainant as  executor  and  trustee  can  continue  to  hold  said  shares  of  pre- 
ferred stock  \K^ithout  making  itself  lialjle  in  its  own  corporate  capacity  for  any 
obligation  or  indebtedness  of  said  trust  or  association."  Rhode  Island  Hospital 
Trust  Co.  V.  Copeland,  39  R.  I.  193,  98  Atl.  273  (1916). 


SUPPLEMENTARY   LIST  OF  CASES   ON   PARTNERSHIP  93 

hold  that  the  policy  of  this  state,  as  reflected  by  our  statutes  and  the 
opinions  of  our  courts,  precludes  the  organization  of  a  trust  estate  in 
which  the  shareholders  are  not  liable  for  its  de1)ts.  Upon  this,  ques- 
tion, at  this  time,  I  express  no  opinion.  I  do  think  that  the  declara- 
tion of  trust  here  shown  does  not  come  within  the  Massachusetts  trust, 
upheld  by  the  Supreme  Court  of  Massachusetts,  since  the  sharehold- 
ers by  a  majority  vote  have  the  right  to  amend  or  alter  the  declaration 
of  trust,  and  thus  could  deprive  the  trustees  of  their  right  to  manage 
the  affairs  of  the  trust  independent  of  the  shareholders. 


BETTS  et  al.  v.  HACKATHORN. 
(Supreme  Court  of  Arkansas,  1923.    159  Ark.  G21.  252  S.  W.  602.) 

Action  by  W.  M.  Hackathorn  against  A.  L.  Betts  and  others.  Judg- 
ment for  plaintiff,  and  defendants  appeal. 

Humphreys,  T-  Appellee  instituted  suit  against  appellant  in  the 
circuit  court  of  Hempstead  county,  to  recover  $180  for  goods  sold 
and  delivered  to  the  Hope  Oil  Trust,  a  concern  doing  business  under 
a  written  declaration  commonly  known  as  the  "Massachusetts  Trust." 
The  suit  is  based  upon  an  allegation  that  the  Hope  Oil  Trust  is  a 
partnership,  and  that  appellants  are  members  thereof,  and,  as  such, 
are  individually  liable  for  the  indebtedness  of  the  concern.  The  si.x 
appellants  first  named  were  denominated  trustees  in  the  declaration. 
They  filed  a  separate  answer,  admitting  the  amount  of  the  account  and 
that  the  goods  were  sold  to  the  Hope  Oil  Trust,  but  denying  individu- 
al liability  upon  the  ground  that  they  are  exempted  from  liability  un- 
der paragraph  21  of  the  declaration,  which  in  part  is  as  follows: 

"Every  act  done,  power  exercised,  or  obligation  assumed  by  the 
trustees,  pursuant  to  the  provision^  of  this  agreement,  or  in  carrying 
out  the  trusts  herein  contained,  shall  be  held  to  be  done,  exercised,  or 
assumed,  as  the  case  may  be,  by  them  as  trustees,  and  not  as  individu- 
als, and  every  person  or  corporation  contracting  with  the  trustees,  as 
well  as  every  beneficiary  hereunder,  shall  look  only  to  the  fund  and 
property  of  the  trust  for  payment  under  such  contract,  or  for  the  pay- 
ment of  any  debt,  mortgage,  judgment,  or  decree,  or  the  payment  of 
an}-  money  that  may  otherwise  become  due  or  payable  on  account  of 
the  trusts  herein  provided  for,  and  any  other  obligation'  arising  under 
this  agreement  in  whole  or  in  part;  and  neither  the  trustees  nor  the 
shareholders,  present  or  future,  shall  be  personally  liaWe  therefor.'' 

The  two  last-named  appellants  are  shareholders  and  filed  a  separate 
answer  denying  liability  upon  the  ground  that  under  the  terms  of  the 
declaration  they  are  cestuis  que  trust.  They  claim  exemption  under 
paragraph  21,  quoted  above,  and  paragraphs  9  and  20  which  are  as 
follows : 


94  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

9.  "The  trustees  under  this  agreement  shall  have  the  sole  legal  title 
to  all  property,  in  any  part  of  the  United  States  of  America,  or  in 
any  foreign  country,  at  any  time  held,  acquired,  or  received  by  them 
as  trustees  under  the  terms  of  this  agreement,  or  in  which  the  share- 
holders under  this  agreement  shall  have  any  beneficial  interest  as  such 
shareholders,  and  they  shall  have  and  exercise  the  exclusive  manage- 
ment and  control  of  the  same,  in  any  manner  that  they  shall  deem  for 
the- best  interest  of  the  shareholders,  with  all  the  rights  and  powers 
of  absolute  owners  thereof." 

20.  "Shareholders  hereun'der  shall  not  be  liable  for  any  assessment, 
and  the  trustees  shall  have  no  power  to  bind  the  shareholders  per- 
sonally." 

Demurrers  were  filed  to  the  separate  answers  and  sustained  by  the 
court.  Appellants  stood  upon  their  answers  and  refused  to  plead  fur- 
ther, whereupon  the  court  rendered  judgment  against  them,  from 
which  is  this  appeal. 

The  appeal  involves  the  sole  question  of  the  personal  liability  of  the 
trustees  and  certificate  owners  in  the  business  operated  under  the  trust 
declaration.  The  instrument  is  long,  and  it  would  unduly  extend  this 
opinion  to  set  it  out  in  extenso ;  a  statement  of  the  substance  thereof 
being  sufficient  for  the  purposes  of  this  cause.  In  short  the  instru- 
ment reflects  that  trustees  associated  themselves  together  for  the  pur- 
pose of  selling  certificates  of  stock  in  the  name  of  Hope  Oil  Trust  and 
of  using  the  proceeds  for  investment  in  securities  and  enterprises  for 
the  equal  benefit  of  the  shareholders.  The  trustees  reserved  the  en- 
tire management  and  control  of  the  business  in  themselves,  the  right 
to  hold  the  title  to  all  the  property  and  dispose  of  same,  and  to  elect 
their  own  successors  in  case  of  the  resignation  or  death  of  either  one 
of  them.  The  indenture  in  efifect  provided  that  the  trustees  should 
be  masters  of  the  trust  property  as  well  as  the  business,  without  sug- 
gestion, supervision,  or  interference  on  the  part  of  the  stockholders. 
No  authority  or  power  whatever  was  conferred  upon  the  stockhold- 
ers. In  fact  all  authority  and  control  of  the  property  and  business 
was  withheld  from  them.  No  provision  was  even  made  for  a  meet- 
ing of  the  stockholders  at  any  time  for  any  purpose.  Under  the  terms 
of  the  declaration  they  were  nonparticipants,  save  to  share  in  divi- 
dends and  profits  that  might  be  declared  and  distributed  among  them 
by  the  trustees.  The  paragraphs  of  the  declaration  exempting  the 
shareholders  from  personal  liability  have  been  set  out  in  full. 

The  statutes  of  this  state  provide  for  and  regulate  two  kinds  of 
business  concerns,  limited  partnerships  and  corporations.  The  other 
business  organfeations  operate  in  this  state  under  the  general  law  of 
the  land,  not  under  statutory  protection  and  restrictions.  General  part- 
nerships, joint-stock  companies,  business  trusts,  and  other  associa- 
tions are  not  prohibited  from  doing  business  in  this  state.  With  these 
preliminary  remarks  we  proceed  at  once  to  determine  whether  the 
trustees  and  shareholders  in  the  Hope  Oil  Trust  are  individually  lia- 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  05 

ble  for  the  account  sued  upon.  We  will  first  detcrniiue  the  liability 
of  the  trustees. 

A  general  rule  in  the  law  of  trusts  is  that  a  trustee  is  a  principal 
and  not  an  agent  for  the  cestui  que  trust.  It  follows  from  this  rule 
that  the  trustee  and  not  the  cestui  que  trust  is  personally  responsible 
for  an  indebtedness  growing  out  of  transactions  in  relati(Mi  to  the  trust 
estate.  The  creditor's  guarantee  is  the  personal  liability  of  the  trus- 
tee. We  see  no  reason  why  the  trustees  here  should  be  exempt  from 
this  general  rule.  Their  declaration  exempting  them  from  personal 
liability  cannot  prevent  indivi'dual  liability  from  attaching  as  the  law 
lixes  the  liability  of  trustees.  According  to  the  declaration,  they  are 
self-appointed  trustees,  with  absolute  authority  over  the  trust  busi- 
ness and  property.  The  rule  announced  above  is  supported  by  the 
decided  weight  of  authority,  as  will  be  seen  by  reference  to  the  list  of 
cases  cited  on  page  46  of  Sears  on  Trust  Estates.  It  was  said  by  the 
Supreme  Court  of  the  United  States  in  the  case  of  Taylor  v.  Davis, 
110  U.  S.  330,  4  Sup.  Ct.  147,  28  L.  Ed.  163,  that,  "when  a  trustee 
contracts  as  such,  unless  he  is  bound  no  erne  is  bound,  as  he  has  no 
I)rincipal.  The  trust  estate  cannot  promise,  the  contract  is  therefore 
the  personal  undertaking  of  the  trustee.  *  ='=  *  If  a  trustee  con- 
tracting for  the  benefit  of  a  trust  wants  to  protect  himself  from  in- 
dividual liability  on  the  contract,  he  must  stipulate  that  he  is  not  to 
be  *  *  *  responsible,  but  that  the  other  party  is  to  look  solely 
to  the  trust  estate."  The  trustees  under  the  terms  of  the  indenture 
interposed  themselves  as  a. shield  between  the  stockholders  and  credi- 
tors, and  for  that  reason  are  individually  liable. 

We  next  proceed  to  a  determination  of  the  liability  of  the  sharehold- 
ers. The  declaration  not  only  exempts  the  shareholders  from  indi- 
vidual Hability  in  specific  terms,  but  shears  them  of  all  control  and 
management  of  the  business.  Paragraph  9  of  the  indenture  makes  the 
trustees  absolute  masters  of  the  property  and  business.  The  only 
right  accorded  to  the  holders  of  certificates  of  stock  is  to  share  in 
profits  or  dividends.  They  are  in  the  attitude  of  one  lending  money 
to  a  partnership  for  a  share  of  the  profits  in  lieu  of  interest.  A  read- 
ing of  the  trust  instrument  in  its  entirety  has  convinced  us  that  the 
shareholders  are  not  associated  with  each  other  and  the  trustees  for 
the  purpose  of  conducting  a  business  in  person  or  through  agents  for 
a  profit.  There  is  nothing  in  the  instrument  showing  an  intention  on 
the  part  of  the  shareholders  to  enter  into  a  copartnership  or  an  inten- 
tion on  the  part  of  the  trustees  to  co-operate  with  the  shareholders  in 
the  conduct  of  the  business.  The  test,  after  all,  in  determining  wheth- 
er a  business  is  a  partnership,  is  to  ascertain  whether  the  parties  in- 
tended one.  Buford  v.  Lewis,  87  Ark.  417.  112  S.  W.  963;  Wilson 
v.  Todhunter.  137  Ark.  80,  207  S.  W.  221  ;  Mehaffy  v.  Wilson,  138 
Ark.  281.  211  S.  W.  148.  Under  the  terms  of  the  instrument  the 
shareholders  are  cestuis  que  trust,  and  the  instrument,  in  so  far  as 
thev  are  concerned,  creates  a   pure  trust.      Common-law   trusts   are 


96  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

generally  recognized  and  have  been  upheld  by  the  weight  of  authori- 
ty. Williams  v.  Milton,  215  Mass.  1,  102  N.  E.  355;  Simson  v.  Klip- 
stein,  88  N.  J.  Eq.  229,  102  Atl.  242:  Rhode  Island  Hospital  Trust 
Co.  V.  Copeland,  39  R.  I.  193,  98  Atl.  273 ;  Home  Lumber  Co.  v.  Hop- 
kins. 107  Kan.  190,  190  Pac.  601,  10  A.  L.  R.  879;  Wells  Stone  Mer- 
cantile Co.  V.  Grover,  7  N.  D.  460,  75  N.  W.  911,  41  L.  R.  A.  252; 
Mayo  V.  Moritz,  151  Mass.  481,  24  N.  E.  1083;  Foster  v.  Boston,  215 
Mass.  31,  102  N.  E.  359.  Appellee  insists  that  this  court  is  commit- 
ted to  the  doctrine  that  immunity  from  individual  liability  to  share- 
holders in  a  business  organization  can  be  accomplished  in  Arkansas 
through  the  medium  only  of  limited  partnerships  and  corporations. 
In  support  of  this  contention,  two  Arkansas  cases  are  cited  in  which 
the  court  held  the  members  of  the  organization  liable  as  partners. 
Doyle-Kidd  Dry  Goods  Co.  v.  A.  W.  Kennedy,  154  Ark.  573,  243 
S.  W.  66;  Baker-McGrew  Co.  v.  Union  Seed  &  FertiHzer  Co.,  125 
Ark.  146,  188  S.  W.  571.  The  declaration  of  trust  in  each  of  those 
cases  was  quite  different  from  the  declaration  in  the  instant  case. 

The  question  as  to  whether  a  partnership  or  strict  trust  is  created 
by  an  indenture  must  depend  on  the  language  and  provisions  of  the 
in.strument  involved  in  each  case.  In  the  Doyle-Kidd  Case  this  court 
ruled  that  the  instrument  created  a  joint-stock  company.  There  is  a 
marked  difference  between  a  joint-stock  company  and  a  pure  busi- 
ness trust.  In  a  joint-stock  company  the  managers  are  agents  for  the 
shareholders.  Not  so  in  a  business  trust.  The  managers  are  princi- 
pals, and  the  shareholders  are  cestuis  que  trust.  In  the  Baker- 
McGrew  Case  the  indenture  provided  for  sharifholders  to  meet  and 
elect  trustees.  In  this  way  they  were  in  a  position  to  control  and  man- 
age the  business  and  propertv.  We  have  not  overlooked  the  case  of 
Greene  County  v.  Smith,  148  Ark.  33,  228  S.  W.  738.  In  that  case 
the  question  of  the  liability  of  shareholders  to  creditors  or  third  per- 
sons was  not  involved ;  the  only  question  involved  being  one  of  taxa- 
tion. 

The  instrument  in  the  instant  case  created  a  pure  trust,  in  so  far 
as  appellants  P.  M.  Simms  and  T.  M.  Kinser  are  concerned,  and  they 
are  immune  from  individual  liability. 

The  judgment  is  affirmed  as  to  the  trustees,  and  reversed,  and  the 
cause  remanded  as  to  Kinser  and  Simms,  with  directions  to  overrule 
thp  ^'emurrer  to  their  answer  and  to  proceed  in  accordance  with  this 
opinion. 


SUPi'LE.MENTAKV    LIST   ol'   CASKS   ON   PAUTNKKSUIP  97 

BANK  OF  TOPEKA  v.  EATON  et  al. 
(Circuit  Court  of  the  Initi'd  StJitt-s.  D.  Massachusetts,  I'.tOO.     inu  Fed.  s.) 

PuTXAM,  Circuit  Judge.  This  is  the  same  case  which  has  already 
been  before  us  on  a  plea  in  abatement,  as  to  which  we  passed  down  an 
opinion  and  an  interlocutory  judj/nient  on  June  29,  1S99,  95  Fed. 
355.  h  now  comes  before  us  on  demurrer.  The  declaration  is  based 
on  a  note,  as  follows: 
"$10,000.  Topeka,  Kansas,  October  24,  1890. 

"Sixty  days  after  date  the  trustee  of  the  Topeka  Land  and  Devel- 
opment Company,  as  such  trustee  under  declaration  of  trust  dated 
May  23,  1887.  and  not  otherwise,  promise  to  pay  to  the  order  of  J.  R. 
Mulvane,  president,  ten  thousand  dollars,  at  Bank  of  Topeka,  Tope- 
ka, Kansas,  with  interest  at  ten  per  cent,  per  annum  after  maturity 
until  paid;  also  cost  of  collecting,  including  attorney's  fees,  if  suit 
be  instituted  on  this  note.     \'alue  received.     Appraisement  waived. 

"F.  R.  Cordley,  as  Trustee  as  Aforesaid." 

The  defendants  are  certificate  holders  in  a  joint-stock  association, 
the  main  purpose  of  which  is  dealing  in  lands  in  Kansas.  The  prop- 
erty of  the  association  was  vested  in  three  trustees,  the  survivor  of 
whom  gave  th^  note  in  suit.  The  articles  of  association  referred  to 
in  the  note  are  made  a  part  of  the  plaintiff's  declaration,  and  contain 
the  following  provisions : 

"Said  trustees  shall  have  full  power  and  authority,  subject  to  the  in- 
structions of  the  shareholders,  as  hereinafter  provided:  (1)  To  pay  all 
taxes  and  assessments  of  every  kind  legally  assessed  upon  said  prop- 
erty, and  the  necessary  expenses  of  the  trust,  and  for  that  purpose  to 
borrow  mone}- ;  and  any  debt  for  money  so  borrowed  shall  be  and 
remain,  until  paid,  a  lien  upon  all  funds  and  moneys  belonging  to  this 
trust  then  or  thereafter  in  the  hands  of  the  trustees,  in  preference  to 
the  claim  of  any  shareholders  as  such  upon  such  funds  and  moneys. 

"The  trustees  shall  have  no  power  to  bind  the  shareholders  personal- 
ly, and  iq  every  written  contract  or  undertaking  they  shall  enter  into 
relating  to  this  trust,  or  the  property,  or  any  part  thereof,  belonging 
thereto,  reference  shall  be  made  to  this  declaration  of  trust,  and  the 
person,  firm,  or  corporation  so  contracting  with  the  trustees  shall  look 
only  to  the  funds  and  property  of  the  trust  for  payment  under  such 
contract  or  undertaking,  or  for  the  payment  of  any  debt,"  damage, 
judgment,  or  decree,  or  of  any  money  that  may  become  due  or  paya- 
ble in  anv  way  by  reason  of  the  failure  on  the  part  of  the  said  trus- 
tees to  perform  such  contract  or  undertaking,  in  whole  or  in  part :  and 
neither  the  trustees  nor  the  shareholders,  present  or  future,  in  the  com- 
pany, shall  be  personally  liable  therefor,  or  for  any  debt  incurred,  *or 
engagement  or  contract  made,  by  said  trustees." 
St  rr.r.iT,.PART.— 7 


9S  SUPPLEMENTARY    LIST   OF   CASES   ON   PAUTNERSHIP 

There  is  nothing  further  found  in  the  articles  of  association  or  in 
the  record  with  reference  to  the  incurring  of  liabihties  by  the  trus- 
tees in  behalf  of  the  association.  The  declaration,  in  ^addition  to  set- 
ting out  the  articles  of  association,  states  merely  the  facts  that  the 
note  was  given,  that  the  money  was  advanced  therefor,  and  that  the 
Bank  of  Topeka  received  with  the  note  certain  securities  as  collateral 
for  the  payment  thereof.  There  is  nothing  in  the  declaration  showing 
for  what  purpose  the  money  was  obtained,  or  to  what  it  was  applied. 
\\'hile.  therefore,  it  is  not  impossible  that  the  trustees  might  have  in- 
curred indebtedness  under  such  circumstances  that  the  law  would  im- 
pose a  personal  liability  on  the  shareholders,  yet,  under  tlie  allegations 
found  in  the  declaration,  there  are  no  such  circumstances;  and  the 
plaintiff's  case  rests  entirely  upon  the  authority  expressly  given  the  trus- 
tees to  borrow  money  for  the  purposes  of  the  trust.  It  not  only  fol- 
lows that  it  was  the  duty  of  the  plaintiff  to  ascertain  for  itself  what 
powers  the  trustees  had  in  the  premises,  but  the  specific  terms  of  the 
note,  in  that  it  contains  the  words,  "as  such  trustee  under  declaration 
of  trust  dated  May  23,  1887,  and  not  otherwise,"  obligated  it,  by  its 
implied  agreement  in  accepting  the  note,  to  abide  by  the  terms  of  the 
articles  of  association.  This  expression  in  the  note  is  so  positive  as 
to  leave  no  occasion  for  explanation  in  support  of  this  proposition,  or 
opportunity  for  obviating  its  effect  by  suggestions  made  in  argument 
or  drawn  from  decisions  on  supposed  analogous  cases.  Whether  or  no^ 
the  plaintiff"  examined  the  articles  of  association,  or  knew  their  con- 
tents, is  of  no  consequence,  because  this  express  provision  required 
it  to  do  so,  or  take  the  hazard  of  not  doing  it. 

Therefore  the  only  question  is  whether  or  not  this  implied  stipula- 
tion of  the  plaintiff,  limiting  its  remedy  to  the  general  assets  of  the 
association  and  the  property  specially  pledged  to  it,  is  contrary  to  the 
rules  of  law.  Of  course,  a  stipulation  in  an  instiamient  which  fun- 
damentally violates  its  essential  nature  must  sometimes  be  rejected  by 
the  courts.  For  instance,  if  any  individual  or  partnership  should  stip- 
ulate in  his  or  its  pecuniary  obligations  that  he  or  it  should  not  be  per- 
sonally Hable  thereon,  without  at  the  same  time  mortgaging  or  pledging 
property,  or  giving  some  other  specific  lien  for  security,  it  might  be 
difficult  for  the  law  to  regard  the  stipulation,  because,  in  that  event, 
as  there  would  be  no  lien  which  the  law  could  enforce,  the  holder  of 
the  obligation  would  be  left  without  remedy,  unless  he  could  proceed 
by  judgment  against  the  obligor;  and  the  result,  if  sustained,  would 
be  an  obligation  which  in  law  is  no  obligation. 

The  present  case,  however,  assimilates  itself  to  the  large  class  of 
cases  where,  certain  property  being  pledged  in  some  form  for  the  se- 
.curity  of  a  debt,  the  parties  have  been  at  liberty  to  stipulate  that  the 
owner  of  the  debt  should  look  only  to  the  property  thus  pledged.  In 
the/  present  case,  not  only  did  the  Bank-of  Topeka  have  specific  assets 
•  given  it  for  its  security,  but  the  entire  property  of  the  association  was 
held  in  trust,  and  therefore  subject  to  administration  by  the  chancer}- 


si:i'I'li:mi:ntary  list  of  casks  ox  rARTNicitsiiiP  91) 

courts,  which  could  apply  it  equitably  and  proportionally  to  the  dis- 
charge of  obligations. incurred  by  the  trustee,  as  contemplated  by  the 
express  direction  of  the  articles  of  association  that  the  debtors  of  the 
trust  should  look  for  payment  solely  to  its  property.  Under  these  cir- 
cumstances there  is  no  reason  why  we  should  not  give  full  efifect  to  the 
agreement  of  the  Bank  of  Topeka,  arising  from  its  acceptance  of  the 
'note,  that  it  would  be  bound  b>'  the  declaration  of  trust,  including  the 
provisions  in  the  articles  exempting  the  shareholders  from  personal 
liability  for  the  engagements  of  the  trustee. 

There  are  some  other  questions  of  importance  in  the  case,  but  our 
conclusions  render  it  unnecessary  to  consider  them. 

Demurrer  sustained:  declaration  adjudged  insufficient;  judgment 
fpr  defendants,  with  costs. 


INDUSTRIAL  LUMBER  CO.  v.  TEXAS  PINE  LAND  ASS'N. 
(Court  of  Civil  Appeals  of  Texas,  1903.    31  Tex.  Civ.  App.  375,  72  S.  W.  875.) 

Action  by  the  Industrial  Lumber  Company  against  the  Texas  Pine 
Land  Association.     From  a  judgment  for  defendant,  plaintiff  appeals. 

Gill,  J.^'  This  is^an  appeal  from  a  judgment  sustaining  demurrers 
to  the  plaintiff's  amended  original  petition.  *  *  * 
'  It  was  averred  that  plaintiff,  the  Industrial  Lumber  Company,  a 
Texas  corporation,  entered  into  a  written  contract  with  the  Texas 
Pine  Land  Association,  by  which  the  last-named  concern  leased  to 
plaintiff  a  certain  sawmill  at  Liberty,  Tex.,  and  certain  land  on  wdiich 
it  was  situated,  for  the  temi  of  two  years  from  April  1,  1898,  and 
bound  itself,  among  other  things,  to  cut  and  furnish  at  the  sawmill  for 
a  named  price  a  sufficient  number  of  logs  to  enable  the  mill  to  be  op- 
erated at  its  full  capacity  during  the  full  term  of  the  lease ;  that  plain- 
tiff took  possession  of  the  mill  and  operated  it  during  the  term,  but  the 
defendant  association  failed  to  furnish  a  sufficient  number  of  logs  to 
enable  plaintiff'  to  run  the  mill  at  its  full  capacity,  whereby  much  time 
was  lost,  to  plaintiff's  damage,  for  which  judgment  is  asked.  It  is 
further  averred  that,  a  short  time  before  the  expiration  of  the  lease, 
plaintiff  procured  a  two-years  extension  of  the  contract  according  to 
its  terms,  whereby  both  plaintiff  and  defendant  association  were  boimd 
as  before.    *    *    * 

It  is  further  averred  that  on  the  day  of  ,  18 — ,  after 

the  expiration  of  the  original  lease,  the  defendant  association  sold  and 
conveyed  to  John  H.  Kirby  and  to  the  Kirby  Lumber  Company  and  the 
Houston  Oil  Company  (two  Texas  corporations)  all  its  holdings  in. 
Texas,  including  the  property  leased  to  plaintiff,  and  all  the  lands  from 
which  the  association  expected  to  get  logs  to  be  furnished  for  the  op- 
eration of  the  mill :  that  the  vendees  ousted  plaintiff  from  its  hold- 
ings, and  the  association,  by  reason  of  such  sale,  ceased  to  be  a  going 

17  Parts  of  the  opinion  are  omitted. 


100  SI  ri'LEMKNTAUY    LIST    OF    CASKS    ON    rAKT-NKKSIIlP 

concern,  and  by  that  act  has  rendered  it  impossible  for  the  association 
to  comply  with  the  terms  of  the  lease.  Large  damages  are  averred  to 
have  resulted  from  this  breach  by  the  association  growing  out  of  the 
failure  to  furnish  logs  for  the  two-years  extension  of  the  lease,  and  for 
this  plaintiff  prays  damages  also.  John  H.  Kirby  and  the  two  Texas 
corporations  above  named  were  made  parties  defendant  for  the  pur- 
pose of  foreclosing  an  asserted  lien  upon  all  the  property  conveyed  by 
the  association  to  them,  and  plaintiff  also  sought,  by  injunction,  to  hold 
in  tht  hands  of  Kirby,  the  Houston  Oil  Company,  and  the  Kirby  Lum- 
ber Company  all  the  consideration  for  the  purchase  from  the  associa- 
tion which  had  not  theretofore  passed.  A  lien,  as  before  stated,  was 
asserted  against  all  the  property  purchased,  and  was  averred  to  exist 
by  reason  of  the  following  facts : 

That  the  Texas  Pine  Land  Association  was  a  voluntary  association 
or  joint-stock  company,  the  membership  of  which  is  very  numerous, 
and  the  names  of  all  the  members  are  unknown  to  plaintiff,  and  all 
are  alleged  to  be  nonresidents  of  this  state ;  that  the  membership  is  so 
large  it  is  impracticable,  if  not  impossible,  to  make  each  and  all  of 
them  parties  to  this  suit ;  that  the  Texas  Pine  Land  Association  was 
organized  for  the  purpose  of  and  was  engaged  in  the  investment  of 
capital  in  pine  and  other  timber  lands  in  Texas,  and  in  cutting  and  sell- 
ing logs,  and  operating  sawmills,  trams,  and  booms,  and  operating  a 
general  lumber  and  timber  business ;  that  the  business  of  the  asso- 
ciation had  been  intrusted  by  its  meipbers  to  Thomas  L.  Nelson,  Fran- 
cis Peabody,  Jr.,  and  Noah  W.  Jordan  (residents  of  Boston,  Mass.), 
as  trustees,  who  were  fully  empowered  to  transact  all  the  business  of 
the  associa'tion,  and  to  make  all  necessary  contracts,  sales,  and  bar- 
gains in  furtherance  of  the  purposes  of  the  association.  But  the  pow- 
er of  these  trustees  was  specifically  limited  by  the  following  stipulation, 
embodied  in  the  written  instrument,  denominated  "Declaration  of 
Trust,"  which  was  the  source  of  their  authority:  "Art.  Lr  The  trus- 
tees shall  have  no  power  to  bind  the  shareholders  personally,  and,  in 
everv  written  contract  they  shall  enter  into,  reference  shall  be  made 
to  this  declaration  of  trust.  And  the  person  or  corporation  so  contract- 
ing with  the  trustees  shall  look  only  to  the  funds  and  property  of  the 
trust  for  the  payment  under  such  contract,  or  for  the  payment  of  any 
debt  or  damage,  judgment  or  decree,  or  of  any  money  -that  may  other- 
wise become  due  and  payable,  by  reason  of  the  failure  on  the  part  of' 
the  trustees  to  perform  such  contract  in  whole  or  in  part,  so  that  nei- 
ther the  trustees  nor  the  shareholders,  present  or  future,  in  this  trust 
shall  be  personally  liable,  therefor."  In  pursuance  of  this  clause  there 
was  incorporated  in  the  original  lease  contract  the  following  clause : 
"It  is  further  distinctly  understood  that  the  party  of  the  first  part  is  a 
joint-stock  association  without  personal  liability  of  its  stockholders, 
and  that  for  any  debt,  demand,  or  damage  arising  under  this  instru- 
ment against  the  party  of  the  first  part  the  party  of  the  second  part,  or 
other  Dartv  in  whose  behalf  such  demand  may  arise,  shall  look  exclu- 


SUri'LKMHN TAKY    LIST   OF   CASKS   ON    I'AUTNKKSIl  IP  101 

?ively  to  the  trust  property  in  the  hands  of  the  trustees  of  the  party  of 
the  first  part,  and  up(jn  no  account  and  in  no  event  shall  there  be  any 
individual  liability  of  ihe  shareholders,  party  of  the  first  part,  or  its 
trustee."  *  *  *  It  is  alleged  *  *  *  that  the  contract  of  lease 
itself  eviiYces  a  purpose  on  the  part  of  the  parties  thereto  to  charge  the 
property  with  a  lien,  and  that  if  that'  does  not  do  so  an  equitable  lien 
clearly  arises  in  favor  of  plaintiff  by  reason  of  the  declaration  of  trust, 
the  terms  of  the  lease,  and  the  attendant  facts  averred.  It  is  further 
alleged  that  Kirby  and  the  two  defendant  corporations  had  actual  no- 
tice of  all  the  facts  and  the  existence  of  plaintiff's  demands,  and  that 
same  were  secured  by  a  lien  at  the  time  of  and  before  the  jnirchase  by 
defendants.  A  foreclosure  of  the  asserted  lien  isi)rayed  for  against 
the  trust  property  in  the  hands  of  the  defendants.     *     *     * 

The" question  which  includes  all  others  necessary  to  be  disposed  of  on 
this  api;eal  is,  did  the  court  err  in  sustainmg  the  general  demurrer  to 
plaintiff's  amended  original  petition?  Plaintiff  seems  to  rest  his  cause 
of  action  upon  two  theories,  and  asserts  a  right  to  recover  upon  either 
the  one  or  the  other :  First.  Where  a  person,  or  association  of  per- 
sons, contract  in  lieu  of  personal  liability  that  the  property  of  such 
person  or  association  shall  stand  pledged  to  the  performance  of  such 
agreement,  and  to  the  payment  of  any  money  demand  of  whatever 
nature  which  may  result  from  such  contract  or  grow  out  of  its  breach, 
an  equitable  lien  is  thereby  created  upon  the  property.  Second.  In- 
asmuch as  by  the  very  nature  of  the  association,  as  created  by  the  dec- 
laration of  trust,  there  could  be  no  personal  liability,  and  the  property 
of  the  association  could  alone  be  looked  to  by  the  creditors  of  the  con- 
cern, such  property  became  a  trust  fund  in  the  hands  of  the  trustees 
chargeable  with  a  lien  in  favor  of  its  creditors,  and  this  lien  followed 
it  into  the  hands  of  purchasers  with  notice,  where  by  such  sale  and 
purchase  the  association  went  out  of  business,  and  ceased  to  be  a  going 
concern.  In  order  to  clearlx'  and  correctly  determine  whether  either 
of  these  propositions  can  be  maintained,  it  is  necessary,  first,  to  ascer- 
tain the  nature  of  the  association  as  a  legal  entity,  and,  second,  the  le- 
gal effect  of  the  contract  of  lease,  with  Hs  stipulations  exempting  from 
liability  the  individuals  at  interest  as  parties  of  the  first  part.  In  dis- 
posing of  these  questions  we  will  pretermit  all  inquiry  as  to  whether 
the  portions  of  plaintiff's  demands,  which  are  of  the  nature  of  unlici- 
uidated  damages,  could  in  any  event  be  declared  to  be  secured  by  an 
eciuitable  lien,  and  'shall  dispose  of  the  case  as  though  the  suit  in 
all  other  respects  was  free  from  question. 

It  appears  from  plaintifif's  allegations  that  the  defendant  association 
is  a  ioint-stock  company  or'  voluntary  unincorporated  association,  com- 
posed of  a  great  number  of  persons  whose  interests  are  evidenced  by 
certificates  of  stock,  and  which  transacted  its  business  and  managed 
its  affairs  through  named  trustees  with  prescribed  powers.  Such 
concerns  are  uniformly  held  in  the  United  States  to  be  partnerships, 
subject  to  be  sued  as  such,  and  governed  by  the  laws  fixing  partner- 


102  SUPPLEMENTARY   LIST   OF   CASES   ON   PArvTNERSrilP 

ship  responsibility.  22  Ency.  Law  (2d  Ed.)  p.  637;  Cook  on  Stock 
and  Stockholders,  volume  1,  §  508;  Thompson  on  Corp.  volume  1,  § 
14,  p.  16.'  They  are  distinguishable  from  "partnerships,"  as  that  term 
is  ordinarily  used,  only  in  the  respect  that  the  death  or  withdrawal  of 
one  or  more  members  does  not  effect  a  dissolution,  and  that-  the  stock 
can  be  bought  and  sold  without  nft'ecting  the  integrity  of  the  concern. 
In  these  respects  they  partake  of  the  nature  of  corporations,  but  these 
peculiar  characteristics  do  not  affect  the  nature  or  extent  of  the  indi- 
vidual liability  as  to  third  parties.  The  agreement  among  members,  or 
between  themselves  and  the  trustees  appointed  to  manage  the  affairs 
of  the  concern,  that  no  personal  liability  should  rest  upon  the  members, 
would  not  have  the  purposed  effect,  any  more  than  such  an  agreement  ^ 
between  the  members  of  an  ordinary  partnership  v/ould  accomplish 
that  end.    A.  &  E.  Ency.  Law,  vol.  22,  pp.  143-173. 

Our  statute  prescribes  how  a  limited  partnership  may  be  constituted, 
and  compliance  with  its  terms,  requiring  certain  evidences  of  its  pe- 
culiar nature  to  be  placed  of  record,  puts  the  world  on  notice  of  the 
nature  of  its  liability.  Rev.  St.  tit.  76.  But  it  does  not  follow  by  rea- 
son of  the  existence  of  this  statute  that  either  an  ordinary  partnership 
or  an  association  of  individuals  may  not  contract  with  another  that,  as 
to  liabilities  growing  out  of  the  particular  transaction  evidenced  by  the 
contract,  the  partners  or  the  members  of  the  association  shall  be  exempt 
from  personal  liability,  and  that  the  other  contracting  party  must  look 
alone  to  the  common  holdings  of  the  firm  or  association  for  indemnity. 
The  statute  merely  confers  a  power.  It  does  not  limit  or  destroy  any 
common-law  right.  We  ^re  aware  of  no  rule  either  of  law  or  public 
policv,  which  forbids  the  making  of  such  a  contract.  1  Cook  on 
Stockholders,  §  216;  22  A.  &  E.  Ency.  Law,  p.  173;  Lindley  on  Part- 
nerships, 377,  378,  382.  These  things  being  true^  it  is  plain  also  that 
such  contract  does  not  necessarily  create  a  lien  upon  the  property  or 
any  part  of  it.  Lindley  on  Partnership,  p.  380.  Whether  it  does  or 
not  depends  upon  the  intention  of  the  parties,  as  expressed  by  the  lan- 
guage of  the  instrument  itself,  or  gathered  from  that  and  attendant  cir- 
cumstances. If  the  instrument  itself  declares  the  lien,  it  needs  no  aid 
from  a  court  of  equity.  If  the  instrument  evinces  a  purpose  on  the 
part  of  the  parties  that  a  lien  should  exist,  but  falls  short  of  its  crea- 
tion, proceeding  upon  the  maxim  that  equity  considers  as  done  that 
which  ought  to  be  done,  the  courts  will  carry  out  the  just  purposes  of 
the  contracting  parties.  11  Ency.  of  Law  (2d  Ed.)  p.  123.  But  it  must 
appear  that  a  lien  was  intended  or  promised  upon  some  specific  proper- 
ty.   3  Pom.  Eq.  §  1235. 

With  these  rules  and  principles  in  mind,  an  inspection  of  the  con- 
tract of  lease  convinces  us  that  a  lien  was  neither  created  nor  prom- 
ised. If  read  in  the  light  of  the  declaration  of  trust,  to  which  it  re- 
fers, and  especially  in  view  of  the  surrounding  facts  at  the  date  of  its 
creation  as  disclosed  by  the  petition,  the  correctness  of  this  construc- 
tion becomes  very  -plain. 


SUI'I'L^MKNTARY    LIST   OF   CASKS   ON    rAIiTXEUSIIIP  103 

The  association  is  averred  to  have  owned  vast  quantities  of  land,  and 
to  have  been  engaged  in  the  cutting  and  selling  of  timber  and  lumber^ 
and  in  the  operation  of  trams,  booms,  and  sawmills  situated  in  various 
counties  in  the  state.  To  hold  that  such  a  contract,  in  the  absence  of 
specific  language  to  that  effect,  created  a  lien  on  all  the  property  of  the 
concern  in  Texas,  would  lead  to  the  absurd  conclusion  that  the  logs, 
being  cut  and  sold,  were  subject  thereto;  that  other  mills  and  land, 
leased  by  other  parties  under  the  general  purposes  of  the  concern,  were 
also  covered,  and  if  subsequent  in  date  would  be  subject  to  such  lien. 
We  do  not  mean  to  say  that  a  contract  involving  such  consequences 
might  not  have  been  made,  but  are  of  opinion  that  these  facts  go  far 
to  show  that  no  such  purpo.se  was  in  the  minds  of  the  parties  here.  It 
is  well  to  remember  in  this  connection  that  the  trustees  were  not  em- 
powered to  make  any  other  sort  of  contract  than  one  exempting  the 
members  from  liability,  and  that  of  this  restriction  plaintiff  was  aware, 
and  hence  must  have  known  that  all  other  contracts  made  by  the  con- 
cern in  Texas  must  have  been  couched  in  like  terms. 

Does  the  fact  that  the  members  of  the  association  were  exempted 
from  individual  liability,  and  that  plaintiff  was  bound  by  the  contract 
to  look  to  property  held  in  common  by  the  members  of  the  concern,  of 
itself  authorize  a  court  of  equity  to  imply  a  lien  upon  the  common  prop- 
erty? If  the  contract  of  lease  had  pointed  out  specific  property  to 
wdiich  the  lessee  should  look,  tlicre  might  be  much  force  in  appellant's 
position  qji  this  point,  l^.ut  the  case  before  us  presents  a  dift'erent 
aspect.  No  property  was  described  except  the  property  leased,  and  that 
simply  for  the  purposes  of  the  lease  feature  of  the  contract.  The 
property  of  the  association  was  vast  in  amount,  scattered  over  manv 
counties,  and  consisted  of  realty  and  personalty.  It  mav  be  inferred 
from  the  petition,  if  not  in  fact  alleged,  that  much  of  the  property  was 
then  involved  in  like  contracts  with  others,  and  much  of  the  personalty 
exposed  to  daily  sale. 

We  do  not  think  the  facts  alleged  authorize  the  conclusion,  either 
that  a  lien  was  intended  by  the  parties  or  that  equitv  should  imply 
one  from  the  facts.  We  have  said  the  contract  was  not  one  forbidden 
by  law,  and  this  means  of  course  that  thereunder  plaintiff*  must  be 
accorded  some  effective  remedy.  In  holding  that  no  lien  existed,  plain- 
tiff's rights  are  not  precluded.  It  seems  to  us  the  most  naturaKand 
reasonable  construction  to  place  upon  the  contract  would  be  to  hold 
that  the  exemption  from  personal  liability  simpiv  gave  direction  to  anv 
execution  which  might  be  issued  on  any  judgment  procured  by  plain- 
tiff against  the  concern,  its  members  or  representatives.  Thus,  if 
I)laintift'  had  procured  judgment  against  the  association,  and  it  had 
pleaded  in  defense  the  restrictive  clause  of  the  contract,  the  judgment 
should  have  directed  the  execution  to  be  levied  only  upon  firm  prop- 
erty, and  if  it  should  be  made  to  appear  that  the  other  defendants  had 
purchased  the  property  of  the  association,  with  knowledge  of  a  pur- 
pose on  its  part  to  defraud  its  creditors,  such  property,  under  well- 


104  SUPPLEMKXTARY    LIST    OF    CASHES    OX    I'AUTXKUSIl  1 P 

settled  rules  of  law,  could  nevertheless  be  subjected  to  the  debt.  It 
is  perhaps  true,  also,  that  plaintifif  has  a  remedy  against  the  trustees 
])ersonally  for  misappropriating  the  funds  of  the  association.  Lindlex' 
on  Partnership,  p.  383.  If.  however,  we  are  in  error  in  holding  that 
the  contract  of  personal  exemption  was  valid,  then  plaintiff  had  the 
right,  under  appropriate  pleading,  to  a  personal  judgment  against 
each  member  of  the  association,  or  such  members  as  he  could  identify 
and  serve  with  process,  with  right  to  general  execution  against  them, 
and  execution  against  the  firm  property  as  to  alh  So  that,  in  any 
event,  the  demurrer  was  properly  sustained,  unless  plaintiff'sx  proposi- 
tion is  sound,  to  the  effect  that  parties  purchasing  all  the  assets  of  such 
a  concern  are  responsible  for  its  liabilities,  and  that  a  lien  exists  upon 
such  assets  to  secure  such  claims.  The  funds  and  property  of  a  de- 
funct corporation  are  a  trust  fund  in  the  hands  of  the  directors  for 
the  benefit  of  the  stockholders  and  creditors.  It  is  also  true  that  when 
one  corporation  buys  out  the  property  of  another  corporation,  whereby 
the  first  concern  becomes  defunct,  the  purchaser  becomes  responsible 
for  the  debts  of  the  defuiict  concern  at  least  to  the  value  of  the  proper- 
ty purchased ;  but  we  are  of  opinion  this  rule  as  to  corporations  can- 
not be  applied  to  the  association  in  question,  which,  as  to  third  parties, 
is  in  all  essential  respects  a  mere  partnership. 

Upon  the  proposition  that,  irrespective  of  whether  the  contract  it- 
self sufficed  to  create  a  lien  or  would  authorize  a  court  of  equity  to 
declare  one,  the  nature  of  the  association  and  the  nature  oil  plaintiff's 
contractual  relation  did  nevertheless  create  one,  plaintiff  relies  on  the 
case  of  Society  of  Shakers  v.  Watson.  15  C.  C.  A.  632,  68  Fed.  730. 
In  that  case  the  appellant  was  composed  of  a  membership  of  100,  con- 
sisting of  minors  as  well  as  adults,  its  membership  constantly  shifting 
and  changing.  None  of  the  members  individually  owned  any  interest 
in  the  property  of  the  society, 'nor  were  the  interests  represented  by 
shares.  It  was  neither  a  corporation  nor  joint-stock  company,  was  not 
engaged  in  business  for  profit,  and  the  common  holdings  were  in- 
trusted to  and  managed  by  trustees.  .  These  latter  borrowed  monev 
which  went  to  the  betterment  of  the  society's  holdings.  The  court 
held  it  was  not  a  partnership,  that  there  could  be  no  individual  liability, 
and  that  from  all  the  facts  it  was  manifest  the  parties  intended  the 
claiifi  should  constitute  a  lien  against  the  property  of  the  society.  Even 
if  we  should  regard  the  case  as  binding  authority,  it  is  nevertheless 
clearly  distinguishable  from  this  in  the  respects  above  mentioned,  and 
the  court  was  doubtless  correct  in  holding  that,  under  the  peculiar  facts 
of  that  case,  a  lien^existed.  Such  an  association  is  neither  a  corpora- 
tion nor  a  partnership.  22  A.  &  E.  Ency.  of  Law,  j).  53.  So  in  Bank 
V.  Eaton  (C.  C.)  100  Fed.  8,  on  which  the  plaintiff  also  relies.  The 
case  is  much  like  the  one  at  bar,  but  with  this  distinction :  the  articles 
of  trust  specifically  declare  that  the  money  borrowed,  and  for  which 
the  suit  was  brought,  should  constitute  a  lien  upon  the  trust  property 


SI'PPLEMENTAUY    LIST   OF  CASKS   OX    I'A  UTNKIJSH  IP  l(l;j 

then  existing  and  tliereafter  U)  be  acquired.  The  case  ritcd  riintaiiu-d 
a  fact  element  which  is  lacking  in  the  one  before  us. 

W-e  do  not  deem  it  necessary  to  discuss  the  other  cases  cited  1j\  ap- 
pellant. We  do  not  regard  them  decisive  of  the  question  deter- 
mined here.  That  partnership  creditors  have  no  lien  upon  partner- 
ship assets  is  well  settled,  and  the  mere  fact  that  the  partners  have 
seen  fit  to  contract  against  personal  liability  does  not  vary  the  rule. 

The  judgment  is  affirmed. 


McCarthy  v.  parker  et  ai. 

(Supromo  .Tndicial  O.uit  of  Miissaelui.<^otts,  VSSA.    -24:',  Mass.  465,  l.^S  N.  E.  8.) 

Action  by  Francis  V.  McCarthy  against  Thomas  B.  Parker  and  oth- 
ers for  legal  services  rendered  persons  doing  business  under  a  dec- 
laration of  trust.  Reported  from  the  superior  court  after  a  jury  find- 
ing for  plaintifif  and  a  directed  verdict  for  defendants,  in  accordance 
with  leave  reserved. 

Pierce,  J.  This  is  an  action  of  contract,  brought  by  an  attorney  at 
law  to  recover  on  a  quantum  meruit  with  an  account  annexed  the 
value  of  legal  services,  alleged  to  have  been  rendered  the  defendants, 
as  copartners  doing  business  under  a  declaration  of  trust  as  the  Lynn 
Glass  Manufacturing  Com])any.  The  defendants  answered  general 
denial  and  payment ;  also  that  the  declaration  of  trust  created  a  trust 
and  not  a  partnership ;  that  the  plaintifif's  services  were  rendered  with 
knowledge  that  the  Lynn  Glass  Manufacturing  Company  was  not  a 
partnership,  but  was  a  trust  operating  under  a  declaration  of  trust. 
The  case  was  tried  to  a  jury  upon  an  auditor's  report,  some  oral  and 
written  evidence,  and  the  declaration  of  trust;  the  jury  found  for  the 
plaintiff. 

The  judge,  with  the  assent  of  the  jury,  under  G.  L.  c.  231,  §  120. 
in  accordance  with  the  leave  reserved,  directed  a  verdict  for  all  the 
defendants ;  the  plaintiflf  failed  to  file  his  exceptions  to  said  direction, 
and  the  same  were  dismissed.  The  judge  then  reported  the  case  to 
this  court  upon  the  following  terms:  "If  in  law  the  verdict  of  the 
jury  was  warranted  on  the  evidence,  and  the  action  of  the  judge  in 
entering  a  verdict  for  said  defendants  was  erroneous,  judgment  is  to 
be  entered  on  the  verdict  of  the  jury;  otherwise,  judgment  is  to  be 
entered  on  the  verdict  entered  by  the  court." 

Without  decision  we  assume  the  shareholders  in  the  voluntary  as- 
sociation operating  under  the  declaration  of  trust  set  out  in  full  in 
the  report  were  partners  as  to  all  creditors,  who  did  not  expressly 
or  impliedly  contract  only  to  look  to  the  funds  or  property  of  the  as- 
sociation for  the  payment  of  any  debt,  damage,  or  decree  which  might 
become  due  or  payable  to  them.    Williams  v.  Milton,  215  Mass.  1,  102 


100  s^^^LE^rE^■TARY  list  of  cases  ox  PARTXEusnir 

N.  E.  355;  Frost  v.  Thompson,  219  ^lass.  360,  106  N.  E.  1009;  Hus- 
sey  V.  Arnold,  185  IMass.  202.  70  N.  E.  87;  Rand  v.  Farquhar,  226 
Mass.  91.  115  N.  E.  286. 

The  plaintiff  on  Jvily  23,  1918,  was  retained  to  act  for  the  associa- 
tion, as  an  attorney  at  law,  by  the  general  manager  and  treasurer  with 
the  knowledge  and  assent  of  the  trustees  in  whom  the  power  to  em- 
ploy counsel  was  placed  by  the  declaration  of  trust.  He  acted  in  this 
capacity  for  a  period  of  nearly  a  year, — about  half  his  time  being  tak- 
en up  with  such  work.  He  was  consulted  with  the  utmost  frequency 
and  often  at  great  length  by  the  president,  treasurer,  and  general  man- 
ager, all  of  whom  were  trustees  or  became  such  shortly  after  his  first 
employment.  Some  of  the  shareholders,  though  not  all,  became  ac- 
quainted with  the  employment  of  the  defendant,  and  made  no  objec- 
tions. He  received  some  payments  through  the  treasurer.  He  made 
no  demand  on  the  shareholders  individually  and  gave  them  no  intima- 
tion that  he  held  them  liable  for  his  services,  until  August,  1919.  When 
this  action  was  brought,  a  mortgage  covering  the  property  of  the  com- 
pany had  been  foreclosed  and  the  company  was  without  assets.  It  was 
not  until  after  this  situation  had  arisen  that  the  plaintiff  decided  to 
sue  the  shareholders. 

From  the  beginning  of  his  ejnployment  the  plaintiff  knew  the  con- 
tents of  the  declaration  of  trust  and  knew  therefrom  that  the  defend- 
ants intended  not  to  be  partners  and  believed  that  they  were  not  per- 
sonally liable  for  the  acts  of  the  trustees  in  conducting  the  business  of 
the  association  under  the  terms  of  the  trust  agreement.  Danforth  v. 
Allen,  8  Mete.  334.  The  plaintiff  had  knowledge  that  the  declaration 
of  trust  provided  that  "the  trustees  shall  have  no  power  to  bind  the 
shareholders  personally,  and  all  persons,  associations  or  corporations 
extending  credit  to,  contracting  with,  or  having  any  claim  against 
the  trustees  shall  look  only  to  the  funds  or  property  of  the  association 
for  payment  of  any  debt,  damage,  judgment  or  decree,  or  any  money 
that  may  otherwise  become  due  or  payable  to  them  from  the  trustees, 
so  that  neither  the  trustees  nor  the  shareholders  present  or  future 
shall  be  personally  liable  under  or  by  reason  of  such  order,  contract 
or  obligation." 

There  is  nothing  contrary  to  the  law  as  hereinbefore  declared  or 
to  public  policy  which  inhibits  an  agreement  that  a  creditor  in  case 
of  default  in  payment  shall  look  exclusively  to  a  fund  for  his  reim- 
bursement. Hussey  v.  Arnold,  supra.  And  there  is  no  decision  cited 
by  the  plaintiff  or  found  by  us  that  prohibits  the  doing  of  business 
through  an  agent  with  a  limitation  upon  the  individual  liability  of  the 
principal,  if  the  person  who  deals  with  such  an  agent  does  so  with 
knowledge  of  the  limited  authority  of  that  agent.  Williams  v.  Mil- 
ton, 215  Mass.  1,  6,  102  N.  E.  355.  We  perceive  no  reason  why  the 
rule  that  one  who  deals  with  an  agent  with  knowledge  of  his  limited 
powers  does  so  at  his  peril  is  not  ap])licable  to  dealings  with  the  agent 
tjf  a  copartnership,  when  the  agent  is  also  a  partner.     Uniform  Laws 


SUPPLEMENTAKY    LIST   OF   CASES   ON    PARTNERSniP  t^'" 

Relative  to  Partnership  (St.  1922,  c.  486)   §  9;    Mussey  v.  Beecher. 
3  Cush.  511;   Vickery  v.  Richardson,  189  Mass.  53,  55,  75  N.  E.  136. 
It  follows  that,  in  the  terms  of  the  report,  judgment  is  to  be  entered 
on  the  verdict  entered  by  the  court.    So  ordered. 


BARNETT  ct  al.  v.  CISCO  B.ANKING  CO.  et  al. 
(Court  of  Civil  Appeals  of  Texas,  192.'j.     2".:;  S.  W.  :;:;!).) 

Action  by  the  Cisco  r)ankin,i;  Company  against  E.  R.  Wolcott  and 
others,  in  wliich  defendants,  by  special  answer,  set  up  liability  of  J. 
W.  Barnett  and  others,  who  answered  as  defendants.  From  judge- 
ment for  plairitiff,'  the  last-named  defendants  appeal. 

HiGoiNS,  J.  The  Cisco  Bankinj:^  Company  brought  this  suit  upon  ; 
promissory  note  of  the  Imperial  Oil  &  Development  Company,  an 
association  operating  under  a  declaration  of  trust,  executed  by  its  trus- 
tees E.  R.  Wolcott,  S.  A.  Sauls  and  James  L.  Shepherd,  in  the  name 
of  the  company;  said  note  bemg  also  signed  by  Wolcott,  Sauls,  and 
Shepherd  in  their  personal  capacities  as  sureties.  The  note  was  to 
the  order  of  plaintiff  and  dated  Se])tember  6,  1920. 

The  suit  was  brought  against  said  makers  to  recover  upon  the  note 
and  for  foreclosure  of  liens  securing  the  same.  J.  J.  Albin,  W.  E.' 
Putman,  and  H.  W.  McGee  were  joined  as  parties  defendant,  under 
the  allegation  that  they  were  claiming  some  interest  in  the  property 
upon  which  foreclosure  was  sought. 

The  note  sued  upon  was  given  in  renewal  of  a  note  of  the  associa- 
tion. When  the  original  note  matured,  the  bank  declined  to  renew 
the  same  except  upon  the  condition  that  Wolcott,  Sauls,  and  Shep- 
herd assume  personal  liability  upon  the  renewal  note,  which  they  did 
by  signing  in  their  personal  capacity  as  sureties. 

Wolcott,  Sauls,  and  Shepherd  (hereinafter  designated  appellees) 
hy  special  answer  set  up  that  the  Imperial  Oil  &  Development  Com- 
pany was  a  joint  stock  company,  doing  business  under  a  pretended 
declaration  of  trust,  with  sole  powers  in  the  trustees,  but  in  fact  the 
same  was  a  partnership  and  liable  as  such;  that  J.  W.  Barnett  and 
many  others,  naming  them  (hereinafter  designated  appellants)  were 
.  the  partners  and  as  such  primarily  liable  upon  the  note  sued  upon, 
and  appellees  sureties  thereon  and  secondarily  liable  only,  and  that 
since  December  20,  1920,  Shepherd  had  ceased  to  be  a  trustee  or  stock- 
holder in  the  company  and  had  no  interest  therein,  wherefore  they 
prayed  that  said  partners  be  made  defendants,  and  that  the  company 
and  said  partners  be  held  primarily  liable  and  appellees  secondarily 
liable,  and  judgment  be  rendered  and  execution  issued  accordingly. 
A  plea  in  abatement  in  due  order  was  also  tiled  by  appellees  suggest- 
ing a  defect  of  necessar}'  parties  defendants,  namely,  the  appellants. 
This  plea  was  based  upon  the  matters  set  up  in  the  special  answer  of 


108  SUPPLEMEXTAUY   LIST   OF   CASKS   ON    PAinXKUSIIIP 

appellees,  but  seems  not  to  have  been  insisted  upon,  as  the  records 
disclose  no  action  thereon. 

Appellants  answered,  setting  up  the  declaration  of  trust  and  attach- 
ing a  copy  thereof  to  their  answer  and  making  it  a  part  thereof  and 
claiming  exemption  from  liability  under  the  terms  of  the  instrument. 

Upon  trial  without  a  jury,  judgment  was  rendered  dismissing  as  to 
McGee  for  want  of  service;  in  favor  of  C.  D.  Payton  and  L.  C.  Pay- 
ton,  who  were  among  the  parties  vouched  in  by  aj^pellees ;  in  favor  of 
the  bank  for  the  amount  due  upon  the  note ;  and  with  foreclosure  of 
lien  against  the  Imperial  Oil  &  Development  Company,  Wolcott,  Sauls, 
Shepherd,  and  the  appellants,  as  principals,  and  also  against  Wolcott, 
Sauls,  and  Shepherd  as  sureties.  Judgment  of  foreclosure  was  also 
rendered  against  Albin  and  Putman.  For  any  deficiency  after  the 
sale  execution  was  directed  to  be  levied  first  upon  the  property  of  the 
Imperial  Oil  &  Development  Company ;  second,  the  property  of  the 
partners ;  third,  upon  the  property  of  the  sureties  Wolcott,  Sauls,  and 
Shepherd. 

The  material  facts  controlling  the  rights  of  the  parties  are  undis- 
puted ajid  are  as  follows :  The  trust  agreement  is  dated  December 
23,  1918,  and  was  executed  by  a  number  of  persons,  among,  them, 
Wolcott,  Sauls,  and  W.  C.  Houston,  who  were  made  the  first  trus- 
tees. Shepherd  subsec|uently  succeeded  Houston  as  trustee.  Sections 
1  and  2,  art.  X,  of  the  declaration  of  trust  reads  as  follows : 

(1)  "The  trustees  shall  have  no  power  to  bind  the  shareholders  per- 
sonally, and  the  subscribers  and  their  assigns  and  all  persons  and  cor- 
porations extend  to,  contracted  with,  or  having  any  claim  against  the 
trustees,  shall  look  only  to  the  funds  and  property  of  the  trust  for 
payment  under  such  contract  or  claim,  or  for  the  payment  of  any  debt, 
damage,  judgment,  or  any  money  that  may  otherwise  become  due  or 
payable  to  them  from  the  trustees,  so  that  neither  the  trustees,  nor 
shareholders,  present,  or  future,  shall  be  personally  liable  by  reason 
of  such  order,  contract,  or  obligation." 

(2)  "In  every  written  instrument,  order,  or  obligation  which  the 
trustees  shall  give  or  enter  into,  it  shall  be  the  duty  of  the  trustees,  to 
stipulate  that  neither  the  trustees  nor  the  shareholders  shall  be  held 
personally  liable  by  reason  of  such  order,  contract,  or  obligation." 

Wolcott,  Sauls,  and  Shepherd  were  stockholders  in  and  trustees  of 
the  company  when  the  note  sued  upon  was  made.  A])pellants  were 
stockholders  when  the  note  was  executed. 

In  support  of  the  judgment,  appellees  assert  that  tlie  trust  agree- 
ment was  ineffective  to  create  a  so-called  Massachusetts  or  common- 
law  trust  because  the  instrument  does  not  make  the  trustees  the  abso- 
lute masters  of  the  trust  estate;  the  stockholders  therefore  are  liable 
as  partners  and  the  stipulation  in  the  trust  agreement  relieving  them 
from  personal  liability  upon  the  obligations  of  the  company  is  con- 
trary to  law  and  public  policy  and  consequently  void. 

So  far  as  concerns  the  rights  of  third  persons  dealing  with  the  com- 


SUI'TMOMKNTAKY    I.IST   OF   CASES   ON    PA  UTNKUSII II'  109 

pany  it  may  be  assumed  that  this  position  is  correct  but  no  such  ques- 
tion is  presented.  The  Cisco  Bank  sought  no  reHef  in  the  court  be- 
low against  these  appelhmts  and  has  filed  no  brief  in  this  court  in  sup- 
port of  the  judgment  rendered. 

The  parties  seeking  to  impose  a  personal  liability  upon  these  ap- 
pellants, and  at  whose  instance  the  same  was  imposed,  are  the  trustees. 

We  know  of  no  rule  of  law,  or  principle  uf  jiublic  jjolicy,  which 
would  preclude  partners  as  between  themselves  from  agreeing  that  the 
managing  partners  would  have  no  power  to  bind  the  partners  jjerson- 
ally,  and  that  every  written  obligation  which  the  managing  partners 
might  enter  into  should  stipulate  that  the  partners  should  not  be  per- 
sonally liable  thereon.  On  the  contrary,  we  are  of  the  opinion  that 
such  an  agreement  as  between  the  partners  themselves  is  valid  and 
binding.  \\eUs  v.  Tel.  Co.  (Tex.  Civ.  App.)  239  S.  W.  1001;  IIos- 
sack  V.  Ottawa  Dev.  Co.,  2-^4  111.  274,  91  N.  E.  439. 

This  is  based  upon  the  rule  that,  in  -general,  partners  as  between 
themselves  may  make  such  lawful  stipulations  as  they  see  fit.  Con- 
tracts of  this  nature  may  be  inefi^ective  so  far  as  concerns  the  rights 
of  third  persons,  but  are  none  the  less  binding  upon  the  parties  them- 
sehes.     Parsons  on  Fart.  232. 

The  trust  agreement  constitutes  the  articles  of  partnership  and 
makes  the  trustees  the  managing  partners.  If  in  fact  the  note  sued 
upon  imposed  in  favor  of  the  plaintiff  a  personal  liability  against  the 
appellants,  then  such  liability  was  imposed  by  the  trustees  contrary  to 
the  partnership  agreement  and  regardless  of  the  duty  imposed  upon 
them  to  stipulate  in  every  written  obligation  entered  into  that  no  per- 
sonal liability  should  attach  to  the  stockholders.  The  action  of  the 
trustees  in  this  matter  breached  the  partnership  stipulations.  It  was 
misconduct  which  would  subject  them  to  personal  liability  for  any  loss 
which  the  other  partners  might  sustain  thereby.     30  Cyc.  453. 

Since  the  plaintiff  in  this  case  is  asking  no  relief  against  these  ap- 
pellants, the  trustees,  for  their  own  benefit  and  protection,  cannot  in- 
voke the  rules  of  law  upon  which  they  seek  to  sustain  this  judgment, 
and  the  judgment  rendered  against  these  appellants  is  unwarranted. 

It  is  contended  that  appellants'  pleadings  are  insufficient.  It  is  a 
sufiicient  reply  to  this  to  say  that  a  copy  of  the  trust  agreement  was 
attached  to  and  made  a  part  of  the  answer.  The  facts  are  fully  plead- 
ed, and  that  is  all  that  is  necessary.  It  was  not  necessary  that  an  es- 
toppel in  pais  be  pleaded.  The  charter  of  appellants'  rights  against 
the  trustees  is  the  trust  agreement.  That  is  the  contract  which,  as 
between  the  appellants  and  the  trustees,  protects  the  former  from  the 
consequences  resulting  from  the  latter's  breach  of  its  provisions. 

The  judgment  of  the  court  below  will  be  reversed,  and  judgment 
here  rendered  in  favor  of  appellants.  In  all  other  respects  the  judg- 
ment of  the  court  below  will  remain  undisturbed. 

Costs  of  appeal  are  taxed  against  Wolcott.  Sauls,  and  Shepherd. 
Reversed  and  rendered,  as  indicated. 


110  SUPPLEMENTARY   LIST  OF   CASES   ON    PARTNERSHIP 

HAYES  MOTOR  TRUCK  A\^HEEL  CO.  v.  WOLFF  et  al. 
(Supreme  Court  of  Wisconsin,  1921.    175  Wis.  501,  185  N.  W.  512.) 

Action  by  the  Hayes  ]\Iotor  Truck  Wheel  Company  against  Her- 
man Wolff  and  others,  copartners  doing  business  as  the  Ton-A-Ford 
Truck  Company.     From  a  judgment  for  defendants,  plaintiff  appeals. 

Action  to  recover  the  purchase  price  of  a  certain  number  of  truck 
wheels  sold  to  the  defendants,  who  it  is  alleged  were  doing  business 
as  copartners  under  the  name  of  the  Ton-A-Ford  Truck  Company. 
The  answers  denied  that  defendants  were  copartners,  and  alleged  they 
were  operating  under  a  certain  trust  agreement,  duly  recorded  in  the 
office  of  the  register  of  deeds  of  Racine  county,  under  which  agree- 
ment they  were  relieved  from  personal  liability.  The  trial  court  found 
that  defendants  were  copartners,  that  they  were  not  operating  under 
the  trust  agreement,  that  plaintifif  had  no  notice  of  the  same,  and  that 
all  the  appealing  defendants  'were  holders  of  certificates  of  stock  in 
the  company  at  the  time  the  indebtedness  was  incurred.     *     *      * 

ViNjE,  J.^*  The  trial  court  correctly  concluded  that  the  defendants 
were  copartners,  so  far  as  the  plaintifif's  claim  was  concerned,  for, 
conceding  the  validity  of  the  trust  agreement,  they  never  held  them- 
selves out  as  doing  business  thereunder.  It  is  therefore  not  necessary 
to  set  out  the  terms  thereof,  nor  to  pass  upon  its  validity.  The  clause 
quoted  from  theii;  letter  would  indicate  that  the  Ton-A-Ford'  Com- 
]:)any  was  a  corporation,  for  in  Carpenter  v.  McCord  Lumber  Co., 
107' Wis.  611,  83  N.  W.  764,  it  was  held  that  a  defendant,  sued  as  the 
AlcCord  Lumber  Company,  was  intended  to  be  sued  as  a  corporation, 
sufficiently  appeared  from  its  name.  Here  we  not  only  have  a  corpo- 
rate name,  but  the  letter  speaks  of  the  officers  and  shareholders'  of 
the  company.  But  defendants  were  not  incorporated,  and,  since  they 
did  not  hold  themselves  out  as  operating  under  a  trust  agreement, 
they  were  as  to  plaintifif  copartners,  individually  liable  for  the  debts 
of  the  concern  contracted  while  they  were  partners  thereof.  Bartelt 
v.  Smith,  145  Wis.  31,  129N.  W.  782,  Ann.  Cas.  1912A,  1195.    *    *    * 


CREHAN  V.  MEGARGEL  et  al. 
(Court  of  Appeals  of  New  York,  1922.     234  N.  Y.  G7,  136  N.  E.  296.) 

Action  by  Mark  H.  Crehan  against  Ralph  C.  Megargel  and  others. 
From  a  judgment  of  the  Appellate  Division  (199  App.  Div.  649,  192 
N.  Y.  Supp.  290),  reversing  an  order  of  the  Special  Term,  and  sus- 
taining demurrers  to  the  complaint,  plaintifif  appeals. 

HiscocK,  C.  J.^*     This  action  is  brought  against  defendants  as  al- 

18  Part  of  the  statement  of  facts  and  part  of  the  opinion  are  omitted. 
i»  I'arts  of  the  opinion  are  omitted. 


SUPPLEMENTART    LIST   OF   CASES   ON*   PARTNERSHIP  HI 

leged  members  of  the  firm  of  Megargel  &  Co.  to  recover  upwards  of 
$500,000  damages  for  breach  of  contract  made  by  said  copartnership 
in  the  state  of  Massachusetts  to  carry  out  certain  stock  transactions 
for  plaintiff.  The  complaint  sets  forth  four  separate  causes  of  action, 
each  one  dealing  in  diff'ercnt  form  with  the  same  transactions  and  al- 
leged defaults,  and  each  is  demurred  to  by  every  defendant  on  various 
grounds,  including  the  one  that  it  does  not  state  facts  sufficient  to  es- 
tablish any  liability.  The  latter  ground  of  demurrer  is  the  only  one 
which  we  deem  it  necessary  to  consider  and  in  this  connection  we  shall 
not  review  in  detail  all  of  the  allegations  of  the  complaint,  for  their 
sufficiency  as  setting  forth  a  cause  of  action  against  the  defendants  of 
the  character  indicated  is  so  clear,  except  at  two  points,  that  it  is  un- 
necessary to  do  this.  We  shall  confine  ourselves  to  outlining  tho.se  al- 
legations which  present  the  interesting  points  in  the  case  which  re- 
quire discussion,  and  it  will  be  assumed  that  the  complaint  in  other  re- 
spects is  sufficient  under  its  allegations  to  set  forth  a  cau^^e  of  action. 
*     *    * 

The  other  two  counts  *  *  *  attempt  to  set  forth  a  cause  of  ac- 
tion against  the  defendants  on  the  theory  that,  through  failure  to  com- 
ply with  the  statutes  of  this  state  governing  the  organization  of  limited 
partnerships,  they  have  become  liable  as  general  partners  in  the  copart- 
nership of  Megargel  &  Co.  These  allegations  are  to  the  effect  that 
the  attempt  was  made  in  this  state  to  organize  said  limited  copartnership 
with  the  defendant  Ralph  Megargel  as  a  special  partner;  that  the 
other  defendants  really  furnished  the  capital  which  he  nominally  con- 
tributed as  such  special  partner ;  that  the  certificate  and  affidavit  made 
and  filed  as  required  in  the  case  of  the  organization  of  a  limited  part- 
nership were  not  sufficient  or  truthful ;  and  that,  therefore,  said  other 
defendants  became  subject  to  the  penalty  imposed  by  section  34  of  the 
Partnership  Law  (Consol.  Laws,  c.  39)  which  provides  that,  "if  any 
false  statement  be  made  in  any  such  certificate  or  affidavit,  made  either 
upon  the  formation  or  renewal  or  continuance  *  *  *  of  such  part- 
nership *  *  *  the  persons  interested  therein  shall  all  be  liable  as 
general  partners." 

The  controlling  question  here  is  the  one  whether  defendants  were 
"persons  interested,"  and  thus  became  liable  as  members  of  the  copart- 
nership in  the  manner  claimed,  and  we  shall  consider  first  the  two  counts 
presenting  this  question. 

The  arrangement  under  which  the  other  defendants  furnished  to 
Megargel  the  money  which  he  contributed  to  the  limited  partnership 
was  set  forth  in  a  written  agreement,  and  while  the  complaint  contains 
certain  allegations  to  the  effect  that  said  arrangement  was  invalid  and 
an  unlawful  and  ineffectual  device  to  evade  the  law^  regulating  the  for- 
mation of  limited  partnerships,  and  that  these  defendants  and  not  Me- 
gargel contributed  the  capital  and  became  interested  in  the  copartner- 
ship, these  allegations  as  made  are  the  statements  of  mere  legal  con- 
clusions, and  the  sufficiency  of  plaintiff's  complaint  is  to  be  tested  by 


112  SrPPLEMEXTAUY    LIST    OF   CASES    ON    PAUT.\1:KSII  IP 

the  agreement  itself,  which  is  not  eitcctively  contradicted,  altered,  or 
condemned,  if  otherwise  valid,  by  any  of  said  allegations.  We  there- 
fore turn  to  it  for  the  purpose  of  determining  whether  under  it  de- 
fendants, other  tlian  Megargel,  became  "persons  interested"  in  the 
partnership,  so  as  to  become  liable  as  general  partners,  when  there  was 
failure  to  comply  with  the  statute  governing  the  organization  of  limited 
partnerships. 

The  agreement  is  too  long  to  be  quoted,  or  even  to  be  summarized, 
except  in  the  briefest  manner  possible,  having  in  view  the  controlling 
features.  It  provided  for  the  payment  by  the  other  parties,  who  in- 
cluded these  defendants,  of  certain  sums  of  money  to  Megargel  under 
a  trust  by  which  he  was  to  contribute  saicf  moneys  as  his  capital  in  a 
special  partnership  to  be  organized.  First,  as  between  him  and  the 
other  members  of  said  proposed  partnership  said  moneys,  whep  received, 
were  to  be  contributed  "in  his  own  name  and  as  his  sole  and  individual 
special  capital"  to  the  partnership.  He  and  the  moneys  so  contributed 
Avere  in  all  respects  to  be  subject  to  the  provisions  of  the  partnership 
agreement,  which  w^as  annexed  to  the  trust  agreement,  and  to  all  laws 
governing  such  a  partnership,  and  the  subscribers  (these  defendants) 
were  to  "have  no  right  of  accounting  or  other  rights  whatsoever 
against  the  said  partnership,  *  *  *  "'  but  were  "in  all  respects  [to] 
be  strangers  thereto,"  and  "as  regards  the  trust  property  and  estate  or 
any  of  the  rights  and  interest^  guaranteed"  they  should  "look  only  to 
the  party  of  the  second  part  [Megargel]  or  his  representatives,"  ex- 
cept that,  in  the  event  a  dissolution  of  the  partnership  should  be  caused 
by  the  death  of  Megargel  and  the  consequent  termination  of  the  trust 
created,  the  subscribers  were  entitled  to  receive  from  the  survivors 
of  the  partnership  the  amount  of  special  capital  that  might  remain 
after  final  liquidation  of  the  business  thereof.  Second,  as  between 
Megargel  and  the  subscribers  (defendants)  the  relation  of  trustee  and 
cestui  que  trust  was  created.  ^Megargel,  on  payment  to  him  of  the  re- 
spective amounts  subscribed,  was  to  issue  receipts  to  the  several  sub- 
scribers, of  which  receipts  a  registry  and  record  were  to  be  kept.  "Up- 
on the  receipt  by  him  of  any  interest  or  profits  to  which  he  might  [may] 
be  entitled  as  special  partner  as  aforesaid,"  the  same  forthwith  were 
to  be  distributed  through  the  agency  of  a  trust  company  amongst  the 
registered  holders  of  said  receipts.  Various  provisions  were  made  for 
protecting  and  safeguarding  the  relations  between  Megargel  and  the 
subscribers,  but  all  of  these  were  based  upon  a  relationship  of  the  co- 
partnership solely  with  Megargel  as  special  partner,  and  none  of  them 
in  any  manner  qualified  that  exclusive  relationship,  or  brought  the  sub- 
.scribers  into  the  slightest  relationship  with  the  copartnership,  or  the 
members  thereof  other  than  Megargel,  or  gave  them  any  voice  in  or  su- 
pervision over  the  afifairs  of  said  copartnership. 

It  was  primarily  provided  that  this  relation  and  condition  between 
Megargel  and  the  subscribers  were  to  continue  for  five  years,  but  the 
further  provision  was  made  between  the  subscribers  that,  if  it  should 


.ST'PPLKMKNTAUY    LIST   OK  CASKS    O.N    r'AUTNT.KSIIIP  113 

be  terminated  by  the  death  of  Megargel  within  that  time,  on  the  con- 
sent of  the  surviving  members  of  the  partnership  and  the  agreement 
of  not  less  than  51  i^er  centum  in  amount  of  the  subscribers,  a  new  hm- 
ited  or  s^jccial  partnership  might  be  formed  with  a  new  special  partner. 

For  the  purpose  of  establishing  that  under  this  agreement  the  sub- 
scribers became  "interested"  in  the  partnership,  plaintiff  seelyS  to  bring 
to  his  aid  two  different  theories  of  this  agreement — one  that.it  is  a 
valid  instrument  as  between  the  parties,  to  be  construed  as  it  is  writ- 
ten ;  the  other,  that  it  is  invalid  as  providing  for  an  undue  suspension 
of  the  ownership  of  the  property  thereby  covered. 

Pursuing  the  first  theory,  the  basis  of  plaintiff's  claim  is  the  provision 
in  the  Partnership  Law  relating  to  limited  partnerships  already  refer- 
red to,  and  which  provides  that  if  any  false  statement  be  made  in  the 
certificate  or  afiklavit  essential  to  the  formation  of  such  a  partnership, 
"the  persons  interested  therein  shall  all  be  liable  as  general  partners." 
Then  planting  himself  upon  this  provision  he  says:  "The  essential 
claim    ='=  *     in  this  case  is  that  these  defendants  are  the  ones  who 

actually  contrilmted  the  special  capital  to  the  partnership  of  Megargel 
&  Co.,"  and  each  of  said  defendants  "had  a  legal  interest  in  said  alleged 
limited  partnership  as  a  special  partner  therein  at  the  time  of  its  at- 
jtcmpted  formation." 

Thus  the  fundamental  ([uestion  becomes  one  of  interpretation  of 
the  words  "persons  interested,"  in  the  statute  just  quoted,  as  a  means 
of  reaching  the  decision  whether  these  defendants  were  such  persons 
interested,  and  who  therefore  became  liable  as  general  partners,  be- 
cause of  false  certificates  and  false  affidavits  as  alleged  in  the  complaint. 

In  the  consideration  of  defendants'  liability,  counsel  have  discussed 
the  somewhat  general  ciuestion  whether  the  words  "persons  interested" 
in  the  statute  should  ever  be  interpreted  to  mean  any  one  other  than  he 
who  would  be  a  general  partner  unless  he  secured  a  limited  liability 
under  the  statutes  by  compliance  with  the  terms  thereof.  Under  the 
claims  advanced  by  plaintiff',  we  think  that  the  controversy  before  us 
may  be  decided  by  the  determination  of  what  is  perhaps  a  more  con- 
crete question.  If  the  defendants  other  than  Megargel  did  not  con- 
tribute capital  to  the  limited  partnership  in  the  sense  claimed  by  plain- 
tiff', then  we  fail  to  see  how  on  any  theory  they  were  'persons  inter- 
ested" within  a  reasonable  interpretation  of  the  statute.  We  do  not 
think  that  they  did  contribute  special  capital  to  the  partnership  in  any 
such  manner  or  with  any  such  result  as  is  claimed. 

Clearly  they  did  not  contribute  capital  in  the  manner,  under  the  con- 
ditions and  with  the  results  contemplated  by  the  statute  as  necessary-  to 
establish  the  status  of  a  special  partner.  The  statute  provides  that  one 
who  desires  to  enter  a  copartnership  as  a  special  partner  shall  not  only 
contribute  in  his  own  name  a  specific  sum  as  capital,  but  that  he  shall 
establish  his  status  and  relationship  with  the  other  individuals  who  are 
to  be  copartners  by  entering  into  an  agreement  with  them,  which  is  to 
Si  rp.(iiT..rART.— s 


114  SUPPLEMENTARY   LIST   OF   CASES   ON   PARTNERSHIP 

be  filed,  recorded,  and  published,  and  in  which,  amongst  other  things, 
is  to  be  stated  the  nanies'of  all  the  partners,  including  the  special  part- 
ner and  the  amount  of  capital  which  such  special  partner  has  contrib- 
uted ;  that  the  name  of  the  special  partner  shall  be  posted,  and  that  he 
shall  ha\e  certain  rights  to  examine  into  the  state  and  progress  of  the 
partnership  business  and  advise  as  to  its  management,  and  to  receive 
interest  and  profits  on  his  investment.  These  defendants  come  within 
none  of  these  provisions.  As  between  them  and  the  other  members 
of  the  copartnership  they  made  no  contribution  of  capital,  signed  no 
partnership  agreement,  and  established  no  relationship  with  the  co- 
partnership, but  were  expressly  debarred  therefrom,  and  secured  no 
benefit  from  such  copartnership,  except  as  it  might  come  in  an  indirect 
way  through  accountability  of  the  special  partner  for  the  profits  which 
he  had  received  from  the  copartnership.  On  the  face  of  the  written 
agreement  they  were  wholly  disconnected  from  the  partnership  and 
ntter  strangers  to  its  members,  its  afifairs,  and  its  capital,  save  in  the 
one  instance  that,  in  case  of  the  death  of  their  trustee  and  the  dissolu- 
tion of  the  firm,  they  were  entitled  to  receive  from  the  firm  the  resi- 
due, if  any,  of  the  moneys  to  which  their  trustee  would  have  been  enti- 
tled, if  living.  But  this  was  the  arrangement  which  equity  would  have 
enforced  without  any  specific  agreement  and  did  not  change  the  effect 
of  their  agreement. 

-  Neither  did  they  in  our  opinion  contribute  capital  in  a  manner  which, 
while  not  such  as  contemplated  by  the  words  of  the  statute,  neverthe- 
less came  within  its  spirit  and  purpose.  Of  course,  we  do  not  intend 
to  negative  the  proposition  made  by  the  plaintiff  that  an  arrangement 
might  be  made  by  one  who  was  not  named  as  special  partner  which 
would  be  so  designed  to  evade  the  statute  and  give  him  the  rights  of 
that  status  that  he  would  be  held  liable  under  the  penalties  of  the 
law.  Such  was  the  basis  of  the  decision  in  Buckley  v.  Lord,  24  How. 
Prac.  455,  greatly  relied  on  by  the  plaintiff.  The  court  held  in  that 
case  that  the  person  sought  to  be  charged  with  a  general  liability  had 
attempted  to  evade  the  law  by  what  was  characterized  a  "flimsy  con- 
trivance to  evade  the  statute,"  and,  whether  this  interpretation  of  the 
facts  was  correct  or  not,  that  was  the  theory  on  which  the  defendant 
was  held. 

No  such  situation  is  presented  to  us  by  the  present  complaint.  While, 
as  we  have  stated,  there  are  various  allegations  of  liability  upon  the 
part  of  the  defendants  under  the  statute,  these  are  conclusions  based 
upon  an  interpretation  of  a  written  instrument,  and  that  instrument, 
read  as  it  is  written,  establishes  between  the  subscribers  and  the  part- 
nership no  contribution  of  capital,  no  relation  of  partners,  and  no  con- 
tact with  or  supervision  over  partnership  affairs.  The  trust  is  an  in- 
surmountable barrier  raised  between  them  and  the  partnership  and 
separating  them  from  an  interest  in  its  affairs,  and  it  seems  to  us  to 
be  a  valid  arrangement,  and  to  come  within  the  principles  which  have 
heen  approved  both  by  eminent  text-writers  and  the  decisions  of  vari- 


SUPPLEMENTARY    LIST   OF   CASES   ON    PARTNERSHIP  ll5 

ous  jurisdictions  in  the  case  of  so-called  commercial  or  business  trusts 
as  substitutes  for  business  corporations.  Burdick  on  Partnerships 
(3d  ICd.)  p.  43  et  seq. ;  Thompson  on  Business  Trusts,  etc.,  p.  28; 
Rhode  Island  HosiMtal  Trust  Co.  v.  Copeland,  39  R.  I.  193.  98  Atl.  273 ; 
Wilhams  v.  Milton,  215  Mass.  1,  102  X.  E.  355;  Home  Lumljcr  Co. 
V.  Hopkins,  107  Kan.  153,  190  Pac.  601. 

Nor,  if  that  could  be  potential  to  change  our  outlook,  are  we  able  to 
perceive  that  this  view  results  in  any  defeat  of  a  public  policy  as 
evinced  in  the  statute  relating  to  limited  partnerships.  The  object  of 
that  statute  and  its  predecessors  in  enactment  was  to  provide  for  a 
combination  of  capital  and  skill,  and  to  enable  those  who  had  the  former 
to  contribute  it  to  a  partnership  without  other  liability  than  loss  of 
their  investment,  so  long  as  they  complied  with  the  statute  and  re- 
frained from  exercising  the  powers  and  privileges  of  general  partners. 
The  interest  of  a  creditor  like  the  plaintiff  is  that  the  special  capital 
shall  be  honestly  and  fully  contributed  as  provided  by  the  statute,  and 
he  has  no  legal  or  direct  interest  in  the  identity  of  the  special  partner, 
so  long  as  he  contributes  his  capital  and  observes  all  of  the  require- 
ments of  the  statute.  White  v.  Eiseman,  134  N.  Y.  101,  31  X.  E.  276; 
Webster  v.  Lanum,  137  Fed.  376,  70  C.  C.  A.  56.  We  fail  to  see  how 
he  is  interested  in  the  fact  that  the  special  partner  has  borrowed  the 
capital  which  he  contributes,  or  has  received  it  under  some  other  form 
of  arrangement  even  less  compelling  upon  him  than  a  loan,  so  long  as 
the  arrangement  does  not  result  in  a  violation  or  evasion  of  the  stat- 
ute and  of  the  requirement  tjiat  the  special  capital  shall  be  contributed 
and  that  the  special  partner  shall  not  assume  the  status  of  a  general 
partner.     *     *     * 

Thus  we  are  led  to  the  conclusion  that  in  the  statement  of  the  two 
causes  of  action  which  we  have  been  discussing  the  complaint  does  not 
state  facts  sufficient  to  show  any  liability  upon  the  part  of  any  of  the 
respondents,  except  the  respondent  Megargel.    *    *    * 


APPENDIX 


UNIFORM  PARTNERSHIP  ACT  ' 


EXPLANATORY  NOTE 

The  subject  of  a  uniform  law  on  partnership  was  taken  up  by  the 
Conference  of  Commissioners  on  Uniform  Slate  Laws  in  VJ02,  and 
the  Committee  on  Commercial  Law  was  instructed  to  employ  an  expert 
and  prepare  a  draft  to  be  submitted  to  the  next  annual  Conference. 
(See  Am.  15ar  Ass'n  Report  for  V)02,  p.  477.)  At  the  meeting  in  1903 
the-committee  reported  that  it  had  secured  the  services  of  James  liarr 
Ames,  Dean  of  the  Law  School  of  Harvard  University,  as  expert  to 
draft  the  act.    (See  Am.  Bar  Ass'n  Report  for  1903,  p.  501.) 

In  1003  the  Committee  on  Commercial  Law  reported  progress  on 
this  subject,  and  a  resolution  was  ])assed  by  the  Conference,  direct- 
ing that  a  draft  be  prepared  u])on  tlie  mercantile  theory.  ( See  Am. 
Bar  Ass'n  Reports,  190.5,  pp.  731-73.S.)  And  in  1909  the  committee 
reported  that  it  had  in  its  hands  a  draft  of  an  act  on  this  subject  which 
draft  was  recommitted  to  the  committee  for  revision  and  amendment, 
with  directions  to  rei)ort  to  the  next  Conference  for  discussion  and  ac- 
tion.   (See  Report,  C.  U.  S.  L.  1906,  p.  40.) 

In  1907  the  matter  was  brought  before  the  Conference  and  post- 
poned until  the  1908  meeting.  (See  Report,  C.  U.  S.  L.  1907,  p.  93.) 
In  1908  the  matter  was  discussed  by  the  Conference.  (See  Am.  Bar 
Ass'n  Reports,  1908,  pp.  983,  1048.)'  And  in  1909  the  Second  Tenta- 
tive Draft  of  the  Partnership  Act  was  introduced  and  discussed.  (See 
page  1081  of  Am.  Bar  Ass'n  Reports  for  1909.) 

In  1910  the  Committee  reported  that  on  account  of  the  death  of 
Dean  Ames  no  progress  had  been  made;  but  that  Dr.  Wm.  Draper 
Lewis,  then  Dean  and  now  Professor  of  Law  at  the  Law  School  of 
the  University  of  Pennsylvania,  and  Mr.  James  B.  Lichtenberger,  of  the 
l^hiladelphia  I'ar,  had  prepared  a  draft  of  a  partnership  act  on  the  so- 
called  entity  idea,  with  the  aid  of  the  various  drafts  and  notes  of  Dean 
Ames,  and  that  they  had  also  submitted  a  draft  of  a  proposed  uni- 
form act,  embodying  the  theory  that  a  partnership  is  an  aggregate  of 
individuals  associated  in  business,  which  is  that  at  present  accepted 
in  nearly  all  the  states  of  the  Union.     (See  Report.  C.  U.  S.  L.  1910, 

I  Tho  notc.><  to  tlio  T'nifonn  rartncvsliip  .\i't  arc  n-priiiti-il  lu-re  throuirh  the 
oourtosy  of  it.><  rtnirtsiiiiiii,  William  Drapor  Lewis. 

Si   l'I'.(;ri,.I'A!!T.  (117) 


118  APl'KNDIX 

p.  142.)  Dean  Lewis  expressed  his  belief  that  with  certain  modifica- 
tions the  aggregate  or  common  law  theory  should  be  adopted.  A  res- 
olution was  passed  by  the  Conference  that  any  action  that  might  have 
theretofore  been  adopted  by  it,  tending  to  limit  the  Committee  on 
Commercial  Law  in  its  consideratiqn  of  the  partnership  law  to  what  is 
known  as  the  entity  theory,  be  rescinded  and  that  the  committee  be  al- 
lowed and  directed  to  consider  the  subject  of  partnership  at  large  as 
though  no  such  resolution  had  been  adopted  -by  the  Conference.  (See 
page  52.) 

In  the  fall  of  1910  the  committee  invited  to  a  Conference,  held  in 
Philadelphia,  all  the  teachers  of,  and  writers  on,  partnerships,  besides 
several  other  lawyers  known  to  have  made  a  special  study  of  the  sub- 
ject. There  was  a  large  attendance.  For  two  days  the  members  of 
the  committee  and  their  guests  discussed  the  theory  on  which  the  pro- 
posed act  should  be  drawn.  At  the  conclusion  of  the  discussion  the 
experts  present  recommended  that  the  act  be  drawn  on  the  aggregate 
or  common  law  theory,  with  the  modification  that  the  partners,  be 
treated  as  owners  of  partnership  property  holding  by  a  special  tenancy 
which  should  be  called  tenancy  in  partnership.  (See  section  25  of  the 
act  recommended.)  Accordingly,  at  the  meeting  of  the  Conference  in 
the  summer  of  1911,  the  committee  reported  that,  after  hearing  the 
discussion  of  experts,  it  had  vot'ed  that  Dean  Lewis  be  requested  to 
prepare  a  draft  of  a  partnership  act  on  the  so-called  common  law  the- 
ory.   (See  Report,  C.  U.  S.  L.  1911,  p.  149.) 

The  committee  reported  another  draft  of  the  act  to  the  Conference 
at  its  session  in  1912.  drawn  on  the  aggregate  or  common  law  theory, 
with  the  modification  referred  to.  x^t  this  session  the  Conference 
spent  several  days  in  the  discussion  of  the  act.  again  referring  it  to 
the  Committee  on  Commercial  I^w  for  their  further  consideration. 
(See  Report,  C.  U.  S.  L.  1912,  p.  67.) 

The  Committee  on  Commercial  Law  held  a  meeting  in  New  York 
on  March  29,  1913,  and  took  up  the  draft  of  the  act  referred  back  to 
it  bv  the  Conference,  and  after  careful  consideration  of  the  amend- 
ments suggested  by  the  Conference,  prepared  their  seventh  draft,  which 
was,  at  their  annual  session  in  the  summer  of  1913,  submitted  to  the 
Conference.  The  Conference  again  spent  several  days  in  discussing  the 
act  and  again  referred  it  to  the  Committee  on  Commercial  Law,  this 
time  mainly  for  perfection  in  form. 

The  Committee  on  Commercial  Law  assembled  in  the  City  of  New 
York,  September  21,  1914,  and  had  before  them  a  new  draft  of  the 
act,  which  had  been  carefully  prepared  by  Dr.  Wm.  Draper  Lewis  with 
valuable  suggestions  submitted  by  Charles  E.  Shepard,  Esq.,  one  of 
the  commissioners  from  the  State  of  Washington,  and  others  interested 
in  the  subject.  The  committee  reported  the  Eighth  Draft  to  the 
Conference  which,  on  October  14,  1914,  passed  a  resolution  recom- 
'  mending  the  act  for  adoption  to  the  legislatures  of  all  the  states. 

Uniformity  of  the  law  of  partnerships  is  constantly  becoming  more 


UMFOItNt    rARTN'RUSMIP    ACT 


110 


important,  as  the  number  of  firms  which  not  only  carry  on  business  in 
more  than  one  state,  but  have  among  the  members  residents  of  different 
states,  increases. 

It  is,  however,  proper  here  to  emiihasize  tlie  fact  that  there  are 
other  reasons,  in  addition  to  the  advantages  which  will  result  from 
uniformity,  for  the  adoption  of  the  act  now  issued  by  the  Commis- 
sioners. There  is  probably  no  other  subject  connected  with  our  busi- 
ness law  in  which  a  greater  number  of  instances  can  lie  found  where, 
in  matters  of  almost  daily  occurrence,  the  law  is  uncertain.  This  un- 
certainty is  due,  not  only  to  conflict  between  the  decisions  of  differ- 
ent states,  but  more  to  the  general  lack  of  consistency  in  legal  theory. 
In  several  of  the  sections,  but  especially  in  those  which  relate  to  the 
rights  of  the  partner  and  his  separate  creditors  in  partnership  property, 
and  to  the  rights  of  firm  creditors  where  the  personnel  of  the  partner- 
ship has  been  changed  without  liquidation  of  partnership  affairs,  there 
exists  an  almost  hopeless  confusion  of  theory  and  i)ractice,  making  the 
actual  administration  of  the  law  difficult  and  often  inequitable. 

Another  difficulty  of  the  present  partnership  law  is  the  scarcity  of 
authority  on  matters  of  considerable  im]>ortance  in  the  daily  conduct 
and  in  the  winding  up  of  partnership  affairs.  In  any  one  state  it  is 
often  impossible  to  find  an  authority  on  a  matter  of  comparatively  fre- 
(juent  occurrence,  while  not  infrequently  an  exhaustive  research  of  the 
reports  of  the  decisions  of  all  the  states  and  the  federal  courts  fails  to 
reveal  a  single  authority  throwing  light  on  the  question.  The  exist- 
ence of  a  statute  stating  in  detail  the  rights  of  the  partners  inter  se 
during  the  carrving  on  of  the  partnership  business,  and  on  the  winding 
up  of  partnership  aft'airs,  will  be  a  real  practical  advantage  of  moment 
t6  the  business  world. 

The  notes  which  are  printed  in  connection  with  this  edition  of  the 
Act  were  prepared  by  Dr.  Wm.  Draper  I^ewis,  the  draftsman.  They 
are  designed  to  point  out  the  few^  changes  in  the  law  which  the  adop- 
tion of  the  act  will  eft'ect,  and  the  many  confusions  and  uncertainties 
which  it  will  end. 

Walteti  Gkorgf,  Smith, 
Chairman,    Committee    on    Commercial    Law. 

T.TST  OF  niTNCTrAT.  Al'.TTCLES  TN  LEGAL  PERIODICALS  DISCUSSINr, 

THE  UNIFORM  PARTNERSHIP  ACT 
Tyowis.  W.  D.    Dosirahility  of  Expressing  the  Law  of  Partnorship  in  Statutory 

Form.     Univ.  of  Pa.L.  Rev.  00:9:-..     (1911) 
An  Act  to  Make  Uniform  the  Laws  of  Partnership.     1  A.  B.  A.  Jour.  ."WS. 

(191.".) 
Diseussiiin  of  the  Partnership  Act.     Leg.  Int.  72:11.     l'[M~^) 
The  Uniform  Partner.ship  Act.     Cent.  L.  J.     S0:4?!5.     (1915) 
L<"wis.  W.  D.     The  I'niform  Partnership  Act.     Yale  L.  J.     24  :G17      (1915) 
Crane.   .1.    A.      The    Iniforni    Partnersliip    Act. — A    Criticism.      liar.    L.    Rev. 

28:762.     (1915) 
Lewis.  W.  D.     The  Uniform  Partnership  Act.— A  Reply  to  Mr.  Crane'.s  Criti- 
cism.   Harv.  L.  Rev.  29:158  and  291.     (1915) 


120  APPENDIX 

Liclitouborger.  J.  R.  The  T'nilOnu  rartiiersliii)  Act.  I'liiv.  of  I';i.  L.  Rev. 
08  :(JS9.     (lido) 

Smith.  W.  G.    The  Tniforui  Partnershii>  Act.     Cent.  L.  J.    80:435.     (1915) 

Wlllisttin.  8.  The  I'nifoiiu  Partnership  Act,  with  Some  Remarks  on  Other 
Uniform  Commercial    Laws.      Univ.  of  Pa.   L.   Rev    (v>:100.     (1915) 

Crane.  J.  A.  The  I'nifunn  Partnership  Act  and  Les^al  Persons.  II.  Ia  Rev. 
1^9  :S;!S.     (19H;) 

Lewis.  \V.  D.  Unit'iirni  Liiiiitcd  I'artnership  Act.  Univ.  ol'  Pa.  L.  Rev.  (j;;:T15. 
(P.ilTt 

The  Inilorni  Limited  Partnersliip  Act.     Text.     A.  P..  A.  .lour.  :!  :5li9.     (1917) 

Crane.  J.  A.  Conflict  of  Laws  under  the  Uniform  Partnership  Act,  and  Lim- 
ited Partner.^hii»  Act.     Univ.  of  Pa.  L.  Rev.  UO::;i().     (191S) 

L'niform  Partnership  Act.  New  York's  Failure  to  Addpl  it.  Col.  L.  Rev. 
18:58:'.     (1918) 

PART  I— PRELIMINARY  PROVISIONS 

-Section  1.  [Name  of  Act.]  This  .act  may  be  cited  as  Uniform 
Partnership  Act. 

Section  2}  [Definition  of  Terms.]  In  this  act,  "court''  includes 
every  court  and  judge  having  jurisdiction  in  the  case. 

"Business"  includes  every  trade,  occupation,  or  profession. 

"Person"  includes  individuals,  partnerships,  corpoi'alions,  and  oth- 
er associations. 

"Bankrupt"'  includes  bankrupt  under  the  Federal  Bankruptcy  Act 
or  insolvent  tmdcr  any  state  insolvent  act. 

"Conveyance"  includes  every  assignment,  lease,  mortgage,  or  en- 
cumbrance. 

"Real  property"  includes  land  and  any  interest  or  estate  in  land. 

Section  Z?   [Interpretation  of  Knowledge  and  Notice.]    (1),  A  per- 

2,The  words  "unless  the  contrary  intention  appears,"  found  in  many  differ* 
ent  sections,  are  omitted  from  this  section  because,  throughout  this  act,  the 
words  defined  in  this  section  are  not  used  in  any  other  than  the  sense  in 
which  they  are  here  defined. 

3  The  word  "notice"  in  judicial  opinions  and  in  other  legal  writings  is 
often  used  when  "knowledge"  as  here  defined  is  intended.  This  has  led  to  a 
great  deal  of  confusion,  of  which  the  extraordinary  cxju-ession  "constructive 
notice"  is  evidence.  To  avoid  this  confusion  the  word  "notice"  as  here  de- 
lined  designates  definite  things  only  which,  if  proved  to  have  been  done,  en- 
able the  person  doing  them  to  jissert  that  notice  has  been  had  and  claim  the 
benefit  thereof,  irresi>ective  of  whether  the  person  charged  has  had  knowledge 
<ir  not.  P>y  a<lhering  strictly  to  this  coiicepLion  tbronghoiit  the  act,  the  things 
which  a  ix-rson  must  do  in  order  to  be  confident  that  he  can  claim  the 
benefit  of  "notice"  are  made  i)lain.  ^ 

A  definition  of  the  woid  "knowledge"  enables  it  to  be  indicated  clearly 
when   "knowledge"  as  distinguished  from   "notice"  must  be  had. 

The  ])resent  law  in  regard  to  that  wlwch  nuist  be  done  by  the  person  who 
desires  to  be  in  a  positi(m  to  claim,  the  benefit  of  "notice"  is  in  considerable 
confusion.  Under  our  case  law,  as  a  rule,  in  ordinary  transactions,  except 
those  which  relate  to  commercial  i)aper.  no  one  has  luul  "notice"  until  he  has 
"knowledge"  ;  though,  of  coui'se.  "notice"  to  an  agent  is  notice  to  a  princii)al. 
Whether  the  delivery  of  a  letter  containing  a  "statement  of  a  fact"  would  or 
would  not  be  sufticicnt  if  the  addressee  did  not  read  the  letter  is  doubtful. 
The  court  might  well  hold  that  the  addressee,  by  his  neglect  to  read  the 
statement,  was  estopped  from  denying  that  he  had  "notice."  The  change  in 
the  law.  if  it  is  a  change,  which  the  present  section  as  now  drawn  effects,  is. 
it  is  submitted,  in  the  right  direction.     The  section  does  not  go  to  the  extent 


rxiifiUM  PAr:rNi:usiiir'  act  121 

son  has  "knowledj^e"  of  a  fact  within  the  meaning  of  this  act  not  only 
when  he  has  actual  knowledge  thereof,  but  aNo  wiien  he  has  kn*jwl- 
edge  of  such  other  facts  as  in  the  circumstances  shows  l)ad  faith. 

(2)  A  person  has  "notice"'  of  a  fact  within  the  meaning  of  this 
act  when  the  person  who  claims  the  benefit  of  the  notice 

(a)  States  the  fact  to  such  person,  or 

(b)  Delivers  thr(nigh  the  mail,  br  l)y  other  means  of  communica- 
tion, a  written  statement  of  the  fact  to  such  person  or  to  a  prDjurr  per- 
son at  his  place  of  business  or  residence. 

Secti(ni  4.  [Rules  of  Construction.]  (1)  The  rule  that  statute? 
in  derogation  of  the  common  law  are  to  be  strictly  construed  shall 
have  no  ai)plication  to  this  act.* 

(2)   The  law  of  estoppel  shall  :i\>\>\\    under  this  act.""^ 

of  sayiiiu  that  llu-  im  re  lU-pn.'^it  of  a  "writti-u  .statoiuciit  of  tliL-  fact"  in  tin-  mail 
is  eiiou.s.'h  to  <liari,'i'  the  aihlrcssoc  witli  "notici'.""  Tlic  adilrcssnr  by  s<Ii-.  tin;; 
the  ixist  otMci',  telc;;raitli  or  otlicr  iml'lic  service  corporation,  as  tlic  method  Ity 
which  tlie  letter  shall  he  transferred,  makes  them  his  airenls.  not  the  a;:ents 
of  the  aildressee.  (Mi  the  other  hand  the  .section  does  «o  to  the  e.\tent  of  de- 
claring' that  if  such  written  statement  i.s  received  at  the  residonco  or  place  of 
liusiness  of  the  addressee  in  the  usual  way.  the  addressor.  having  done  all  that 
wa.>^  reasonably  ]iossible  to  do  to  give  the  addres.see  ••knowled;re,"'  should  have 
the  benelit  of  his  dili^'ence. 

The  section  as  drawn,  in  doalins  with  the  character  of  the  -statement  of 
fact."  where  the  statement  is  not  a  verbal  statement  merely  reiinires  a  -writ- 
ten statement."  The  ondssicm  of  the  word  "la-inted"  is  after  deliberation.  To 
insert  the  word  "printed"  might  raise  a  douht  as  to  the  effect  of  the  delivery 
of  a  newspaper  contiiining  a  -statement  of  the  fact."  There  ought  to  be  no 
dotiht  th.-it  this  is  an  insuthcient  statement.  l'n<iuestionaliiy.  such  delivery  is 
not  a  delivery  of  a  -written  statement  of  the  fact";  hut.  on  the  other  hand, 
if  a  printed  or  typewritten  statement  of  thi-  fact — as  the  dissolution  of  the 
partnershii) — is  niade  on  a  separate  card  which  is  enclosed  in  an  enveloiK'  and 
given  to  the  addr(>.ssee,  there  would  apiH'ar  to  he  no  doubt  that  any  court  wonhl 
hold  that  -a  written  .statement  of  the  fact"  had  heen  delivered  to  such  persuu. 
The  principle  is  clear.  Nothing  should  he  regarded  as  "a  written  statement  of 
the  fact"  which  is  not  so  prepared  as  to  cause  the  one  to  whom  it  is  addressed, 
as  a  reasonahlv  prudent  nnui,  to  read  it.  An  exact  dehnition  of  the  character 
of  the  statement  which  is  to  be  made  is  i)ractically  imiM.ssible  ;  neither  do  we 
believe  it  to  he  desir.dde.  The  \vf)rds  employed,  -written  statement  of  the  fact." 
do  not  preclude  the  statement  from  lieing  tyiiewritten  or  jirinted  but  they  do 
emphasize — that  which  it  is  necessary  to  emphasize^ — that  the  statement  must 
he  a  .separate  statement  of  the  fact  made  to  the  addressee,  and  not  a  gencr.il 
statement  for  all  the  world  to  read  or  not  as  fancy  di<tates. 

The  notes  to  secti(m  4  infra,  in  regard  to  "estoiMH'I"  and  "agency."  will 
perhai>s  answer  some  (piestions  which  may  arise  in  connection  witli  the 
present  .section. 

4This  provision  is  customary  in  American  Codes.  Cal.  Civ.  < 'ode.  Ji  4; 
1  Ala.  Code  1007,  §  12;    1  Idah()  Uev.  Codes,  §  4. 

5  This  paragraph,  applying  to  the  whole  act,  iii)viates  the  necessity  of  con- 
stant repetition  of  the  principle.  Its  necessity  is  illustrated  in  the  provisions 
relating  to  "notice,"  secti(Mi  :\  ('_*>,  supra.  A  "written  st.-itemeiit"  m.iy  he  de- 
livered in  such  a  way  as  to  induce  the  person  to  whom  it  is  delivered  to  ah- 
stain  from  reading  it.  No  oiu'  who  has  tints  delivered  a  written  statement 
should  be  permitted  to  claim  the  benelit  of  the  notice.  This  restdt  might  he 
.attained  hy  inserting  after  the  word  "delivers."  section  :\  i-h).  supra,  the 
words  "in  good  faith":  hut  these  wo-ds  would  not  provide  for  the  case 
where  the  person  who  has  delivered  a  wrilliMi  notice  in  goed  faith,  chamres  his 
mild,  .'ind  in  bad  faith  reat quires  the  writini.'  before  it  is  reail. 


122  APPENDIX 

(3)  The  law  oi  agency  shall  apply  under  this  act.^ 

(4)  This  act  shall  be  so  interpreted  and  construed  as  to  effect  its 
general  purpose  to  mak«  uniform  the  law  of  those  states  which  en- 
act it. 

(5)  This  act  shall  not  be  construed  so  as  to  impair  the  obligations 
of  any  contract  existing  when  the  act  goes  into  effect,  nor  to  affect  any 
action  or  procee'dings  begun  or  right  accrued  before  this  act  takes  ef- 
fect.' 

Section  5.  [Rules  for  Cases  Not  Provided  for  in  This  Act.]  In 
any  case  not  provided  for  in  this  act  the  rules  of  law  and  equity,  in- 
cluding the  law  merchant,  shall  govern. 

PART  II— NATURE  OF  A  PARTNERSHIP 
Section  6.      [Partnership  Defined.]      (1)   A   partnership  is   an  as- 
sociation of  two  or  more  persons  to  carry  on  as  co-owners  a  business 
for  profit.* 

6  This  act  is  a  partnership  act  and  not  an  act  relatuig  to  agency  or  any 
branch  thereof.  One  of  the  causes  of  the  present  confused  use  of  the  word 
notice  is  due  to  the  attempt  to  mix  two  distinct  things:  What  is  notice  to 
a  i>erson  of  a  fact,  and  how  far  notice  to  an  agent  is  notice  to  a  principal. 
The  ijccoud  question  is  wholly  a  question  of  the  law  of  agency ;  the  first 
has  nothing  to  do  with  the  law  of  agency.  The  first  is  dealt  with  in  sec- 
tion 3,  supra ;  the  second,  is  not  a  question  within  the  scope  of  a  partnership 
act. 

This  paragraph  also  avoids  constant  reference  throughout  the  act  to  agents. 
For  in^'tance,  in  section  9.  infra,  there  is  provision  that  a  partner  cannot 
bind  the  partnership  where  the  persou  dealing  with  him  has  knowledge  that 
the  partner  with  whom  he  deals  has  no  authority  to  bind  the  partnership.  The 
knowledge  of  an  authorized  agent  of  such  per'son  should,  of  course,  be  ef- 
fectual. This  paragraph  in  regard  to  the  law  of  agency  avoids  any  possibility 
of  a  different  construction,  and  renders  unnecessary  the  insertion  of  the  words 
"or  authorized  agent"  after  the  word  "person"  in  the  section  referred  to  and 
other  .similar  sections. 

'The  wording  is  based  on  the  Amexncan  Codes.  Idaho  Rev.  Codes  1908.  § 
4;  Cal.  Civ.  Code.  §  4;  Rev.  St.  Colo.  1908,  §§  6296,  6299;  Gen.  St.  Kan. 
1905,  p.  1G3:;;  1  Burns'  Ann.  St.  Ind.  1908,  §§  240,  241,  1356,  1359;  Cobbey's 
Rev.  St.  Neb.  ,  §  11363 ;    2  S.  D.  Comp.  Laws  1908,  pp.  313,  316,  318. 

» Explanation  of  the  Rea.<ion  for  the  Words  Employed  in  the  Definition.— 
The  first  inquiry  is,  why  say  a  partnership  is  "an  association  of  two  or  more 
persons"?  In  view  of  the  fact  that  the  word  "association"  itself  implies  the 
acting  together  of  two  or  more  persons,  why  not  merely  say  that  a  partnership 
is  an  association  to  carry  on  business  in  which  the  members  are  co-owners  of 
the  business?  The  word  "person"  includes,  as  stated  in  section  2,  supra, 
"individuals,  partnerships,  corporations,  and  other  associations."  The  dofini- 
tiou  as  worded  thus  asserts  what  would  be  doulttful  if  the  words  "of  two  or 
more  persons"  were  omitted,  namely  that  any  one  of  these  associations  may 
become  members  of  a  partnership.  It  is  true  that  if  two  or  more  corpora- 
tions attempt  to  form  a  partnership  the  contract  may  be  ultra  vires  as  to  Ijotli 
(lioyd  V.  American  Carbon  Black  Co..  182  Pa.  206,  37  Atl.  937  [1897]);  btit  the 
capacity  of  corporations  to  contract  is  a  question  of  corporation  law.  Under 
the  present  law  it  appears  that  a  partnership  can,  as  such,  be  a  member  of 
anotlier  partnership,  if  that  was  the  intent  of  the  parties.  Raymond  v.  Put- 
nam. 44  N.  H.  160  (1862):  Cheap  v.  Cramond,  4  I^.arn.  &  Aid.  663  (1821);  In 
re  Hamilton  (D.  C.)  1  Fed.  800  (1880) ;  Riddle  v.  Whitchill.  135  U.  S.  621,  10 
Sup.  Ct.  924,  34  L.  Ed.  283  (1890). 

The  words  "to  carry  on  as  co-owners  a  business"  'remove  any  doubt  in  the 


UMIORM    I'ARTNKRSHIP   ACT  12:' 

(2)  But  any  association  formed  under  any  other  statute  of  this 
state,  or  any  statute  adopted  by  authority,  other  ihaij*  the  authority 
of  this  state,  is  not  a  partnership  under  this  act,  unless  such  associa- 
tion would  have  been  a  partnership  in  this  state  prior  to  the  adoption 
of  this  act;  but  this  act  shall  apply  to  limited  partnerships  except  in 
so  far  as  the  statutes  relating  to  such  partiu-rsliips  are  incon^i.Nlcnt 
herewith." 

following  case:  A.  and  B.  si'^n  partnership  articles  and  ni.lkc  tlu'lr  npfrepd 
contvihiitions  to  the  eoninion  lund.  A.  refuses  to  carry  on  husiness  as  agreed. 
Is  there  a  i>artnership  to  lie  wound  up  in  accordance  with  the  j)rovisions  of 
I'art  VI,  "Dissolution  and  "WindiniJC  Up"?  The  wonlij  quoted  require  an  af- 
firmative answer  to  this  question.  If  the  word.s  "carryin;?  on  business"  had 
Iteen  used,  in  the  case  given,  no  partnership  would  exist,  and  I'art  VI  would 
not  apply., 

•  The  detinition  asserts  that  the  associates  are  "co-owners"  of  the  busines.s. 
This  di.'itinguishes  a  partnership  from  an  agency — an  association  of  principal 
and  agent.  A  business  is  a  .scries  of  acts  directed  toward  an  end.  Ownership 
involves  the  p;iwer  of  ulliniate  control.  To  state  that  partners  are  co-owners 
of  a  business  is  to  state  that  they  each  have  the  ix)wer  of  ultimate  control. 

Lastly,  the  definition  asserts  that  the  business  is  for  profit.  Partnership 
is  a  branch  of  our  commercial  law  ;  it  has  develoited  in  connection  with  a 
particular  business  association,  and  it  is,  therefore,  'essential  that  the 
operation  of  the  act  should  be  confined  to  associations  organized  for  profit. 

In  view  of  the  many  definitions  of  a  partnership  which  have  been  proi>osed. 
it  is  desirable  to  note  the  reasons  for  the  omission  of  certain  ideas  expressed 
in  some  of  the  definitions  cited  by  Lindley  in  his  work  on  Partnership, 
pp.  11.  12. 

It  is  not  indicated  that  the  association  must  be  a  voluntary  one.  In  the  do- 
main of  private  law  the  term  association  necessarily  involves  the  idea  that 
the  association  is  voluntary. 

To  say  that  the  association  must  be  created  by  contract,  is  not  only  un- 
necessary, but  in  view  of  the  varied  use  of  the  word  "contract"  in  our  law, 
if  the  word  is  used  an  explanation  would  have  to  be  made  as  to  whether  the 
contract  could  be  implied,  and  if  so,  whether  it  could  be  implied  in  law  or 
only  implied  as  a  fact.  By  merely  saying  that  it  is  an  association  these 
difficulties  are  avoided. 

Again,  it  is  not  said  that  the  business  must  be  a  lawful  business.  The 
effect  of  the  unlawfulness  of  the  business  is  dealt  with  under  Part  VI,  "Disso- 
lution and  "Winding  I'p."  Section  'M  (o),  infra.  i)rovides  that  dissolution  is 
produced  "by  any  event  which  makes  it  unlawful  for  the  business  of  the 
partnership  to  be  carried  on  or  for  the  members  to  carry  it  on  in  partnership." 
If  the  business  is  wholly  ludawful,  then  the  partnership  is  dissolved  the 
moment  it  is  created.  The  omission  of  the  word  •'lawful"  in  the  definition  does 
not  prevent  this  result.  Very  often,  however,  a  business  may  be  in  part  lawful 
and  in  part  unlawful.  Hotel  keeiwrs  may  run  a  "dive."  Placing  the  word 
"lawful"  before  the  word  business  in  the  definition  would  tend  to  tin-ow  a 
doul)t  on  the  propriety  of  the  orderly  wLndiug  up  of  such  a  business  as  a 
partnership. 

See  the  following  cases  applying  the  section:  Rosenblum  v.  Springfield 
Produce  Brokerage  Co.,  243  Ma.^s.  111.  ir,l  N.  P:.  357  (1022i ;  Run.)  v.  Roths- 
child, 219  Mich.  5G0,  1^9  N.  W.  183  (1922);  Columbia  Laundry  v.  Heucken, 
203  App.  Div.  140,  196  N.  Y.  Supp.  523  (1922). 

9  The  reason  for  not  following  the  English  Act  and  attempting  to  enumer- 
ate the  associations  which  are  excluded  because  formed  under  special  stat- 
utes, is  I'.ecause  such  an  enumeration  is  unnecessary,  and  because  the  para- 
graph would  have  to  be  differently  worded  for  each  state.  The  paragraph  as 
drawn  makes  any  association  formed  undm-  a  statute  a  partnership  if  it  would 
have  been  a  partnership  in  the  state  if  the  act  had  not  been  adopted.  If  the 
association  would  not  have  been  a  partnersbii>  had  the  act  not  been  adopted, 
the  adoption  of  tlie  act  does  not  make  it  a  partnership.     In  short,  the  adoption 


124  Ari'RXDix 

Section  7.  [Rules  for  Determining  the  Existence  of  a  Partnership.] 
In  determining  whether  a  partnership  exists,  these  rules  shall  apply : 

(1)  Except  as  provided  by  section  16  persons  who  are  not  partners 
as  to  each  other  are  not  partners  as  to  third  persons. 

(2)  Joint  tenancy,  tenancy  in  common,  tenancy  by  the  entireties, 
joint  property,  common  property,  or  part  ownership  does  not  of  it- 
self establish  a  partnership,  whether  such  co-owners  do  or  do  jiot 
share  any  profits  made  l^y  the  use  of  tne  property. 

(3)  The  sharing  of  gross  returns  does  not  of  itself  establish  a  part- 
nership, whether  or  not  the  persons  sharing  them  have  a  joint  or  com- 
mon right  or  interest  in  any  property  from  which  the  returns  are  de- 
rived. 

(4)  The  receipt  l)y  a  ]:;erson  of  a  share  of  the  profits  of  a  business 
is  prima  facie  evidence  that  he  is  a  partner  in  the  business,  but  no 
such  inference  shall  be  drawn  if  such  profits  were  received  in  pay- 
ment : 

(a)  As  a  debt  by  installments  or  otherwise, 

(b)  As  wages  of  an  employee  or  rent  to  a  landlord, 

(c)  As  an  annuity  to  a  widow  or  representative  of  a  deceased  part- 
ner, 

(d)  As  interest  on  a  loan,  though  the  amount  of  payment  vary 
with  the  profits  of  the  business, 

(e)  As  the  consideration  for  the  sale  of  a  good-will  of  a  business 
or  other  property  by  installments  or  otherwise. 

Section  8.  [Partnership  Property.]  (1)  All  property  originally 
brought  into  the  partnership  stock  or  subsequently  acquired  by  pur- 
chase or  otherwise,  on  account  of  the  partnership,  is  partnership  prop- 
erty. 

(2)  Unless  the  contrary  intention  appears,  property  acquired  with 
partnership  funds  is  partnership  property. 

(3)  Any  estate  in  real  property  may  be  acquired  in  the  partnership 
name.  Title  so  acquired  can  be  conveyed  only  in  the  partnership 
name. 

(4)  A  conveyance  to  a  ])artnership  in  the  partnership  name,  though 
without  words  of  inheritance,  passes  the  entire  estate  of  the  grantor 
unless  a  contrary  intent  apjjears.^" 

of  the  act  does  not  change  the  legal  status  in  the  state  of  any  association  form- 
ed under  a  statute. 

Section  applied  in  MoiTison  v.  Mei.ster,  212  Mich.  51G,  ISO  N.  W.  395  (1920). 

10  I'aratrrajihs  (3),  i4).  in  connection  with  section  10.  infra,  do  away  with 
existing  confusions  where  there  has  been  a  conveyance  to  a  partnership  in 
the  partnership  name,  or  a  conveyance  by  a  partner  in  the  v>Jirfner.ship 
name.  At  present  such  conveyance  may  convey  an  ecinitable.  bnt  does  not 
cfaivey  a  legal  title.  To  this  extent  paragraph  (3j  of  thi.s  section  and  section 
10  (1,1,  infra,  change  existing  law. 


UNIFORM  r'Ai:rNi:usiiii'  a<'T  12o 

PART  III— RELATIONS  OF  PARTXKKS  TO  PERSONS 
DEALING  W  rni  THE  PARTNERSHIP 

Section  9.  [Partner  Agent  of  Partnership  as  to  Partnership  Busi- 
ness.] (1)  Every  partner  is  an  agent  of  the  partnership  for  the  pur- 
pose of  its  business,  and  the  act  of  every  partner,  including  the  exe- 
cution in  the  partnership  name  of  any  instrument,  for  apparently 
carrying  on  in  the  usual  way  the  business  of  the  partnership  of  which 
he  is  a  member  binds  the  partnershij),  unless  the  partner  so  acting  has 
in  fact  no  authority  to  act  for  the  partnership  in  the  particular  mat- 
ter, and  the  person  with  whom  he  is  dealing  has  knowledge  of  the 
fact  that  he  has  no  such  authority." 

(2)  An  act  of  a  partner  which  is  not  apparently  for  the  carrying  on 
of  the  business  of  the  partnership  in  the  usual  way  does  not  bind  the 
partnership  unless  authorized  by  the  other  partners. 

(3)  Unless  authorized  by  the  other  partners  or  unless  they  have 
abandoned  the  business,  one  or  more  but  less  than  all  the-partners 
have  no  authority  to: 

(a)  Assign  the  jiartnership  property  in  trust  for  creditors  or  on 
the  assignee's  promise  to  pay  the  debts  of  the  partnership, 

(b)  Dispose  of  the  good-will  of  the  business, 

(c)  Do  any  other  act  which  would  make  it  impossible  to  carry  on 
the  ordinary  business  of  a  partnership, 

(d)  Confess  a  judgment, 

(e)  Submit  a  partnership  claim  or  liability  to  arbitration  or  ref- 
erence. 

(4)  No  act  of  a  partner  in  contravention  of  a  restriction  on  au- 
thority shall  bind  the  partnership  to  persons  ha\  ing  knowledge  of  the 
restriction. 

Section  lO.^'^  [Conveyance  of  Real  Property  of  the  Partnership.] 
(  1)  Where  title  to  real  property  is  in  the  partnership  name,  any  part- 
ner may  convey  title  to  such  property  by  a  conveyance  executed  in 
the  partnership  name ;  43Ut  the  partnership  may  recover  such  property 
unless  the  partner's  act  binds  the  partnership  under  the  provisions  of 
paragraph  ( 1 )  of  section  9  or  unless  such  property  has  been  conveyed 
by  the  grantee  or  a  person  claiming  through  such  grantee  to  a  holder 
for  value  without  knowledge  that  the  partner,  in  making  the  convex - 
ance,  has  exceeded  his  authority. 

(2)  Where  title  to  real  property  is  in  the  name  of  the  partnership, 
a  conveyance  executed  by  a  partner,  in  his  own  name,  passes  the  equi- 

11  Tlic  words  "iiicludin^'  tho  oxofutidii  in  tliP  iiartiuTsliip  naino  of  :iu.v 
instniinont"  avoid  any  iK).^sil>h'  doubt  as  to  whother  a  partner  lias  the  author- 
ity, in  the  ordinary  course  of  hnsiiicss.  to  eiUer  into  formal  coiitrarts  for  his 
partnersliip,  or  to  convey  partnership  proi>erty  when  the  conveyance  is  the 
resnlt  of  a  .'?ale  in  the  ordinary  course  of  partnershii)  business. 

12  The  adoption  of  this  section  does  away  with  the  existinir  uncertainty  sur- 
roundins;  the  subject  of  the  conveyance  of  real  property  beloniring  to  a  part- 
nership. 


126  APPENDIX 

table  interest  of  the  partnership,  provided  the  act  is  one  within  the 
authority  of  the  partner  under  the  provisions  of  paragraph  (1)  of 
section  9. 

(3)  Where  title  to  real  property  is  in  the  name  of  one  or  more  but 
not  all  the  partners,  and  the  record  does  not  disclose  the  right  of  the 
partnership,  the  partners  in  whose  name  the  title  stands  may  convey 
title  to  such  property,  but  the  partnership  may  recover  such  property 
if  the  partners'  act  does  not  bind  the  partnership  under  the  provisions 
of  paragraph  (1)  of  section  9,  unless  the  purchaser  or  his  assignee, 
is  a  holder  for  value,  without  knowledge. 

(4).  Where  the  title  to  real  property  is  in  the  name  of  one  or  more 
or  all  the  partners,  or  in  a  third  person  in  trust  for  the  partnership, 
a  conveyance  executed  by  a  partner  in  the  partnership  name,  or  in 
his  own  name,  passes  thq  equitable  interest  of  the  partnership,  pro- 
vided the  act  is  one  within  the  authority  of  the  partner  under  the  pro- 
visions of  paragraph  ( 1 )  of  section  9. 

(5)  Where  the  title  to  real  property  is  in  the  names  of  all  the  part- 
ners a  conveyance  executed  by  all  the  partners  passes  all  their  rights 
in  such  property. 

Section  11.  [Partnership  Bound  by  Admission  of  Partner.]  An 
admission  or  representation  made  by  any  partner  concerning  partner- 
ship affairs  within  the  scope  of  his  authority  as  conferred  by  this  act 
is  evidence  against  the  partnership.^'^ 

Section  12.  [Partnership  Charged  with  Knowledge  of  or  Notice 
to  Partner.]  Notice  to  any  partner  of  any  matter  relating  to  partner- 
ship affairs,  and  the  knowledge  of  the  partner  acting  in  the  particular 
matter,  acquired  while  a  partner  or  then  present  to  his  mind,  and  the 
knowledge  of  any  other  partner  who  reasonably  could  and  should 
have  communicated  it  to  the  acting  partner,  operate  as  notice  to  or 
knowledge  of  the  partnership,  except  in  the  case  of  a  fraud  on  the 
partnership  committed  by  or  with  the  consent  of  that  partner. ^'^ 

13  Admissions  before  dissolution  concerning  a  particular  matter  should 
bind  the  partnership  only  where  the  partner  has  authority  to  act  in  the  par- 
ticular matter ;    and  after  dissolution  only  if  necessary  to  wind  up  the  busi- 

^ness.  Where  the  partner  has  no  authority  to  act  and  the  person  with  whom 
he  is  dealing  knows  he  has  no  authority,  or  where  the  admission  is  made  after 
dis.solutiou  and  is  not  for  the  winding  up  of  partnership  affaire,  it  should  not 
affect  the  partnership.  If  it  is  not  the  act  of  the  ijartuershij)  then  it  should 
not  be  evklence  against  it.  The  words  "within  the  scope  of  his  authority  as 
conferred  by  this  act"  produce  this  result.  '' 

14  At  present,  there  is  no  confusion  in  the  law  when  the  "notice"  is  given 
to  the  partner  while  he  is  a  partner.  In  such  cases  the  effect  is  the  same 
as  if  notice  was  had  by  all  the  partners.  Where  the  knowledge  or  notice  has 
been  received  by  the  partner  liefore  he  became  a  partner,  and  his  partners  are 
ignorant  of  this,  and  he  is  not  the  partner  acting  in  the  particular  matter,  there 
is  no  doubt  that  there  has  been  neither  knowledge  of  nor  notice  to  the  partner- 
ship. Where,  however,  the  partner  acting  in  the  particular  matter,  acquired 
kfiowledge  before  he  became  a  partner,  jind  the  knowledge  is  then  present  in 
his  mind,  the  weight  of  authority,  and,  it  is  submitted,  of  reason,  appears  to  be 
that  the  partnership  should  be  charged  with  knowledge.     Mechem  on  Agency, 


L'NIFOUM    rAKTNKIt.SIlir   ACT  127 

Section  13.  [Partnership  Bound  by  Partner's  Wrongful  Act.] 
Where,  by  any  wrongful  act  or  omission  of  any  partner  acting  in  the 
ordinary  course  of  the  business  of  the  partnership  or  with  the  authori- 
ty of  his  co-partners,  loss  or  injury  is  caused  to  any  person,  not  be- 
ing a  partner  in  the  partnership',  or  any  penalty  is  incurred,  the  part- 
nership is  liable  therefor  to  the  same  extent  as  the  partner  so  acting 
or  omitting  to  act.^** 

Section  14.  [Partnership  Bound  by  Partner's  Breach  of  Trust.] 
The  partnership  is  bound  to  make  good  the  loss : 

(a)  Where  one  partner  acting  within  the  scope  of  his  apparent  au- 
thority receives  money  or  property  of  a  third  person  and  misapplies 
it;  and 

(b)  Where  tiie  partnership  in  the  course  of  its  business  receives 
money  6r  property  of  a  third  person  and  the  money  or  property  so  re- 
ceived is  misapplied  by  any  partner  while  it  is  in  the  custody  of  the 
partnership. 

Section  15.  [Nature  of  Partner's  Liability.]  All  partners  are 
liable 

(aj  Jointly  and  severally  for  everything  chargeable  to  the  partner- 
shij>  under  sections  13  and  14. 

(b)  Jointly  for  all  other  debts  and  obligations  of  the  partnership; 
but  any  partner  may  enter  into  a  separate  obligation  to  perform  a 
partnership  contract. ^^ 

\).  721.     The  words  ■"acquired  wliile  a  partner  or  then  present  to  his  mind" 
effect  the  result  desired. 

It  is  not  clear  what  the  present  law  is  when  "knowledge,"  which  is  not 
the  knowledge  that  may  come  from  notice,  has  heen  obtained  by  a  partner 
after  the  formation  of  the  partner.ship,  but  the  partner  having  such  '•knowl- 
edge" is  not  the  one  acting  in  the  particular  matter.  It  seems  clear  that  in  this 
case  the  partnership  should  be  charged  only  when  the  partner  having  "knowl- 
edge" had  reason  to  believe  that  the  fact  related  to  a  matter  which  had  some 
possibility  of  being  the  subject  of  partner.vhip  l)usiness,  and  then  only  if  he  was 
so  situated  that  he  could  communicate  it  to  the  partner  acting  in  the  particu- 
lar matter  U-fore  such  partner  gave  binding  effect  to  his  act.  The  words  "who 
reasonably  could  and  shotdd  have  communicated  it  to  the  acting  partner"  ac- 
complish this  result. 

15  Treon  v.  W.  A.  Shipman  &  Son,  275  Pa.  24G,  119  Atl.  74  (1922). 

i<>  The  actual  condition  of  the  American  statute  law  aHecting  the  nature 
of  partnership  liability  is  as  follows: 

In  the  following  states  by  specific  declaration  of  statutes  all  partnership 
liability  is  made  both  joint  and  several:  Miss.  Code  1900,  §  2ti83 ;  Mo.  Ann. 
St.  19()1>.  §§  8!59.  S92;  2  Ala.  Code  1907,  §  250G;  X.  M.  Comp.  U  1897. 
§§  2891.  2S9.-).  2942.  2943;  Md.  Code  Pub.  Gen.  Laws  1904,  p.  1357:  W  Va 
Code  1900.  §§  1976,  34G7,  3787 ;  D.  C.  Code  1901,  §  1205 ;  Iowa  Code  1897.  §§ 
3405.  34t;8;  (ien.  St.  Kan.  1909,  §  1641;  Minn.  Rev.  Laws  1905,  §§  4282.  42S3; 
N.  C.  Kevisal  1905.  §  413;  Ark.  Kirby's  Dig.  1904.  §§  4420.  4422.  In  some  of 
these  states  the  liability  is  merely  "deemed  to  be  joint  and  several  for  the. 
purposes  of  suit."  In  some  of  the  states  referred  to  the  statutes  are  gen- 
eral; that  is,  they  include  all  joint  liability;  while  in  others,  there  is  the 
general  statement  followed  by  specilic  enumeration  of  partnership  liability. 
But  in  all  the  states  referred  to  the  statutes,  taken  as  a  whole,  effect,  not 
only  partnership  liability,  but  also  all  joint  liability. 

In    Illinois   the   court   refused   to  interpret    a   general    statute   making   all 


128  API'EXDIX 

Section  16.  [Partner  b}-  Estoppel.]  (1)  W'hen  a  person,  by  words 
spoken  or  written  or  by  conduct,  represents  himself,  or  consents  to 
another  representing  him  to  any  one,  as  a  partner  in  an  existing  part- 
nership or  with  one  or  more  persons  not  actual  partners,  he  is  liable 
to  any  such  person  to  whom  such  representation  has  been  made,  who 
has,  on  the  faith  of  such  representation,  given  credit  to  the  actual  or 
apparent  partnership,  and  if  he  has  made  such  representation  or  con- 
sented to  its  being  made  in  a  public  manner  he  is  liable  to  such  person, 
whether  the  representation  has  or  has  not  been  made  or  communicat- 
ed to  such  person  so  giving  credit  by  or  with  the  knowledge  of  the 
apparent  partner  making  the  representation  or  consenting  to  its  being' 
made. 

(a)  AMien  a  partnership  liability  results,  he  is  liable  as  though  he 
were  an  actual  member  of  the  partnership. 

(b)  When  no  partnership  liability' results,  he  is  liable  jointly  with 
the  other  persons,  if  any,  so  consenting  to  the  contract  or  representa- 
tion as  to  incur  liability,  otherwise  separately.'''' 

liability  joint  and  several  so  as  to  include  partnership  liability  (Fleming  v. 
Ross,  225  111.  149.  80  N.  E.  92.  K  Ann.  Cas.  314  [1907 J)  :  also  the  courts  of 
'•olorado  (Krskine  v.  Kiissell.  4:'.  ("olo.  45:},  9(5  Pac.  249  1190S1).  In  New  York, 
though  the  statute  apparently  made  partners  liable  jointly  and  severally  (.'5 
Consol.  Laws  1909.  p.  2522.  par.  6),  the  court  refused  so  to  interpret  the  act. 
Seligman  v.  Friedlander,  138  App.  Div.  784,  123  N.  Y.  Hupp.  583  (1910). 

In  Texas.  Oklahoma,  Montana,  Pennsylvania.  New  York,  Colorado,  Illinois, 
North  Dakota.  South  Dakota.  Ohio,  Massachusetts,  New  .Jersey,  Georgia, 
Vermont,  Virginia.  Khode  Island.  Kentucky.  Michigan.  Maine.  Connecticut, 
Idaho  and  Indi.-uia  i)art2iei:diil2_iiilliiiitiL.is  joint.  In  many  of  these  states, 
however,  the  results  of  joint  liability  as  knoWn  to  the  common  law  have-been 
modified  by  statute  and  decision.  The  extent  of  the  nioditicntion  varies.  In 
some  each  partner  must  ))e  sued  severally  or  all  jointly,  an  election  being  re- 
quired. In  some  the  partnership  may  be  sued  in  the  partnership  name,  and 
thereafter  the  partners  separately  until  satisfaction  is  had.  In  all  the  estate 
of  the  deceased  partner  is  subject  to  liability,  but  in  some  only  after  action 
first  had  against  the  survivors ;  in  others  proof  of  no  partnership  property 
must  first  be  made ;   in  others  proceedings  may  be  first  had  against  the  estate. 

The  purpose  of  the  statutes  in  those  states  which  have  made  the. liability 
joint  and  several  was  to  (>fl"ect  certain  procedural  results,  rather  than  to  affect 
the  substantive  law.  Where,  therefore,  a  state  has  already  declared  the 
liability  to  be  joint  and  several,  then  the  ]>rinciple  of  uniformity  would  not  be 
affected  liy  that  state  so  altering  this  jjaragrnph  as  to  make  the  liability  joint 
and  several,  as  this  change,  would  affect  only  the  procedural  law  and  this 
act  is  one  to  make  uniform  the  substantive  law  of  partnership. 

Section  applied  in  Rhodes  v.  Terheyden,  272  Pa.  397,  116  Atl.  .•',64  (1922). 

17  The  section  clears  .several  doubts  and  confusions  of  our  existing  case  law. 
It  has  been  held  that  a  person  is  liable  if  he  has  beei^  held  out  as  a  partner 
and  knows  that  he  is  being  held  out,  unless  he  prevents  such  holding  out, 
even  if  to  do  so  he  has  to  take  legal  action.  Fletcher  v.  Ptdlen,  70  Md.  205, 
16  Atl.  887.  14  Am.  St.  Rep.  3.55  (18S9)-:  Tanner  v.  Hall,  86  Ala.  .305,  5  South.  584 
(18881  :  Rittenhouse  v.  Leigh,  57  Miss.  697  (1880)  ;  Speer  v.  Bi.shop,  24  Ohio  St. 
.598  a874)  ;  Prof.  Burdick  in  30  Cyc.  .''.93.  On  the  other  hand,  the  weight  of 
authority  is  to  the  effect  that  to  be  held  as  a  partner  he  must  consent  to  the 
holding  and  that  consent  is  a  matter  of  fact.  The  act  as  drafted  follows  this 
weight  of  authority  and  l)etter  reasoning.  Morgan  v.  Farrel.  .58  Conn.  413, 
20  Atl.  614,  18  Am.  St.  Rep.  282  (1890)  ;  Bishop  v.  (ieorgeson,  60  111.  484 
(1871) ;   Thompson  v.  Bank,  111  U.  S.  .529,  4  Sup.  Ct.  689,  28  L.  Ed.  507  (1884) ; 


UNIFORM    I'AItTNHU.silIl'   ACT  129 

(2)  When  a  person  has  heen  thus  represented  to  be  a  partner  in 
an  existing  partnership,  or  with  one  or  more  persons  not  actual  part- 
ners, he  is  an  agent  of  the  persons  consenting  to  such  representation 
to  bind  them  to  the  same  extent  and  in  the  same  manner  as  though 
■he  were  a  partner  in  fact,  with  respect  to  persons  who  rely  upon  the 
representation.  Where  all  the  members  of  the  existing  partnership 
consent  to  the  representation,  a  partnership  act  or  obligation  results; 
but  in  all  other  cases  it  is  the  joint  act  or  obligation  of  the  i^erson  act- 
ing and  the  persons  consenting  to  the  representation. 

Section  17.  [Liabilit^^)f  Inconnng  Partner.]  A  person  admitted 
as  a  partner  into  an  existing  partnership  is  liable  for  all  the  obliga- 
tions of  the  partnership  arising  before  his  admission  as  though  he  had 
been  a  partner  when  such  ol)ligations  were  incurred,  except  that  this 
liability  shall  be  satisfied  only  out  of  partnership  propertv.^J? 

Fisher  v.  McDonald,  85  111.  Api).  0.-3  (1S99) ;    IhULsen  v.  Latlirop.  KM  I'a.  :;»!.-, 
(1884) ;    Wood's  Collyer,  75.  note. 

Another  contusion  of  our  exi.stinjr  case  law  arises  when  A.  is  held  <>ut  with 
his  consent  as  a  partner  of  B.  who  is  in  business  by  himself.  Here  no  i)art- 
nership  in  fact  exists.  Can  any  one  who  relies  on  tlie  representation  ha\T> 
priority  on  the  property  in  the  business  over  those  creditors  of  B.  who  trusted 
only  B.  and  not  A.  and  B.?  The  case  of  Thayer  v.  Ilumjihreys,  91  Wis.  i:7<j. 
(14  N.  W.  I0()7.  oO  L.  R.  A.  'yi'd.'  51  Am.  8t-  Hep.  887  (1M>5),  answers  this 
question  in  the  aflirmative.  Other  cases  have  reached  an  oiiposite  conclusinn. 
I'.urdiclv.  I'artnership.  p.  10  et  sei].  Clause  (b)  aliirms  this  opiiosite  coiu-hision. 
!n  the  case  put  A.  and  15.  would  be  liable  jointly,  but,  as  there  was  in  faet 
no  partnership  fund,  the  creditor  who  thought  there  was  a  tirm  of  A.  and  B. 
would  have  no  i)rionty  on  the  assets  which  B.  had  in  his  business  as  distin- 
ciiished  from  his  other  assets. 

_i8-The  present  section  eliminates  the  difficulty  which  arises  when  a  new 
partner  is  admitted  without.  li(|uulation_  of  firm  debts.  The  present  theory 
of  the  common  law  is  that  a  new  partnership  is  formed  :  all  the  property  of 
the  partnership  which  existed  up  to  the  moment  of  the  entrance  of  the  new 
•irirtner  bein^'  transferred  to  the  new  partnership.  The  result  of  this  theory 
is  that  if  the  business  fails,  the  creditors  who  have  extended  credit  after  the 
admission  of  the  new  partner  have  a  prior  claim  on  the  assets  in  the  busi- 
ness. The  inequitable  character  of  this  result  has  led  the  courts,  where  no 
notice  of  the  change  of  membership  is  had  by  the  creditor.s,  to  be  diligent 
in  tiuding  an  assumption  of  liability  on  the  part  of  the  new  partner.ship  of  the 
debts  of  the  old  partnership. 

Though  this  section  changes  the  formal  statement  of  the  law,  which  is  to 
the  effect  that  an  incoming  partner  is  not  liable  for  debts  contracted  before 
his  admission,  as  a  matter  of  I'act  the  section  as  worded  conforms  to  the 
actual  decisions  of  the  courts,  which,  however,  are  arrived  at  by  making 
every  elToit  to  impress  r.n  assumption  of  liability  on  the  part  of  tlie  new 
l)artnership.  forjuiid— H^i-u—n'sult  of  the  admission  of  the  new  iru'tnei',  of  the 
delits  of  the  old  partnership. 

The  dillieulty.  which  is  overcome  by  this  section  as  worded,  is  illustrated 
by  the  common  case  where  all  the  p:-oi)orty  of  the  existing  partnership  is  taken 
over,  without  nutix:ax>f  any  bii^akjji  the  conduct  of  business,  by  the  new  part- 
nership comiwsed  of  all  tlie  members  of  the  existnig  partnership  and  the  in- 
coming partner;  thereby  depriving  the  existing  partnership  of  all  its  prdperty. 
Both  the  existing  and  the  subsequent  creditors  may  believe  it  is  one  and  the 
same  partnership,  but,  as  stated,  such  would  not  be  the  case  under  the  pres- 
ent law.  There  is  no  peculiar  equity  in  the  subsequent  creditors  giving  them 
a  right  to  be  preferred,  as  against  the  property  employed  in  the  business,  to 
the  existing  creditors.     The  incoming  partner  partakes  of  the  beuetit  of  the 

Surp.GiL.PvRT.— 9 


130  ArrKNDix 

PART  IV— RELATIONS  OF  PARTNERS  TO  ONE  ANOTHER 

Section  18.      [Rules  Determining  Rights  and   Duties  of   Partners.] 
The  rights  and  duties  of  the  partners  in  relation  to  the  partnership  ■ 
shall  be  determined,  subject  to  any  agreement  between  them,  by  the 
following  rules : 

(a)  Each  partner  shall  be  repaid  his  contributions,  whether  by  way 
of  capital  or  advances  to  the  partnership  property  and  share  equally 
in  the  profits  and  surplus  remaining  after  all  liabilities,  including  those 
to  partners,  are  satisfied:  and  must  contribute  towards  the  losses, 
whether  of  capital  or  otherwise,  sustained  by  the  partnership  according 
to  his  share  in  the  profits. 

(b)  The  partnership  nnist  indemnify  every  i)artner  in  respect  of 
payments  made  and  personal  liabilities  reasonably  incurred  by  him  m 
the  ordinary  and  proper  conduct  of  its  business,  or  for  the  preserva- 
tion of  its  business  or  property. 

(c)  A  partner,  who  in  aid  of  the  partnership  makes  any  payment  or 
advance  beyond  the  amount  of  capital  which  he  agreed  to  contribute, 
shall  be  paid  interest  from  the  date  of  the  payment  or  advance. 

(d)  A  partner  shall  receive  interest  on  the  capital  contributed  by 
him  only  from  the  date  when  repayment  should  be  made. 

(e)  All  partners  have  equal  rights  in  the  management  and  conduct 
of  tl>e  partnership  business. 

(f)  No  partner  is  entitled  to  remuneration  for  acting  in  the  partner- 
ship business,  except  that  a  surviving  partner  is  entitled  to  reasonable 
compensation  for  his  services  in  winding  up  the  partnership  affairs. 

(g)  No  person  can  become  a  member  of  a  partnership  without  the 
consent  of  all  the  partners. 

(h)  Any  difiference  arising  as  to  ordinary  matters  connected  with  the 
partnership  business  may  be  decided  by  a  majority  of  the  partners; 

partiKM-ship  ])ropprtv  and  an  ostalilisliod  liusinPS8.  He  ha.s  every  means  of 
fibfaiiiinu:  full  knowiedge  and  protecting,'  himself,  lieeause  he  may  insist  on  the 
]i(lui(lation  or  settlement  of  existing  partnership  deltts.  The  creditors  have  no 
means  of  protecting  themselves.  So  as  to  preserve  the  pre.sent  law  as  nearly 
as  possible  it  is  declared  that  the  liability  of  the  incoming  partner  shall  be 
satisfied  only  out  of  partnership  property.  It.  therefore,  results  that  exist- 
ing and  subsequent  creditors  have  e(iual  rights  as  against  partnership  prop- 
erty and  the  separate  property  of  all  the  previously  existing  members  of  the 
partnership,  while  only  the  subseipient  creditors  have  rights  against  the 
separate  estate  of  the  newly   admitted  partner. 

The  section  should  be  read  in  connection  with  section  41,  infra.  Both  sec- 
tions are  based  on  the  princiiile  that  where  there  has  been  one  c(mtinu(ms 
business  the  fact  that  A.  has  lieen  admitted  to  the  business,  or  C.  ceased  to  be 
connected  with  it.  should  not  be  allowed  to  cause,  as  at  present,  endless  con- 
fusion as  to  the  claims  of  the  ci'cditors  on  the  property  emi»loyed  in  the  busi- 
ness :  but  that  all  the  creditors  of  the  liusiness.  irrespective  of  the  times  when 
they  became  creditors  and  the  exact  couibiiiations  of  persons  then  owning  the 
business,  should  have  ecjual  rights  in  such  proiK^'ty.  The  recognition  of 
this  principle  solves  one  of  the  most  peri)l<'xing  ]>i-oblems  of  present  partner- 
ship law. 

Sui>i'.(;!l.Part. 


UNIIOKM    I'Al;  r.NKUSlllI'    ACT  131 

l)Ut  no  act  in  contravention  of  any  agreement  between  t1ie  partners  may 
l)e  done  rightfully  without  the  consent  of  all  the  partners. 

Section  19.  [Partnership  I'ooks. }  The  partnership  books  shall  Ik- 
kept,  subject  to  any  agreement  l)etween  the  partners,  at  the  principal 
place  of  business  of  the  iiartnership,  and  every  partner  shall  at  all  times 
have  access  to  and  may  inspect  and  copy  any  of  them. 

Section  20.  [Duty  of  i'artners  to  Render  Information.]  Partners 
shall  render  on  demand  true  and  full  inf(jrmaiion  of  all  things  affect- 
ing the  partnership  to  any  i)artner  or  the  leg  d  representative  of  any 
deceased  i)artner  or  partner  under  legal  disability. 

Section  21.  [I'artncr  Accountable  as  a  Fiduciary.)  (1)  Kvery 
l)artner  must  account  to  the  partnership  for  any  benefit,  and  hold  as 
trustee  for  it  any  profits  derived  by  him  without  the  consent  of  the 
other  partners  from  any  transaction  connected  with  the  formation. 
conduct,  or  li(|uidati(in  of  the  ])artnt'rship  or  from  any  use  by  him  of  its 
property.*" 

(2)  This  section  a])plies  alsf)  to  the  representatives  of  a  deceased 
])artner  engaged  in  tlic  liquidation  of  the  affairs  of  the  partnership  a- 
the  personal  representatives  of  the  last  surviving  partner. 

Section  22._^  |  Right  to  an  .Account.]  Any  partner  shall  have  the 
right  to  a  formal  account  as  to  ])ariners]iip  affairs : 

(a)  If  lie  is  wrongfully  excluded  from  the  partnership  l)usiness  or 
possession  of  its  property  by  his  copartners. 

(b)  If  the  right  exists  under  the  terms  of  any  agreement. 

(c)  As  provided  by  section  21. 

(d)  Whenever  other  circumstances  render  it  just  and  reasonable. 

10  This  pin-imriiph  rrmovi's  ii  doulit  in  the  t'.xistini:  hiw.  At  urt'Sfiit  it  is  tml 
clc-ir  whether  tlic  o)>li.u'iili(iii  to  aci-fmiit  where  the  jiiirtner  biis  intiiiey  or  other 
jn-iipeity  ill  his  hiuids.  is  or  is  not  jin  ol)li,!:ation  in  the  nat\n-e  of  n  trust.  For 
instiUici':  .\..  Vi.  and  C.  are  partners;  A.,  as  a  result  of  a  trans.-ietion  cou- 
nected  with  the  eonduot  of  the  partnership,  has  in  his  hands,  so  that  it  nia\ 
he  traced,  a  specific  sum  of  money  or  other  property.  .\.  is  insolvent.  Is  the 
claim  of  the  jiartnership  against  A.  a  claim  against  him  as  an  owlinary  credi- 
tor, or  is  it  a  claim  to  the  sjiecitu-  proi)erty  or  money  in  his  h.-mds?  Thi'  w«i"ds 
"and  hold  as  trustee  for  the  jiarliiership  any  prolits"  indicate  clearly  that 
the  partn(>rship  can  claim  as  their  own  any  property  or  money  that  can  he 
tract^d. 

■-J"  Ordinarily  a  jiartner  is  not  entitled  to  a  formal  account,  e.xeept  on  disso- 
lution, lie  has  etjual  access  with  his  i)artners  to  the  partnership  hooks,  and 
there  is  no  reason  why  they  should  constantly  render  to  him  accounts  in  the 
formal  sense  of  that  word,  which  is  the  sense  in  which  it  is  here  used.  Wiien. 
however,  he  is  excluded  from  the  1  usiness  or  the  i)os.st>ssion  of  i)artner>hip 
l>roiH'rty.  without  any  express  agreement  anthori/ing  such  excltision.  he 
should  have  the  right  to  dematid  a  foruuil  account  from  his  p.-irtners.  without 
lu'cessarily   re(piiring  him   to   dissidve   (he  partnership. 

The  ri'as(m  for  clause  (dt  is  that  there  fnMpicntly  ari-^es  circumstances 
which  impose  on  one  or  more  of  the  iiarlners  the  duty  of  rendering  a  form:il 
:iccount  to  the  copartner,  as  wlu're  one  jiartner  is  tr.iveling  for  a  lonir  |K-riod 
of  time  on  partnership  business,  and  the  olln-r  partners  are  in  possession  of 
the  partnershi]*  books.  These  various  eircumst.Muces  cannot  Ik*  detailed  in 
any  act.  Iti  view  of  the  wording  of  clause  (d).  the  total  effect  of  this  ^ecticm 
is  to  emphasize  the  fact,  that  a  partner,  the  |>artnershii>  not  being  <|issolved. 
has  not.  necessarily,  the  right  t<)  (U-mand  formal  accoiuits  exc«'pt  at  parlieular 
times  and   under  particular  lirrumslaaces. 


132  APPENDIX 

Section  23.  [Continuation  of  Partnership  Beyond  Fixed  Term.] 
(1)  When  a  partnership  for  a  fixed  term  or  particular  undertaking  is 
continued  after  the  termination  of  such  term  or  particular  undertaking 
without  any  express  agreement,  the  rights  and  duties  of  the  partners 
remain  the  same  as  they  were  at  such  termination,  so  far  as  is  consist- 
ent with  a  partnership  at  will. 

(2)  A  continuation  of  the  business  by  the  partners  or  such  of  them 
as  habitually  acted  therein  during. the  term,  without  any  settlement  or 
liquidation  of  the  partnership  affairs,  is  prima  facie  evidence  of  'a  con- 
tinuation of  the  partnership. 

PART  V— PROPERTY  RIGHTS  OF  A  PARTNER  ' 
Section  24.     [Extent  of  Property  Rights  of  a  Partner.]     The  prop- 
erty rights  of  a  partner  are  (1)  his  rights  in  specific  partnership  prop- 
erty, (2)  his  interest  in  the  partnership,  and  (3)  his  right  to  participate 
in  the  management. 

Section  25.      [Nature  oi_^  Partner's  Right  in__Specific  Partnership 

Property.] 

(1)  A  partner  is  co-owner  wdth  his  partners  of  specific  partnership 
property  holding  as  a  tenant  in  partnership.^ 

•>v2i  One  of  the  present  principal  difficulties  in  the  administration  of  the  law 
of~~partnerships  arises  out  of  the  difficulty  of  determining  the  exact  nature  of 
the  rights  of  a  partner  in  specitic  paxitnersliip  property.  That  the  partners 
are  co-owners  of  partnership  property  is  clear;  but  the  legal  incidents  at- 
tached to  the  risht  of  each  partner  as  co-owner  are  not  clear.  When  the  Eng- 
lish courts  in  the  seventeenth  century  first  began  to  discuss  the  legal  inci- 
dents of  this  co-ownership  they  were  already  familiar  with  two  other  kinds 
of  co-ownership,  joint  tenancy  and  tenancy  in  common.  In  joint  tenancy  on 
the  death  of  one  owner  his  right  in  the  property  passes  to  the  other  co-owners. 
This  is  known  as  the  right  of  survivorship.  The  incident  of  survivorship  fits 
in  with  the  necessities  of  partnership.  On  the  death  of  a  partner,  the  other 
partners  and  not  the  executors  of  the  deceased  partner  should  have  a  right 
to  wind  up  partnership  affairs.  See  clause  (d).  infra.  The  early  courts, 
therefore  declared  that  partners  were  joint  tenants  of  partnership  property, 
the  consequence  being  that  all  the  other  legal  incidents  of  joint  tenancy  were 
applied  to  partnership  co-ownership.  Many  of  those  incidents,  however,  do 
not  apply  to  the  necessities  of  the  partnership  relation  and  produce  most  in- 
equitable results.  This  is  not  to  be  wondered  at  because  the  legal  incidents 
of  joint  tenancy  grew  out  of  a  co-ownership  of  laud  not  held  for  the  purposes 
of  business.  The  attempt  of  our  courts  to  escape  the  inequitable  results  of 
applying  the  legal  incidents  of  joint  tenancy  to  partnership  has  produced  very 
"reat  confusion.  Practicallv  this  confusion  has  had  more  unfortunate  effect 
on  substantive  rights  when  the  separate  creditors  of  a  partner  attempt  to  at- 
tach and  sell  specific  partnership  property,  than  v/hen  a  partner  attempts  to 
assign  specific  partnership  property  not  for  a  partnership  purpose  but  for  his 

own  purposes.  ,  .^         ^  ^.i,       ^  * 

The  commissioners,  however,  believe  that  the  proper  way  to  end  the  confu- 
sion which  has  arisen  out  of  the  attempt  to  treat  partners  as  joint  tenants,  is 
to  recognize  the  fact  that  the  ^^'p-htg  of  p  paxtjier  as  co-owner  with  his  i>art- 
ners  of  specific  partnership  property  should  depend  on  the  necessities  of  the 
partner.ship  relation.  In  short  that  the  legal  incidents  of  the  tenancy  m 
partnership  are  not  necessarily  those  of  any  other  co-ownership. 

In  the  clauses  of  this  section  these  incidents  of  tenancy  in  partnership  are 
stated  with  several  practical  results  of  value.  In  the  first  place  the  law  is 
greatly  simplified  in  expression.    In  the  second  place  the  danger  of  the  courts 


I 


UNIFORM    PARTNERSHIP  ACT  133 

(2)  The  incidents  of  this  tenancy  are  such  that : 

(a)  A  partner,  subject  to  the  provisions  of  this  act  and  to  any  agree- 
ment between  the  partners,  has  an  equal  riijht  with  his  partners  to 
I'ossess  specific  partnership  property  for  partnership  purposes;  but  he 
has  no  right  to  possess  such  property  for  any  other  purpose  withfuit 
the  consent  of  his  partners. 

(b)  A  partner's  right  in  specific  partnership  pro[)erty  is  not  assign- 
able except  in  connection  with  the  assignment  of  rights  of  all  the  part- 
ners in  the  same  property.^' 

leachlnp  an  inequitable  conclusion  by  refusinp  to  modify  the  results  of  apply- 
ing the  legal  incidents  nf  joint  tenaTicy  to  (he  piirlnership  relation  is  d<»n<' 
away  with.  Finally,  gronnd  is  Inid  fi»r  the  siniplilication  of  a  pro<-edure  in 
rho<:e  cases  where  the  separate  creditor  desires  to  .secure  satisfaction  out  of 
his  debtor's  interest  in  the  i)artnership.    Compare  clau.se  tc)  with  .section  lis  (\). 

22  Clause  (b)  a.sserts  that  the  right  of  a  partner  as  co-owner  In  spi'cific  part- 
nership property  is  not  separately  assignable.  This  iioeuliarity  of  tenancy  in 
partnership  is  a  necessary  consequence  of  the  partnership  relation.  If  A.  and 
B.  are  partners,  and  A.  attempts  to  assign  all  his  ritrht  in  partnershij)  i)rop- 
erty,  say  a  particular  chattel,  to  C,  and  the  law  recognizes  the  ixissibility  of 
such  a  transfer.  C.  would  pro  tanto  become  a  partner  with  I?.;  for  the  rights 
of  A.  in  the  chattel  are  to  possess  the  chattel  for  a  partnership  purpose.  Hut 
partnership  is  a  voluntai-y  relation.  B.  cannot  h;,ve  a  partner  thrust  uiwju  him 
by  A.  without  his  (B.'s)  consent.  A.  cannot  confer  on  C.  his  (A.'s)  right  to 
possess  and  deal  with  the  chattel  for  a  partnership  purpose.  Neither  can  he 
confer  any  other  rights  which  he  has  in  the  projterty.  A  partner  has  a 
beneficial  interest  in  partnership  proiK-rty  considered  as  a  whole.  As  profits 
accrue,  he  has  a  right  to  be  paid  his  prop<3rtion,  and  on  the  winding  up  of 
the  business,  after  the  obligations  due  third  persons  have  been  met.  he  has  ;i 
right  to  l)e  paid  in  ca.sh  his  share  of  what  remains  of  the  partnership  proj>erty. 
These  rights  considered  as  a  whole  are  his  interest  in  the  partnership;  and 
this  beneficial  interest  he  may  assign  in  whole  or  fractional  part,  as  is  indi- 
cated in  section  27.  infra.  In  a  sense,  each  partner,  having  thus  a  lienefieial 
interest  in  the  partnership  property  considered  as  a  whole,  has  a  benelieiul 
interest  in  each  part,  and  such  beneficial  interest  might  be  regarded  as  as- 
signable if  it  were  not  iniiKissible.  except  by  purely  arbitrary  and  artificial 
rules,  to  measure  a  partner's  beneficial  interest  in  a  specific  chattel  l^^longinu' 
to  the  partnership,  or  any  other  specific  portion  of  partnership  property. 

A  single  illustration  will  make  dlear  the  impossibility  of  determining  a 
partner's  beneficial  interest  in  any  single  piece  of  partnership  prtiperty.  Let 
us  suppo-se  A.  and  B.  are  partners.  The  value  of  partnership  proi)erty  is 
$100,000;  the  liabilities  amount  to  $50,000.  A.  has  contributed  $ir..O<X»  and 
has  a  thi-ee-fourths  interest  in  the  profits;  B.  $10,000  and  has  a  one-fourth  in- 
terest in  the  pi-ofits.  A.  attempts  to  assign  his  interest  in  certain  definite  chat- 
tels belonging  to  the  partnership,  the  value  of  these  chattels  being  .<."»<mk).  The 
chattels  themselves  must  be  still  u.sed  for  partnership  purpo.ses.  On  dis.sohi- 
tion,  if  still  part  of  the  partnership  proiK-rty,  they  nuist  be  .sold.  If  A.  convey- 
ed anything,  it  was  not  a  right  in  these  chattels,  but  in  a  fractional  part  of  his 
interest  in  the  ])artnersbip.  But  how  is  it  to  be  determined  what  fractional 
part  of  his  interest  in  the  partnership  A.  intended  to  assign?  Did  he  inti'nd 
to  give  B.  a  lien  for  $o,000  on  his  interest,  or  a  lion  on  his  interest  for  three- 
fourths— his  share  of  the  profits— of  $."),000?  Or  did  he  intend  to  give  him  a 
lien  on  his  interest  in  the  partnershiji  which  in  amount  should  bear  the  same 
proportion  to  the  total  value  of  the  chattel,  $r».OOU,  as  the  amount  which  he 
would  receive  should  the  partnership  be  liipiidated,  bears  to  the  total  of  the 
present  partnership  proi)e:-ty?  It  is  impossible  to  ansAver  these  questi<nis.  If 
the  assigning  partner  did  not  intend  to  dissolve  the  imrtnership  it  is  even  im- 
possible to  analyze  the  possible  intentions.     Of  course,  in  practice,  a  partner 


134  APPENDIX 

who  apsi.criis  his  "interest  in  partifiil.-ir  jjMrtnorship  chattols."  hns  only  tho 
vaguest  notion  of  what  he  intends. 

Clause  (b)  not  only  states  a  principle  theoretically  sound,  it  expi'esses  al- 
most the  unbroken  current  of  authority  if  we  contiue  our  investigation  to 
cases  relating  to  attempted  voluntary  assignnuMits,  as  distinguished  from  in- 
voluntary assignments,  the  result  of  adverse  proceedings  by  a  separate  credi- 
tor of  a  partner. 

Thus  in  ("ayton  v.  Hardy,  27  Mo.  536  (ISoS).  two  were  i)artnors  in  a  farm. 
One.  without  the  consent  of  the  other,  sold  two  yoke  of  oxen,  the  property  of 
the  partnership  used  in  the  work  of  the  farm.  lie  delivered  the  oxen  to  the 
purcha.ser.  The  copai'.iier  brought  an  action  against  the  purchaser  and  re- 
covered possession.  In  Drake  v.  Thyng.  o7  Ark.  228  (ISSI),  the  copartners, 
after  an  assignment  by  one  of  his  interest  in  a  partnership  chattel,  recovered 
possession  Ity  proceedings  in  equity,  and  in  McNair  v.  Wilcox,  121  Pa.  437,  15 
Atl.  575.  6  Am.  St.  Kep.  71)9  (1888),  the  copartners  recovered  in  an  action  of 
trover  and  conversion  against  a  purchaser  who  refused  to  i-eturn  the  property. 
In  Freeman  v.  Abramson,  •'<)  Misc.  Kep.  101,  til  N.  Y.  Sui>p.  8.39  (1899),  the 
court  held  that  a  partner  who  had  '•assigned  the  partiiershii*  stock"  was  a 
necessary  parly  in  a  suit  for  the  replevin  of  the  goods  brougiit  by  the  other 
partners,  as  the  assignment  did  not  deprive  the  assignee  of  any  interest  in 
the  proi)erty.  These  cases  are  direct  authority  for  the  proposition  that  the 
attempted  assignment  of  a  partner.ship  chattel  by  a  partner,  or  of  his  interest 
in  the  chattel,  does  not  make  the  purchaser  and  the  other  partners  joint  ten- 
ants or  tenants  in  common  of  the  chattel,  for  one  .joint  tenant  or  one  tenant 
in  common  cannot  recover  possession  from  his  cotenant. 

An  assignment,  by  way  of  mortgage,  of  specihc  ijartuership  property  the 
a.--signmeut  not  benig  an  act  within  the  power  of  the  partner  creating  the  mort- 
gage, confers  no  rights  of  possession  on  the  mortgagee.  Wilcox  v.  Jackson,  7 
Colo.  521,  4  Pac.  9UG  (1884).  Nor  can  such  mortgagee  prevent  the  property 
from  being  applied  to  the  payment  of  partnership  debts,  though  thereby  all 
the  mortgagee's  rights,  if  any,  are  destroyed.  McGrath  v.  Cov.en,  57  Ohio  St. 
385.  49  N.  E.  338  (1898);  Osborne  v.  Barge,  29  Fed.  725  (Cir.  Ct.  N.  D. 
Iowa  1887).  There  are  indeed,  at  least  two  cases  which  have  regarded  the 
P'artuer  assigning,  by  way  of  mortgage,  his  interest  in  specific  partnership 
property  as  mortgaging  something:  Arnold  v.  Stevenson,  2  Nev.  234  (18t)()) ; 
Sutlive  V.  Jcmos.  01  (ia.  676  (1878);  but  in  neither  case  did  the  court  indicate 
how  the  value  of  the  interest  of  the  partner  could  be  determined. 

After  an  attempted  assignment  by  a  partner,  invalid  as  against  his  co- 
partner, of  all  the  partnership  property,  it  has  been  held  that  l)Oth  partners, 
as  partners,  have  an  insurable  interest  in  the  propertv.  Kimliall  v.  Hamilton 
Fire  Ins.  Co.,  21  N.  Y.  Super.  Ct.  495  (1861). 

Of  course,  an  attempted  assignment  of  all  the  partnership  property,  void 
as  an  assignment  of  the  rights  of  either  of  the  partners  in  the  property,  or  an 
attempted  assignment  by  one  partner  of  his  rights  in  all  the  partnership  prop- 
erty, may  be  regarded  as  a  valid  assignment  of  the  partner's  interest  in  the 
partnership.  For  instance,  in  NicoU  v.  Mumford,  4  Johns.  Ch.  (N.  Y.)  522 
(1820),  the  entire  pioperty  of  the  partnership  was  the  brig  Phfcnix  and  her 
cargo.  One  partner  assi.gned  "all  his  estate  real  and  personal,"  according  to  a 
schedule  annexed  to  the  deed  of  assignment,  the  schedule  including  the  brig 
I'ho'nix  and  her  cargo.  Chancellor  Kent  regarded  the  deed  as  assigning  the 
partner's  interest  in  the  partnership.  Whatever  the  merits  of  this  decision,  it 
Is  not  authority  for  the  i)roposition  that  a  partner's  right  in  one  or  more  of 
the  chattels  of  the  partnership  may  be  separately  assigned.  It  merely  stands 
for  the  proposition  that  a  particular  adt — the  attempted  assignment  of  the 
partnership  p-roijerty — was,  under  the  circumstances  of  that  case,  an  assign- 
ment, not  of  the  chattels,  the  brig  and  her  cargo,  but  of  the  interest  of  the 
assignor  in  the  partner.ship.  Compare  Ilorton's  Appeal,  13  I'a.  67  (1850).  In 
Miller  v.  Brigham,  50  Cal.  615  (1875),  A.  and  B.  were  partners.  A  "sold  and 
conveyed"  to  C.  "all  his  (A.'s)  one  undivided  one-half  interest  in  the  property." 
The  court  was  of  the  opinion,  though  the  (juestion  Avas  not  directly  before  them, 
that  A.  had  asj^igned  to  C.  his  interest  in  the  partnership.  The  case  does  de- 
cide that  C.  had  no  right  to  possess  any  of  the  partnership  iirojierty. 

Against  this  uniform  current  of  authority  we  know  of  oidy  one  case  where 
the  voluntary  assignment  by  a  partner  of  a  chattel  belonging  to  partnership, 


UMFORNr    PAnTNKIlSllIP   ACT  l.'io 

not  hoinn;  valid  as  a  f(»lloftivc  assifmucnt  of  tin-  rights  of  all  the  partners  in 
the  proiM'it.v,  ni'VLTtiich'ss  vested  ii;;lits  in  the  chat  his  iu  the  usjsiKUee.  The 
case  is  lilaker  v.  Sands.  1^!)  Kan.  .l.jl  (Ins;;),  a.  ami  H.  were  imrlneis ;  the 
husincs.s'  hoinj;  the  iminoveiiicnt  of  a  lliulc  «,f  slu-cp.  In  the  ten!ix»rary  al>- 
.sence  of  I?.,  A.  sold  and  delivered  all  the  sheep  t«)  ('.  As  the  partner.ship  was 
for  the  improvement,  not  lor  thi'  sale  of  the  sheep,  their  sale  was  heyond  the 
s<oi)e  of  A.  as  partner.  A.  died,  and  1'..  l>roii;,'lit  an  a«-lion  au'ainst  ('.  for  the 
possession  of  the  sheep.  The  trial  court  refused  to  admit  V.'s  ofr«-r  of  the  hill 
of  sale  of  the  sliei'p,  and  a  verdict  in  favor  of  H.  was  v:iven.  On  apjieal  a  new 
trial  wa.s  awarded  on  the  theor.v,  that  while  C'.s  a.ssi;,'nment  did  not  transfer 
the  rights  of  1'..  in  the  sheei),  it  made  1$.  and  C.  tenants  in  common,  and,  there- 
fore the  liill  of  sale  was  a  defense  to  IS.'s  action,  and  should  have  been  ad- 
mitted in  evidence.  The  practical  result  of  the  decision  was  to  deny  to  the 
surviving;  partner  the  ri;,'ht  lo  ol)tain  jmssession  of  partnership  jiroiwrty, 
thon;,di,  of  course,  he  was  lialili'  for  all  the  parlnershii*  delits.  Tlie  adoption 
of  clause  (b)  as  drafted  woidd  make  such  a  decision  imi>ossilile. 

It  will  he  noted  that  this  clau.se  deals  with  what  may  he  called  the  (|uality 
of  assipiaiiiiify.  It  asserts  that  the  ri^dit  in  siiecitic  partnership  pro|M'rly  is 
assij,'nal>le  collectively  with  the  rights  of  the  other  partners;  or.  to  put  the 
matter  in  another  w.-i.Vj  it  is  possible  to  assiiLfii  the  ri;:hts  «»f  all  the  partner**— 
the  rinhts  of  tlu-  i)artnershii> — in  partnership  property,  but  it  is  not  (Kissible  to 
assijjn  .separately  the  rij^ht  of  an  individual  partner. 

It  is  important  to  note  that  the  <  biuse  does  n(;t  deal  with  the  person  or  jH-r- 
sons  who  may  make  an  assij^nment  oi  jiartnership  property,  or  with  the  act.s 
necessary  to  a  conveyance  of  title.  Indeed,  the  act  us  a  whole,  e.xcept  in  the 
case  of  a  conveyance  of  land  belon^rin;;  to  a  partnership  (.see  section  11,  para- 
graphs 2.  .'J,  4.  5.  0).  does  not  attempt  to  deal  with  any  tpiestion  pertaininu  to 
the  transfer  of  title.  The  act.  however,  d()e.s  deal  iu  section  9  (1)  with  the 
authority  of  a  partner  to  bind  the  ijurtnership.  Clause  (1))  assert.s  that  part- 
nership i>roi)erty  is  asslfrnable  while  section  9  (1)  indicates  when  a  partner 
has  authority  to  make  an  assiiinnient  of  partner.ship  iiroiK'rty;  but  neithe- 
tells  us  what  the  partner,  in  view  of  what  we  may  call  the  rules  of  convey- 
ancing^, must  do  in  order  to  transfer  the  title  to  a  straujrer,  or  even  whether,  in 
view  of  those  rules  it  is  possible  for  him.  acting:  alone  to  transfer  title.  For 
instance  A.  and  P..  are  partners  in  the  retail  dry  t^oods  business.  In  the 
cour.se  of  the  business  A.  sells  and  delivers  to  ('.  iiart  of  the  stock  in  trade. 
Clause Ml>)  indicates  that  the  ri;;hts  of  A.  and  H.  in  the  j;oods  are  collectively 
as.sij,'iud)le ;  .section  11  (1)  that  A.  had  the  authority  to  make  the  sule  and  de- 
liver the  soods.  But  whether  a  ^ood  title  has.  by  the  sale  and  delivery,  been 
vested  in  C.  is  a  question  iK-rtaining  to  the  transfer  of  title  to  chattels,  de- 
livery passes  the  title  of  the  owner  when  the  delivery  is  by  the  owner  or  with 
his  consent.  0.,  therefore,  in  the  case  put,  obtains  a  iU'ood  title.  It  is  no  part  of 
the  iiusiness-t)f  a  partnership  act,  however,  to  deal  with  such  a  <iuesti(»n:  un- 
less, as  in  the  case  of  land,  it  is  con.sidered  desirable  to  introduce  a  new 
method  of  transfer  of  title,  or  to  make  clear  confusions  in  the  law,  which 
confusions  exist  onl.v  in  cases  connected  with  property  held  by  a  partnership. 
In  all  other  ca.ses.  as  in  the  illustration  .triven.  the  reiiuirements  of  a  jiartner- 
ship  act  are  satisfied  if  the  co-ownership  of  partnership  projx'rty  is  stated, 
the  collective  assisnability  of  the  ri.i:hts  of  all  the  partners  emphasizitl.  and 
the  extent  of  the  agency  of  the  partner  to  act  for  his  copartners  intli<ated. 

The  importance  of  seeing  clearly  the  exact  scoi>e  of  clause,(b)  warrants  two 
a<lditiiiiial  il!ustrati(ins.  If  A.,  in  the  case  above  put.  in.stead  (»f  selling  and 
delivering  part  of  the  stock,  should  attempt  to  sell  and  should  deliver  a  coun- 
ter or  tabl(>  on  which  the  goods  were  sold,  would  the  purchaser  obtain  a  u'ood 
titleV  Clause  (b)  does  not  answer  this  question.  It  merely  states  that  the 
talile.  being  i)artnership  property,  the  rights  of  all  the  jiartners  in  it  are  sul»- 
ject  to  collective  assignment.  This  is  what  A.  has  attiMupted  to  do.  Rut  the 
clause  does  not  tell  us  whether  A.  had.  under  th(^  circumstances.  jiow«>r  to  nuike 
the  assignment  or  whether,  having  the  iK)wer,  he  has  done  so.  Neither  d<H's 
s;  .tion  n  (h  answer  either  of  these  questions.  Section  11  (I)  tells  us  that  A. 
has.  under  the  circumstances,  no  authority  to  bind  the  i)artners  as  the  act  is 
not  an  act  foi"'  apparentl.v  carrying  on  in  the  usual  way  the  busini'ss  of  the 
partni'rship.  Hut  whether  A.  has  the  |)ower  to  make  the  conveyance  (le|M>nds 
on  the  law  of  transfer  of  title  to  chattels — a  subject  beyoiul  the  .scope  of  the 


136  APPENDIX 

(c)  A  partner's  right  in  specific  partnership  property_ls  not  subject 
to  attachment  or  execution,  except  on  a  claim  against  the  partnership. 
When  partnership  property  is  attached  for  a  partnership  debt  the 
partners,  or  any  of  them,  or  the  representatives  of  a  deceased  partner, 
cannot  claim  any  right  under  the  homestead  or  exemption  laws^^^ 

(d)  On  the  death  of  a  partner  his  right  in  specific  partnership  prop- 
erty vests  in  the  surviving  partner  or  partners,  except  where  the  de- 
ceased was  the  last  surviving  partner,  when  his  right  in  such  prooerty 
vests  in  his  legal  representative.  Such  surviving  partner  or  partners, 
or  the  legal  representative  of  the  last  sm'viving  partner,  has  no  right 
to  possess  the  partnership  property  for  any  but  a  partnership  purpose. 

(e)  A  partner's  right  in  specific  partnership  property  is  not  subject 
to  dower,  curtesy,  or  allowances  to  widows,  heirs,  or  next  of  kin. 

act.  Under  ordinary  circumstances,  C.  would  obtain  no  title  to  B.'s  rights,  as 
it  is  a  fundamental  rule  pertaining  to  the  transfer  of  titles  to  chattels,  that  the 
right  of  the  true  owner  is  not  transferred  by  the  sale  and  delivery  of  an  agent 
in  possession,  unless  the  owner  has  done  something  to  clothe  the  agent  with 
the  apparent  power  of  sale,  the  delivery  of  the  chattel  by  the  owner  to  the 
agent  or  bailee  not  being  considered  such  an  act. 

Finally,  suppose  A.  and  B.  are  in  partnership,  the  business  of  the  partnership 
being  the  buying  and  selling  of  land.  The  title  to  a  particular  tract  is  in  A. 
and  B.  A.  sells  X.  to  C,  giving  C.  a  deed  signed  by  A.,  but  not  by  B.  The 
land  being  partnership  property  the  rights  of  A.  and  B.  are  collectively  as- 
.^^ignable.  A.  has  attempted  to  make  such  an  assignment.  The  business  of  the 
partnei^ship  being  "trading  in  land,"  the  sale  was  an  act  which  the  partner 
had  authority  to  do.  But  whether  the  deed  signed  by  one  partner  only  in  his 
own  name  conveyed  to  B.  title  is  again  a  question  of  conveyancing,  and  normal- 
ly outside  the  province  of  a  partnership  act.  In  this  case,  however,  section  11 
(4)  does  deal  with  the  transfer  of  the  e(iuitablc  title,  declaring  that  it  is,  under 
the  circumstances,  vested  in  C. 
,.23  Compare  this  clause  with  section  2S  (1). 

T!lie  first  sentence  in  this  clause  is  similar  to  section  2.3  (1)  of  the  English 
Act.  It  is  a  logical  con.seiiuence  of  clause  (b).  If  a  partner's  right  in  specific 
partnership  property  is  not  assignable  by  voluntary  assignment  for  a  separate 
purpose  of  the  assigning  partner,  his  separate  creditors  should  not  be  able  to 
force  an  involuntary  assignment.  The  beneficial  rights  of  the  separate  credi- 
tors of  a  partner  in  partnership  property  should  be  no  greater  than  the  bene- 
ficial rights  of  their  debtor.  The  confusion  of  the  subject  of  this  clause  in  the 
decisions  is  well  known  to  all  students  of  the  law  of  partnership.  For  all 
practical  purpo5*s,  while  the  reasoning  of  the  courts  is  more  or  less  conflict- 
ing, the  net^xiiSiilt^of  the  remedial  law^ji^  wnr'-'^d  '"■ut  i"  l^w  and  at  equity,  is 
that  a  .iudgmeutcrecrnuT  of  u  seliarate^wrtner  may  attach  and  sell  his  debtor's 
interest  in  partnership  property  as  that  interest  is  defined  in  section  26  (see 
section  28) ;  but  he  cannot  sell,  so  as  to  affect  in  any  way  the  rights  of  the 
^l^arTuership.  specific  partnershin  }iroTK-rtv.  See  Ileydon  y.  Ileydon,  1  Salk. 
392  (1003) ;  Eddie  v.  Davjdson,  2  Dougl.  (J50  (1781) ;  Taylor  v.  Fields,  4  Ves. 
390  n799> ;  Lord  v.  Baldwin,  23  Mass.  (0  Pick.)  348  (1828)  ;  Doner  v.  Stauffer.  1 
Pen.  W.  (Pa.)  198,  21  Am.  Dec.  .370  (1829);  Tappan  v.  Blaisdell,  5  N.  IT.  190 
(1830):  Phillips  v.  Cook.  24  Wend.  (N.  Y.)  389(1840):  Washburn  v.  Bank  of 
Bellows  Falls,  19  Vt.  278  (1847) ;  Nixon  v.  Nash,  12  Ohio  St.  047.  80  Am.  Dec. 
390  (ISOl) ;  Cooper's  Appeal,  26  Pa.  202  (18.56)  ;  Menagh  v.  Whitwell,  52  N.  Y. 
346.  11  Am.  Rep.  683  (1873) '',  Case  v.  Beauregard,  99  U.  S.  119,  25  L.  Ed.  370 
(1878). 

The  second  sentence  in  the  paragraph  apparently  expresses  the  weight  of 
authority.  See  Eurdick,  111-113.  299.  A  partner  has  a  right  to  claim  exemp- 
tion if  his  interest  in  the  partnership  is  attached  for  his  separate  debts.  See 
section  28  (3),  infra. 


UNIFORM    TARTNERSHIP  ACT  137 

vSecbon  _2d_  [Nature  of  Partner's  Interest  in  the  Partnership.]  A 
partner's  interest  in  the  partnership  is  his  share  of  the  prolUs  and  sur- 
Ijhis,-and  the  same  is  personal  property. 

Section  27.  [Assignment  of  J\'irtner's  Interest.]  (1)  A  conveyance 
by  a  partner  of  his  interest  m  the  partnership  does  not  of  itself  dis- 
solve the  partnership,  nor,  as  against  the  other  partners  in  the  absence 
of  agreement,  entitle  the  assignee,  during  the  continuance  of  the  part- 
nership to  interfere  in  the  management  or  administration  of  the  part- 
nership, business  or  affairs,  or  to  require  any  information  or  account 
of  partnership  transactions,  or  to  inspect  the  partnership  books ;  but 
it  merely  entitles  the  assignee  to  receive  in  accordance  with  his  con- 
tract the  profits  to  which  the  assigning  partner  would  otherwise  be 
cntitled.=^* 

(2)  In  case  of  a  dissolution  of  the  partnership,  the  assignee  is  enti- 
tled to  receive  his  assignor's  interest  and  may  require  an  account  from 
the  date  only  of  the  last  account  agreed  to  by  all  the  partners. 

Section  28.  [Partner's  Interest  Subject  to  Charging  Order.]  (1) 
On  due  application  to  a  competent  court  by  any  judgment  creditor  of 
a  partner,  the  court  which  entered  the  judgment,  order,  or  decree,  or 
any  other  court,  may  charge  the  interest  of  the  debtor  partner  with  pay- 
ment of  the  unsatisfied  amount  of  such  judgment  debt  with  interest 
thereon;  and  may  then  or  later  appoint  a  receiver  of  his  share  of  the 
profits,  and  of  any  other  money  due  or  to  fall  due  to  him  in  respect  of 
the  partnership,  and  make  all  other  orders,  directions,  accounts  and  in- 
quiries which  the  debtor  partner  might  have  made,  or  which  the  cir- 
cumstances of  the  case  may  require.^^ 

(2)  The  interest  charged  may  be  redeemed  at  any  time  before  fore- 
closure, or  in  case  of  a  sale  being  directed  by  the  court  may  be  pur- 
chased without  thereby  causing  a  dissolution: 

(a)  With  separate  property,  by  any  one  or  more  of  the  partners,  or 

(b)  With  partnership  property,  by  any  one  or  more  of  the  partners 
with  the  consent  of  all  the  partners  whose  interests  are  not  so  charged 
or  sold. 

24  In  re  the  subject  of  this^ paragraph,  see  George,  153;  Beale's  Parsons.  §§ 
106,  305,  .".06:  sfol'^^  S§  272,  377,  308;  Bates,  §§  158-168.  931-93:?:  Lind- 
ley,  397  ot  seq.  620 ;  Jas.  Parsons,  §  175 ;  Collyer,  151,  161 ;  Kent.  .59.  The.se 
authorities  on  the  whole  state  that  the  mere  assignment.  cli.ssolve.s Jjio  iiartner- 
ship.  Many  such  assignments,  however,  are  merely  by  way  ot  coiinieiai  sc- 
curity  for  a  loan,  the  assigning  partner  in  no  wise  intending  to  end  the  part- 
nersliip  relation.  If  he  neglects  hi.-<  personal  relation  the  other  partners  may 
dissolve  the  partnership  imder  secticm  31  of  this  act.  But  the  mere  fact  of 
assignment  without  more  should  not  be  said  in  all  cases  to  1)C  an  act  of  dis- 
solution. The  ch.inge  in  the  existing  law  follows  a  similar  change  of  the 
Engli.sh  law  embodied  in  section  31  of  the  English  Partnership  Act. 

25  This  provision  is  Uiken  from  section  23  (2)  of  the  English  Partoiership  Act. 
The  operation  of  the  provision  has  given  great  .satisfaction.  The  judgment 
creditor  does  not  acquire  any  greater  rights  than  the  debtor  is  entitled  to  for 
his  o\rn  benetlt  button  yn-:nglish  &  CoioTiKil  I'roduce  (>>..  [19<»21  2  Ch.  502 ; 
Howard  v.  Sadler.  [l.'<93]  1  Q.  B.  1  •,  Cooper  v.  (Jrillin,  [1S92J  1  Q.  P..  710; 
Scott  V.  Lord  Hastings,  4  K.  &  J.  G.33  (1858). 


138  APPENDIX 

(3)  Nothing  in  this  act  shall  be  held  to  deprive  a  partner  of  his 
right,  if  any.  under  the  exemption  laws,  as  regards  his  interest  in  the 
partnership. 

PART  VI— DISSOLUTION  AND  WINDING  UP 
Section  29.      [Dissolution  Defined.]      The  dissolution  of  a  partner- 
ship is  the  change  in  the  relation  of  the  partners  caused  by  any  part- 
ner ceasing  to  be  associated  in  the  carrying  on  as  distinguished  from 
the  winding  ifp  of  the  business.-'' 

Section  30.  [Partnership  Not  Terminated  by  Dissolution.]  On 
dissolution  the  partnership  is  not  terminated,  but  continues  until  the 
winding  up  of  partnership  affairs  is  completed. 

Section  31.'*'  [Causes  of  Dissoliition.]  Dissolution  is  caused  :  (1) 
Without  violation  of  the  agreement  between  the  partners, 

(a)  By  the  termination  of  the  definite  term  or  particular  undertak- 
ing specified  in  the  agreement, 

(b)  B}-  the  express  will  of  any  partner  when  no  definite  term  or  par- 
ticular undertaking  is  specified, 

26  As  used  l)y  the  le.Ciil  iK'ofession  the  term  "dissolution"  desisniates,  not 
only  the  single  act  of  the  termination  of  the  actual  conduct  of  the  ordinary 
business,  but  also  often  the  series  of  acts  thereafter  until  the  final  settlement 
of  all  partnership  affairs.  It  is  also  frequently  said,  that  dissolution,  al- 
though the  word  is  used  to  designate  only  the  termination  of  ordinary  busi- 
ness relations,  terminates  the  partnership,  it  being  at  the  same  time  explained 
that  the  partnership  thereafter  continues  to  exist  for  the  piu'pose  of  suing  and 
being  sued  in  the  process  of  winding  up  partnership  affairs.  Certainty  de- 
mands that  this  confusion  should  be  removed  if  possible.  In  this  act  disso- 
lution designates  the  point  in  time  when  the  partners  cease  to  cari-y  on  the 
business  together;  termination  is  the  point  in  time  when  all  the  partnership 
affairs  are  wound  up;  winding  up  the  process  of  settling  partnership  affairs 
after  dissolution. 

~"  i'ni-ii"-r!i]iii  f)\  will  settle  a  matter  on  which  at  present  con.siderable  con- 
fusion and  uncertainty  exists.  The  paragraph  as  drawn  allows  a  partner  to 
di.'^solve  a  partnership  in  contravention  of  the  agireement  between  the  part- 
ners. This  is  supported  by  the  weight  of  authority.  Cal.  Civ.  Code,  §  2417 ; 
S.  D.  Civ.  Code,  1908.  §  1736;  Okl.  C.  C.  §  4SnO ;  nTTT'  Civ.  (_!o(re,  §  5845 ; 
Mont.  Civ.  Code  1S95,  §  32G2 ;  Ga.  Civ.  Code  1895,  §  2633 ;  Skinner  v.  Davton. 
19  Johns.  (X.  Y.)  513.  537.— 10  Am.  Dec.  286  (1822) ;  Mason  v.  Connell.  1 
"Whart.  (Pa.)  381,  388  (1836);  Monroe  v.  Conner.  15  Me.  178.  32  Am.  Dec.  148 
(183S) :  Cape  Sable  Co.'s.  Case,  3  Bland  (Md.)  606.  674  ('1840) :  Slemmer's  Appeal, 
58  Pa.  168,  176.  98  Am.  Dec.  255  (1868)  ;  Solomon  v.  Kirkwood,  55  Mich.  256, 
21  X.  W.  336  (1884)  :  Carr  v.  Hertz,  54  N.  J.  Eq.  127.  33  Atl.  194  (1895)  ;  Moore 
V,  Price,  116  Ala.  247,  22  South.  531  (1896) ;  Karrick  v.  Hannaman.  168  U.  S. 
328,  334.  18  Sup.  Ct.  135,  42  L.  Ed.  484  (1897)  ;  Lapenta  v.  Lettieri.  72  Conn.  377. 
44  Atl.  730.  77  Am.  St.  Rep.  315  (1899);  Clements  v.  Norris,  8  Vh.  D.  129,  133 
(1878).  The  i:nglish  law  is  opposed  to  this  view.  Lindley,  601 ;  Crawshay  v. 
Maule,  1  Swanst.  Ch.  509  (1818);  Featherstonhaugh  v.  Fenwick,  17  Yes.  298 
(1810) :  I'e:icock  v.  Peacock,  16  Yes.  49  (1809) ;  Ferrero  v.  Buhlmeyer.  34  How. 
Prac.  (N.  Y.)  33  (1867) ;    Story,  §  275. 

The  relation  of  partners  is  one  of  agency.  The  agency  is  such  a  personal 
one  fh;it  er|uitA-^ cannTTt^entorce  it  even  where  the  agreement  jirovides  that 
the  partnership  shall  continue  for  a  definite  time.  The  power  of  any  partner 
to  tern.'iiiate  the  relation,  even  though  in  doing  so  he  Ijreaks  a  contract,  should, 
it  is  submitted,  be  recognized. 

The  rights  of  the  parties  upon  a  dissolution  in  contravention  of  the  agree- 
ment are  safeguarded  by  section  38  C2),  infra. 


UNIFORM    PAIlTXRKSIirP    ACT  130 

(c)  By  the  express  will  of  all  the  partners  who  have  not  assigned 
their  interests  or  suffered  them  to  be  charged  for  their  separate  debts, 
either  before  or  after  the  termination  of  any  sjjecified  term  or  partic- 
ular undertaking, 

(d)  ]5y  the  expulsion  of  any  partner  from  the  business  bona  fide  in 
accordance  with  such  a  power  c(jnfcrred  by  the  agreement  between  the 
partners ; 

(2)  In  contravention  of  the  agreement  between  the  partners,  where 
the  circumstances  do  not  permit  a  dissolution  under  any  other  provision 
of  this  section,  by  the  express  will  of  any  partner  at  any  time; 

(3)  By  any  event  which  makes  it  unlawful  for  the  business  of  the 
l)artnership  to  be  carried  on  or  for  the  members  to  carry  it  on  in  part- 
nership ; 

(4)  FiX  the  death  of  any  partner ; 

(5)  By  the  bankruptcy  of  any  partner  or  the  partnership; 

(6)  By  decree  of  court  under  section  32. 

Section  32J5 — fDissolution  by  Decree  of  Court.]  (1)  On  applica- 
tion by  or  for  a  partner  the  court  shall  decree  a  dissolution  whenever : 

(a)  A  partner  has  been  declared  a  lunatic  in  any  judici.'d  proceeding 
or  is  shown  to  be  of  unsound  mind, 

(b)  A  partner  becomes  in  any  other  way  incapable  of  performing 
iiis  part  of  the  partnership  contract, 

(c)  A  partner  has  been  guilty  of  such  conduct  as  tends  to  affect  prej- 
udicially the  carrying  on  of  the  business, 

(d)  A  partner  wilfully  or  persistently  commits  a  breach  of  the  part- 
nership agreement,  or  otherwise  so  conducts  himself  in  matters  re- 
lating to  the  partnership  business  that  it  is  not  reasonably  practicable 
to  carry  on  the  business  in  partnership  with  him, 

(e)  The  business  of  the  partnership  can  only  be  carried  on  at  a  loss. 

(f)  Other  circumstances   render  a   dissolution  equitable. 

(2)  On  the  application  of  the  purchaser  of  a  partner's  interest  un- 
der sections  27  or  28 : 

(a)  After  the  termination  of  the  specified  term  or  particular  under- 
taking, 

(b)  At  any  time  if  the  partnership  was  a  partnership  at  will  when 
the  interest  was  assigned  or  when  the  charging  order  was  issued. 

Section  33.  [General  Effect  of  Dissolution  on  Authority  of  Part- 
ner.] Except  so  far  as  may  be  necessary  to  wind  up  partnership  af- 
fairs or  to  complete  transactions  begun  but  not, then  finished,  disso- 
lution terminates  all  authority  of  any  partner  to  act  for  the  partnership. 

(1)  With  respect  to  the  partners, 

(a)  W'hen  the  dissolution  is  not  by  the  act.  bankruptcy  or  death  of 
a  partner  ;    or 

28 ''We  find  notliinc:  in  tlio  provisions  of  fho  Unifonn  PMrtnorship  .\ct  of 
1917.  cilcd  l)y  connsol.  vestrictinj;  the  inhoront  iwwers  rooomiizod  as  «>xistinj: 
in  a  co\u-t  of  ctiuitv  to,  on  a  propor  showini:.  appoint  a  ivceivor  bolwocn  dis- 
asrepini;  partners.""    Dolenga  v.  Lipka.  224  Mich.  27t!.  10.".  N.  W.  9<">  (in2.'n. 


140  ArrEXinx 

(b)   When  the  dissokition  is  by  such  act,  bankruptcy  or  death  of  a 
partner,  in  cases  where  section  34  so  recjuires. 

(2)   With  respect  to  persons  not  partners,  as  declared  in  section  35. 
Section  34.-'*     [Right  of  Partner  to  Contribution  From  Copartners 

2!>  This  section  relates  only  to  a  partuei's  liability  to  hi.?  eopartiior,  where 
a  copartner,  after  dissolution,  caused  by  the  act  of  one  of  the  parties  or  by 
the  death  or  bankruptcy  of  a  partner,  makes  a  contract  in  the  course  of  part- 
nership business. 

As  worded,  where  the  dissolution  has  been  caused  by  the  act  of  one  of  the 
parties,  if  the  partner  acting  is  subject  to  a  liability  to  third  persons,  he  can 
call  on  his  copartners  to  contribute  towards  this  liability  to  the  same  extent  as 
if  there  had  been  no  dissolution,  provided  he  had  no  knowledge  of  the  dissolu- 
tion, at  the  time  of  the  act.  Mere  notice,  not  producing  knowledge,  would  not 
be  sutlicient.  This  provision  makes  certain  that  which  is  now  uncei-tain. 
Thus  A.,  B.  and  C.  are  partners.  A.,  in  accoirdance  with  his  right,  or  in  con- 
travention of  the  agreement  between  the  partners,  declared  a  dissolution  of 
the  partnership.  B.,  subsequently,  makes  a  contract,  for  the  partnership  in 
ignorance  of  the  dissolution.  B.  under  this  act  would  have  the  right  to  call 
upon  A.  and  C.  to  assume  their  sha\re  of  the  burden.  The  Commissioners  be- 
lieve that,  to  relieve  A.  and  O.  of  this  duty  to  B..  B.  ought  to  have  more  than 
"notice"  as  "notice"  is  detined  in  section  3,  supra.  "Xotice"  should  be,  it  is 
submitted,  sufficient  in  all  ca.ses  where  the  fact  t^o  be  notified  is  an  ordinary 
business  fact,  as  notice  to  third  persons  of  the  dissolution  of  a  partnership. 
But  it  is  not  cu.stomary  for  partners  to  dissolve  a  partnership  at  a  time  not 
previously  specified,  without  considtatiou  with  their  copartners.  Such  dissolu- 
tion may  or  may  not  amouiit  to  a  breach  of  partnership  contract ;  but  in  any 
event,  if  done  without  consultation,  it  is  out  of  the  ordinary  coiirse.  This 
fact  should  not  deprive  the  partner  of  a  right  to  terminate  a  relationship 
which  must  necessarily  depend  on  mutual  good  will  and  confidence;  but  if 
the  partner  so  tccmiuating  wishes  to  show  that  he  should  not  be  required  by 
his  partners  to  be  liable  for  his  share  of  the  loss  due  to  a  partnership  con- 
tract thereafter  made  by  them,  he  should  be  able  to  prove  that  they  had 
"knowledge"  that  he  had  dissolved  the  partnership  at  the  time  thej'  made  the 
contract. 

CIau.se  (b)  makes  a  change  in  the  law.  Beale's  Parsons,  §§  309,  310,  318. 
342,  343,  3.51 ;  Mechem,  §§  245,  258.  2.59,  260.  201,  266 ;  Collyer,  §$i  102,  103 : 
30  Cj-c.  G.53,  670 ;  Story,  §§  265  et  seq.,  319,  .334,  .336 ;  Bates,  570  et  seq. ; 
Conyngton.  §§  53,  72:  Burdick,  56;  Shumaker.  §§  119,  120;  3  Kent,  Com.  53. 
At  present  where  the  partnership  is  terminated  by  operation  of  law,  i.  e., 
by  death,  bankruptcy,  by  being  unlawfiil,  or  by  decree  of  court,  every  per.son 
"must  take"  notice  of  such  facts.  This  statement  is  made  generally  and  in- 
cludes the  partners.  As  to  the  partners,  to  whom  only  this  provision  relates 
the  Commissioners  agree  that  they  must  not  expect  relief  if  the  partnership 
or  the  business  is  unlawful,  or  if  they  have  actual  knoAvledge  or  notice  of 
dls.solution  by  decree  of  court;  but  the  Commissioners  do  not  l)elieve  that  the 
partners  do  have  actual  knowledge  or  should  "take  notice"  of  the  death  or  of 
the  bankruptcy  of  any  one  partner.  In  the  case  of  death  to  hold  that  a 
partner  acting  for  the  partnership  bona  fide  in  ignorance  of  the  death  of  one 
of  his  copartners  must  assume  the  entire  liability,  even  though  all  other  part- 
ners are  ignorant  of  the  death  of  the  partner,  and  even  though  such  deceased 
partner  was  entirely  inactive  and  may  have  rc-^ided  at  any  distance  from  the 
actual  place  of  business,  is  entirely  unjust  to  the  acting  partner  or  partners. 
The  rule  of  tlie  common  law  has  been  modified  as  to  the  law  of  agency.  Stoiy 
on  Agency  (1882)  598;  Cassidav  v.  McKenzie,  4  Watts  &  S.  (Pa.)  282,  39  Am. 
Dee.  76  (1842) ;  Cal.  Civ.  Code,  §  2356 ;  Dak.  C.  C.  §§  11-50.  1151 ;  Md.  Rev.  Code 
1878,  p  .388,  art.  44,  §  31 ;  Saunders'  Ilev.  Civ.  Code  La.  1909,  §  3032 ;  S.  C.  Gen. 
St.  1882,  §  1302;  Kent,  Comm.  646;  Mechem  on  Agency,  §  245;  Blackwood 
Wright  (2d  Ed.  Eng.)  on  Principal  and  Agent,  332  et  seq. ;  English  Convey- 
ancing Act  (1881)  §  47;   English  Bankruptcy  Act  (1883)  §  .38.     See  Lindley,  240 


UNIFORM    r'AUrNIMCSini*   ACT  1  tl 

After  Dissolution.]  Where  the  dissolution  is  caused  by  the  act,  death 
or  bankruptcy  of  a  partner,  each  partner  is  liable  to  his  copartners  for 
his  sliare  of  any  liability  created  by  any  partner  acting  for  the  part- 
nership as  if  the  partnership  had  not  been  dissolved  unless 

(a)  The  dissolution  being  by  act  of  any  partner,  the  partner  acting 
for  tlie  partnership  had  knowledge  of  the  dissolution,  or 

(b)  The  dissolution  being  by  the  death  or  bankruptcy  of  a  partner, 
tiie  partner  acting  for  the  partnership  had  knowledge  or  notice  of  the 
death  or  bankruptcy . 

Section  35.'f  (Power  of  Partner  to  Bind  Partnership  to  Third 
Persons  After  Dissolution.]  (1)  After  dissolution  a  partner  can  bind 
the  partnership  e.Kcept  as  provided  in  paragraph  (3) 

(a)  V>y  any  act  appropriate  for  winding  up  partnership  affairs  or 
completing  transactions  unfinished  at  dissolution  ; 

(b)  By  any  transaction  which  would  bind  the  partnership  if  dis- 
solution had  not  taken  place,  provided  the  other  party  to  the  tran>^ac- 
tion 

(1)  Had  extended  credit  to  the  partnership  prior  to  (lisM)luii')ii  .ind 
had  no  knowledge  or  notice  of  the  dissolution;   or 

(II)  Though  he  had  not  so  extended  credit,  had  nevertheless  knc.wn 
of  the  partnership  prior  to  dissolution,  and,  having  no  knowledge  <jr 
notice  of  dissolution,  the  fact  of  dissolution  had  not  been  advertised 
in  a  newspaper  of  general  circulation  in  the  place  (or  in  each  place  if 
more  than  one)  at  which  the  partnership  business  was  regularly  car- 
ried on. 

(2)  The  liability  of  a  partner  under  paragraph  (lb)  shall  be  satis- 
fied out  of  partnership  assets  alone  when  such  partner  had  been  prior 
to  dissolution 

I't  seq.  The  Commissioners  believe  that  the  partnership  law  should  follow 
this  modification. 

What  has  been  said  of  the  death  of  a  partner  applies  also  to  the  bank- 
ruptcy of  a  partner.  If  there  are  a  number  of  partners,  and  one  of  thi>m  bi- 
comea  bankrupt,  and  another  having  no  knowledge  or  notice  of  this  fai-t.  niakvs 
a  contract  in  the  ordinary  course  of  the  business,  there  api>ears  no  reason  why 
he  should  not  be  able  to  call  on  his  other  partner^,  not  bankrupt  or  deceased, 
to  contribute  towards  any  loss  which  his  separate  estate  may  sustain  on  ac- 
count of  the  contract. 

30  At  present  in  most  .iurisdictions  it  is  doubtful,  whether  under  the  cir- 
cumstances set  forth  in  (bi  "the  other  party''  can  bind  the  partnec-ship  where 
such  party  has  had  no  knowledso  or  notice  of  the  dissolution  and  has  had 
busini'.ss  transactions  with  the  partnership  before  dissolution,  but  lhe.se  busi- 
ness tran.sactions  have  not  involved  any  extension  of  credit  to  the  partnership. 

In  support  of  the -provision,  as  written,  see  Beale's  I'arsons,  S  .'it!>:  Mechoni, 
§  'J()2;  Burdiek,  57;  2  Bates,  S§  613.  H14 ;  30  Cyc.  (171;  Cal.  Civ.  Codo.  § 
L'4.":!.  There  is  also  authority  for  merely  reiuirinj;  that  "the  other  parly" 
shall  have  had  businoss  transaitions  with  the  iKirtnership.  James  I'arsons^  SS 
17;).  ISO.  LSI;  I.indley.  240:  Pollock,  OS.  3  Kent.  Comm.  67:  CoUyer.  lG3n  ; 
Sluiniaker.  §  121;    Mecheni.  261.  262;    Bates.  (-.12.  613. 

The  in-actical  impDssihilitv  of  the  iiartiicrs  knowing',  by  any  feasible  .system 
of  bookkeepin}.'.  all  the  persons  with  whom  they  have  had  de.Mlimrs,  unloss 
eredit  has  been  extended,  supports  the  wording  adopted  by  the  Commissioners. 


142  APrENDIX 

(a)  Unknown  as  a  partner  to  the  person  with  whom  the  contract 
is  made ;    and 

(b)  So  far  unknown  and  inactive  in  partnership  affairs  that  the 
business  reputation  of  the  partnership  could  not  be  said  to  have  been 
in  any  degree  due  to  his  connection  with  it. 

(3)  The  partnership  is  in  no  case  bound  by  any  act  of  a  partner 
after  dissolution 

(a)  Where  the  partnership  is  dissolved  because  it  is  unlawful  to 
carry  on  the  business,  unless  the  act  is  appropriate  for  winding  up 
partnership  affairs ;    or 

(b)  Where  the  partner  has  become  bankrupt ;   or 

(c)  Where  the  partner  has  no  authority  to  wind  up  partnership  af- 
fairs;   except  by  a  transaction  with  one  who 

(I)  Plad  extended  credit  to  the  partnership  prior  to  dissolution  and 
had  no  knowledge  or  notice  of  his  want  of  authority ;   or 

(II)  Had  not  extended  credit  to  the  partnership  prior  to  dissolu- 
tion, and,  having  no  knowledge  or  notice  of  his  want  of  authority,  the 
fact  of  his  want  of  authority  has  not  been  advertised  in  the  manner 
provided  for  advertising  the  fact  of  dissolution  in  paragraph  (Ibll). 

(4)  Nothing  in  this  section  shall  affect  the  liability  under  section 
16  of  any  person  who  after  dissolution  represents  himself  or  consents 
to  another  representing  him  as  a  partner  in  a  partnership  engaged  in 
carrying  on  business. 

Section  36.  [Effect  of  Dissolution  on  Partner's  Existing  Liabili- 
tv.]  (1)  The  dissolution  of  the  partnership  does  not  of  itself  dis- 
charge the  existing  liability  of  any  partner. 

{2)  A  partner  is  discharged  from  any  existing  liability  upon  dis- 
solution of  the  partnership  by  an  agreement  to  that  effect  between 
himself,  the  partnership  creditor  and  the  person  or  partnership  con- 
tinuing the  business;  and  such  agreement  may  be  inferred  from  the 
course  of  dealing  between  the  creditor  having  knowledge  of  the  dis- 
solution and  the  person  or  partnership  continuing  the  business.'^' 

(3)  Where  a  person  agrees  to  assume  the  existing  obligations  of 
a  dissolved  partnership,  the  partners  whose  obligations  have  been  as- 
sumed shall  be  discharged  from  any  liability  to  any  creditor  of  the 
partnership  who,  knowing  of  the  agreement,  consents  to  a  material 
alteration  in  the  nature  or  time  of  payment  of  such  obligations. 

(4)  The  individual  property  of  a  deceased  partner  shall  be  liable 
for  all  obligations  of  the  partnership  incurred  while  he  was  a  part- 
ner but  subject  to  the  prior  payment  of  his  separate  debts. 

Section  37.  [Right  to  Wind  Up.]  Unless  otherwise  agreed  the 
partners  who  have  not  wrongfully  dissolved  the  partnership  or  the 
legal  representative  of  the  last  surviving  partner,  not  bankrupt,  has 
the  right  to  wind  up  the  partnership  affairs;    provided,  however,  that 

31  Drake  v.  Hodgson,  118  Misc.  Rep.  503,  194  N.  Y.  Siipp.  874  (1922j ;  Le 
Gault  V.  I^wis-Zimmerman,  28  Wyo.  474,  20G  Pac.  157  (11)221. 


l^NII-OrcM    PAKTMOItSIIII'    A<'T  143 

any  partner,  his  legal  representative  or  his  assignee,  upon  cause  shown, 
may  obtain  winding  uj)  by  the  court. 

vSection  3.S.-*^'  |  Rights  of '  Partners  to  Application  of  Partnership 
Property.]  (Ij  When  dissolution  is  caused  in  any  way,  except  in 
contravention  of  the  partnership  agreement,  each  jjartner  as  against 
his  copartners  and  all  persons  claiming  thnjugh  them  in  respect  of 
their  interests  in  the  partnershij),  unless  otherwise  agreed,  may  have 
the  j)artnership  property  applied  to  discharge  its  liabilities,  and  the 
surj)lys  applied  to  pay  in  cash  the  net  amount  owing  to  the  respective 
partners.  But  if  dissolution  is  caused  by  expulsion  of  a  partner,  bona 
fide  under  the  jjartnership  agreement  and  if  the  expelled  partner  is 
discharged  from  all  partnershij^  liabilities,  either  by  pa}nient  or  agree- 
ment under  section  36(2),  he  shall  receive  in  cash  cnily  the  net  amount 
due  him  from  the  partnership. 

(2)  When  dissolution  is  caused  in  contravention  of  the  partnership 
agreement  the  rights  of  the  partners  shall  be  as  follows : 

(a)  Each  partner  who  has  not  caused  dissolution  wrongfully  shall 
have, 

(J)   All  the  rights  specified  in  paragraph  (1)  of  this  section,  and 
(II)    The  right,  as  against  each  partner  who  has  caused  the  disso- 
lution wrongfully,  to  damages  for  breach  of  the  agreement. 

(b)  The  partners  who  have  not  caused  the  dissolution  wrongfully, 
if  they  all  desire  to  continue  the  business  in  the  same  name,  either  by 
themselves  or  jointly  with  others,  may  do  so,  during  the  agreed  term 
for  the  partner.ship  and  for  that  purpose  may  possess  the  partnership 
property,  provided  they  secure  the  pa}nient  by  bond  approved  by  the 
court,  or  pay  to  any  partner  who  has  caused  the  dissolution  wrong- 
fully, the  value  of  his  interest  in  the  partnership  at  the  dissolution, 
less  any  damages  recoverable  under  clause  (2aII)  of  the.  section,  and 
in  like  manner  indemnify  him  against  all  present  or  future  partnership 
liabilities. 

(c)  A  partner  who  has  caused  the  diss(.>lution  wrongfully-  shall 
have : 

(I)  If  the  business  is  not  continued  under  the  provisions  of  para- 
graph (2b)  all  the  rights  of  a  partner  under  paragraph  (1),  subject 
to  clause  (2aII),  of  this  section, 

(II)  If  the  business  is  continued  under  paragraj^h  (2b)  of  this  sec- 
tion the  right  as  against  his  copartners  and  all  claiming  through  them 
in  respect  of  their  interests  in  the  partnership,  to  have  the  value  of 
his  interest  in  the  partnership,  less  any  damages  caused  to  his  copart- 
ners by  the  dissolution,  ascertained  and  paid  to  him  in  cash,  or  the 
payment  secured  by  bond  approved  by  the  court,  and  to  be  released 

:<2  Tho  rijiht  jiivcn  to  oacli  pMrtiior.  whore  no  !i;;';"i'ciiuMit  to  the  cniitrary  has 
been  made,  to  have  his  share  of  the  stirplus  paid  to  him  in  ea.><h  makes  certain 
an  existint:  uneertainty.  At  present  it  is  Jiot  certain  whether  a  partner  may 
or  nuiy  not  insist  on  a  physical  partition  of  the  property  remaining:  after  third 
persons  have  been  paid. 


144  APPENDIX 

from  all  existing  liabilities  of  the  partnership ;  but  in  ascertaining  the 
value  of  the  partner's  interest  the  value  of  the  good-will  of  the  busi- 
ness shall  not  be  considered. 

Section  39.  [Rights  \\'here  Partnership  is  Dissolved  for  Fraud  or 
Misrepresentation.]  Where  a  partnership  contract  is  rescinded  on 
the  ground  of  the  fraud  or  misrepresentation  of  one  of  the  parties 
thereto,  the  party  entitled  to  rescind  is,  without  prejudice  to  any  other 
right,  entitled, 

(a)  To  a  lien  on,  or  right  of  retention  of,  the  surplus  of  the  part- 
nership property  after  satisfying  the  partnership  liabilities  to  third  per- 
sons for  any  sum  of  money  paid  by  him  for  the  purchase  of  an  in- 
terest in  the  partnership  and  for  any  capital  or  advances  contributed 
by  him ;   and 

(b)  To  stand,  after  all  liabilities  to  third  persons  have  been  satis- 
fied, in  the  place  of  the  creditors  of  the  partnership  for  any  payments 
made  by  him  in  respect  of  the  partnership  liabilities ;   and 

(c)  To  be  indemnified  by  the  person  guilty  of  the  fraud  or  mak- 
ing the  representation  against  all  debts  and  liabilities  of  the  partner- 
ship. 

Section  40.  [Rules  for  Distribution.]  In  settling  accounts  be- 
tween the  partners  after  dissolution,  the  following  rules  shall  be  ob- 
served, subject  to  any  agreement  to  the  contrary: 

(a)  The  assets  of  the  partnership  are; 

(I)  The  partnership  property, 

(II)  The  contributions  of  the  partners  necessary  for  the  payment 
of  all  the  liabilities  specified  in  clause  (b)  of  this  paragraph.^^ 

(b)  The  liabilities  of  the  partnership  shall  rank  in  order  of  pay- 
ment, as  follows : 

(I)  Those  owing  to  creditors  other  than  partners, 

(II)  Those  owing  to  partners  other  than  for  capital  and  profits, 

(III)  Those  owing  to  partners  in  respect  of  capital, 
(IV^   Those  owing  to  partners  in  respect  of  profits. 

(c)  The  assets  shall  be  applied  in  the  order  of  their  declaration  in 
clause  (a)  of  this  paragraph  to  the  satisfaction  of -the  liabihties. 

(d)  The  partners  shall  contribute,  as  provided  by  section  18  (a) 
the  amount  necessary  to  satisfy  the  liabilities;  but  if  any,  but  not 
all,  of  the  partners  are  insolvent,  or,  not  being  subject  to  process, 
refuse  to  contribute,  the  other  partners  shall  contribute  their  share  of 

33  The  adoption  of  this  clause  will  end  the  present  confusion  as  to  whether 
the  contribntions  of  the  partners  towards  the  los.ses  of  the  partnership  are 
partnership  assets  or  not.  See  In  re  Bertenshaw,  157  Fed.  .363,  85  C.  C.  A. 
til  17  L.  R.  A  (N.  S.)  886,  13  Ann.  Cas.  986  (1907)  ;  In  re  Forbes  (D.  C.)  128 
Fed  137  (1904) ;  Barry  v.  Foyles,  1  Pet.  311,  7  L.  Ed.  157  (1828) ;  George  M. 
West  Co.  V.  Lea  Bros.,  174  U.  S.  590,  19  Sup.  Ct.  836,  43  L.  Ed.  1098  (1899) ; 
\'accaro  v.  Bank,  103  Fed.  430.  43  C.  C.  A.  279  (1900) ;  In  re  Mercnr,  122  Fed. 
384,  58  C.  C.  A.  472  (1903).  The  Commissioners  believe  that  the  opinion  that 
such  contributions  are  assets  is  supported  by  the  better  reasoning.  See  In  re 
Forbes,  supra. 


UNIFORM  pautxf:uship  act  14." 

the  liabilities,  and,  in  the  relative  proportions  in  which  they  share  the 
profits,  the  additional  amount  necessary  to  pay  the  liabilities. 

(e)  An  assignee  for  the  benefit  of  creditors  or  any  i:)erson  appoint- 
ed by  the  court  shall  have  the  right  to  enforce  the  contributions  speci- 
fied in  clause  (d)  of  this  paragraph. 

(f)  Any  partner  or  his  legal  representative  shall  have  the  right  to 
enforce  the  contributions  specified  in  clause  (d)  of  this  paragraph,  to 
the  extent  of  the  amount  which  he  has  paid  in  excess  of  his  share  of 
the  liability. 

ig)  The  individual  property  of  a  deceased  partner  shall  Ijc  li.il.Iu 
for  the  contributions  specified  in  clause  (d)  of  this  paragraph. 

(h)  When  partnership  property  and  the  individual  properties  oi 
the  partners  are  in  possession  of  a  court  for  distribution,  partnership 
creditors  shall  have  priority  on  partnership  property  and  separate 
creditors  on  individual  property,  saving  the  rights  of  li.-n  or  M-mn- 1 
creditors  as  heretofore. 

(i)  Where  a  partner  has  become  bankrupt  or  his  e-iaiu  i>  :n?uivent 
the  claims  against  his  separate  property  shall  rank  in  the  following 
order : 

(I)  Those  owing  to  separate  creditors, 

(II)  Those  owing  to  partnership  creditors, 

(III)  Those  owing  to  partners  by  way  of  contrilnition. 

Section  41.  [Liability  of  Persons  Continuing  the  Business  in  Cer- 
tain Cases.]  (1)  When  any  new  partner  is  admitted  into  an  exist- 
ing partnership,  or  when  any  partner  retires  and  assigns  (or  the  rep- 
resentative of  the  deceased  partner  assigns)  his  rights  in  partnership 
property  to  two  or  more  of  the  partners,  or  to  one  or  more  of  the 
partners  and  one  or  more  third  persons,  if  the  business  is  continued 
without  liquidation  of  the  partnership  affairs,  creditor^  of  the  first  or 
dissolved  partnership  are  also  creditors  of  the  partnership  so  continu- 
ing the  business.''* 

34  Ai?  originally  passed  by  the  Conference,  paragraph  1  of  .section  41  n>:nl 
as  follows: 

"When  any  partner  retires  and  assitnis  (or  the  representative  of  a  (lec«'as.-«l 
partner  assigns)  his  rights  in  partnership  proixrty  to  two  or  luoi-e  of  the 
partners,  or  to  one  or  more  of  the  partners  and  one  or  more  third  i»ersons.  wlio 
continue  the  bu.sijiess  without  liquidation  of  the  partnershii)  atlairs,  credi- 
tors of  the  dissolved  partnership  are  also  creditors  of  the  partnership  so  cnu- 
tinuing  the  business." 

It  was  subsequently  pointed  out  that  section  41  did  not  cover  the  situation 
which  arises  when  a  partnersfiip  is  dissolved  and  a  new  partnership  formed 
l)y  the  introduction  of  a  new  partner  into  the  business  without  the  liquid.-ition 
of  the  alTairs  of  the  lirst  partnership,  and  that  it.  would  Iv  best  not  to  n'ly  i.n 
section  17,  .supra,  to  take  care  of  the  situation.  The  paragraph,  reworded,  as 
now  printed,  was  submitted  to  the  Coninussloners  present  at  the  la&t  L'ou- 
ference  and  they  have  signified  their  approval  of  the  change. 

The  section  as  a  whole  deals  primarily  with  the  rights  of  creditors  when  a 
new  partner  is  admitted  or  a  jjartner  retires,  is  expelled  or  dies,  and  the  bu.si- 
nes.s  is  continued  without  liquidation  of  the  debts  of  the  partnership  dissulved 
by  the  change  in  iiersonnel. 

At  present  the  whole  siibject  is  in  doubt  and  confusion.  It  is  utdversiilly 
Supp.Gil.Part.— 10 


14G  API'ENDIX 

(2)  When  all  but  one  partner  retire  and  assign  (or  the  representa- 
tive of  a  deceased  partner  assigns)  their  rights  in  partnership  proper- 
ty to  the  remaining  partner,  who  continues  the  business  without  liqui- 
dation of  partnership  affairs,  either  alone  or  with  others,  creditors  of 
the  dissolved  partnership  are  also  creditors  of  the  person  or  partner- 
ship so  continuing  the  business.^^ 

admitted  that  any  change  in  membership  dissolves  a  partnership,  and  creates 
a  new  partnership.  This  section' as  drafted  does  not  alter  that  rule.  Neither 
does  it  alter  the  rule  that  ou  any  change  of  personnel  the  property  of  the  dis- 
■solved  partnership  becomes  the  property  of  the  partnership  contuuung  the 
business.  At  present,  however,  creditors  of  the  dissolved  partnership  do  not 
become  creditors  of  the  new  partnership.  Thus,  if  A.,  B.  and  C.  are  partners 
and  A.  assigns  to  B.  and  C,  who  continue  the  business  without  any  agreement 
to  pay  the  partnership  debts,  under  the  present  law  the  property  of  the  first 
partnership  becomes  the  proi>erty  of  the  second  partnership,  but  the  creditors 
of  the  first  partnership  are  not  the  creditors  of  the  second  partnership,  though 
they  are  the  creditors  of  all  of  the  members  of  that  partnership.  Such  credi- 
tors, therefore,  are  often  unable  to  secure  satisfaction  of  their  claims,  though 
at  the  time  of  the  assignment  the  partnership  was  solvent,  and  the  Inisiness 
may  have  been  continued  by  the  second  partnership  without  any  notification 
of  the  change  in  membership.  On  the  otlier  hand,  the  creditors  of  the  second 
l»artnership  mav  be  paid  in  full  out  of  the  property.  This  incniuitable  result 
the  courts  have  attempted,  in  not  a  few  instances,  to  prevent,  by  declaring 
that  the  assignment  of  the  proijerty  of  the  first  partnarship  to  the  second 
l»artner.<hip  was  a  fraud  on  the  creditors  of  the  first  partnership,  though  no 
fraud  was  intended,  the  result  being  that  the  creditors  of  the  second  part- 
nership are  postiwned  until  the  creditors  of  the  first  partnership  are  paid  m 

The  paragraph  as  drawn  changes  the  law  in  the  case  suppo.sed,  and,  thereby, 
does  away  with  an  injustice.  In  making  the  creditors  of  the  first  partnership 
creditors  of  the  second  it  prevents  such  an  assignment  from  affecting  the 
rights  of  partnership  creditors  in  the  property  eni1)arked  in  the  business. 

Again,  in  the  case  supposed  if  B.  and  C.  promise  to  pay  the  debts  of  the  - 
partnership  of  A.,  B.  and  C,  it  is  uncertain  wdiether  the  court  will  hold  that 
they  promise  as  iodividuals  or  as  a  new  partnership.  If  as  individuals  the 
old  partnership  creditors  are  not  creditors  of  the  new  partnership.  If  A. 
and  B.  are  considered  as  promising  as  a  new  partnership,  then,  whether  the 
old  partnership '  creditors  can  sue  the  new  j>artnea-ship  as  beneficiaries  de- 
pends on  the  jurisdiction.  The  paragraph  as  drawn  ends  this  uncertainty. 
In  every  case  the  creditors  of  the  first  partnership  become  creditors  of  the 
second;  -though,  of  course,  they  do  not  cease  to  be  creditors  of  the  first  part- 
nership. As,  however,  the  first  pai'tnersbip  has  assigned  all  its  proixn-ty, 
this  is  of  little  value  to  such  creditors,  unless  the  assignees  have  promised  the 
retiring  partner  an  additional  consideration  beyond  the  payment  of  the 
debts.  The  status  of  such  additional  consideration  Is  treated  in  paragraph 
(8),  infra. 

The  paragraph  as  a  whole,  as  well  as  this  entire  section,  Is  based  on  the 
opinion  that  when  there  is  a  continuous  business  carried  on  first  by  A.,  B. 
and  C,  and  then  by  A..  B.,  C.  and  D.,  or  by  B.  or  C,  or  by  B.  and  C,  or  by 
B.  and  D.,  or  by  C  and  D.,  or  by  B.,  C.  and  D.,  without  any  liquidation  of  the 
affairs  of  A.,  B.  and  O.,  both  ju.stice  and  business  convenience  require  that  all 
the  creditors  of  the  business,  irrespective  of  the  exact  grouping  of  the  owners 
at  the  times  their  respective  claims  had  their  origin,  .should  be  treated  alike, 
all  Iteing  given  an  equal  claim  on  the  property  embarked  in  the  bu.siness. 
Compare  note  to  section  17  supra. 

35-VMiere  all  the  partners  assign  to  one  partner  the  partnership  creditors, 
are,  under  this  paragraph,  the  separate  creditors  of  the  partner  continuing 
the  businG.ss,  where  he  continues  the  business  alojie,  whether  such  partner 
promises  to  pay  the  debts  of  the  dissolved  partnership  or  not.     If  he  takes 

Supp.Gil.Part. 


UNIKftKM    I'AKTNF.USmr    ACT  HT 

(3)  When  any  partner  retires  or  dies  and  the  business  of  the  dis- 
solved partnership  is  continued  as  set  forth  in  paragraphs  (1)  and  (2) 
of  this  section,  with  the  consent  of  the  retired  partners  or  the  repre- 
sentative of  the  deceased  partner,  but  witliout  any  assignment  of  his 
right  in  partnership  property,  rights  of  creditors  of  the  dissolved  part- 
nership and  of  the  creditors  of  the  i)erson  or  partnership  continuing 
the  business  shall  be  as  if  such  assignment  had  been  made.**" 

(4j  \\  hen  all  the  partners  or  their  representatives  assign  their  rights 
in  partnershii)  property  to  one  or  more  third  persons  who  promise  to 
pay  the  debts  and  who  continue  the  business  of  the  dissolved  partner- 
ship, creditors  of  the  dissolved  partnership  are  also  credit<jrs  of  the 
person  or  partnership  continuing  the  business."'*' 

(5)  When  any  partner  wrongfully  causes  a  dissolution  and  the  re- 
maining partners  continue  the  business  under  the  provisions  of  secti<»ti 
38  (2b),  either  alone  or  with  others,  and  without  liquidation  of  the 
[►artnership  affairs,  creditors  of  the  dissolved  partnership  are  also 
creditors  of  the  person  or  partnership  continuing  the  business. 

(6)  When  a  partner  is  expelled  and  the  remaining  partners  continue 
the  business  either  alone  or  with  others,  witliout  li(|uidation  of  the 
partnership  aftairs,  creditors  of  the  dissolved  partnership  are  also  cred- 
itors of  the  person  or  partnership  continuing  the  business. 

(7)  The  liability  of  a  third  person  becoming  a  partner  in  the  part- 
one  or  more  new  partners  and  they  onntinuc  the  business  with  the  prop- 
erty of  the  dissolved  ])artnership.  the  ereditors  of  th(»  dissolved  partm-rsliip 
are  the  credit or.s  of  the  partnership  continuin.ir  the  hnsiness.  This  paragraph 
ehanjies  the  present  law  to  the  same  extent  as  parajjrraph  (1). 

3C  The  paraerraph  extends  the  principle  of  the  first  and  second  paraffrapbs 
of  the  section  to  the  case  where  the  business  is  continued  by  two  or  more  of 
the  partners,  alone  or  with  others,  after  the  retirement  or  death  of  a  partner 
without  any  formal  assignment  to  them  of  the  retired  or  deceased  pjirtner's 
ri.i,'hts  in  partnership  proiierty.  The  neglect  of  the  retiring  portners  or  of  the 
representatives  of  the  deceased  partner  should  not  as  at  present  create  in- 
execrable  confusion  between  the  creditors  of  the  first  and  second  partnership  iu 
regard  to  their  resj>ective  Tights  in  the  proiterty  employed  in  the  business. 
Both  classes  of  creditors  should  be  ahead  of  the  claim  of  .such  retired  partner 
or  the  representative  of  the  deceased  partner,  and  Iu>th  classes  of  creditors 
should  also  have  equal  rights^  in  the  proix^rty.  This  paragraph  probably  efTei  ts 
a  change  in  the  present  law,  though  the  same  result  is  often  now  lirought 
about  by  implying  a  promise  to  pay  the  debts  of  the  dissolved  iMirtuership  on 
the  part  of  the  person  or  partner.ship  continuing  the  busines,s. 
-  S' The  exi.sting  law  in  relation  to  the  subject-matter  covered  by  this  para- 
graph is  so  uncertain  that  it  is  not  possible  to  s:iy  whether  its  adoption  wonid 
modify  the  law.  The  paragraph  does  not  apply  to  the  ca.-^e  where  the  third 
person  or  persons  do  not  promise  to  pay  the  debts  <»f  the  dissolved  partnership. 
In  that  case  the  creditors  of  the  dissolved  partnership  have  no  claim  on  the 
partnership  continuing  the  business  or  its  property  unless  the  as>ii:innent  can 
be  set  aside  as  a  fraud  on  creditors,  or  is  alTected  by  a  Sales  in  Ihdk  Act. 
Where,  however,  there  has  been  a  pronnse  to  pay  the  debts  of  the  dis.solved 
partnership,  then,  the  creditors  of  the  dissolved  partni<rship  are  not  only 
creditors  of  the  promisor  or  promisors — which,  in  the  T"nite<l  States,  they 
would  be  as  beneliciarie.s — but  under  this  paragraph,  if  the  business  of  the 
dissolved  partnership  is  continued  by  a  i>artnership.  the  creditors  of  the  dis- 
solved partnership  iH'come  creditors  of  the  i)artnership  t-ontiniiins;  the  business, 
not  merely  the  separate  or  joint  i-reditors  of  the  partners  in  such  partnership. 


148  APPENDIX 

nership  continuing  the  business,  under  this  section,  to  the  creditors  of 
the  dissolved  partnership  shall  be  satisfied  out  of  partnership  property 

only.^* 

(8)  \\'hcn  the  business  of  a  partnership  after 'dissolution  is  contin- 
ued under  any  conditions  set  forth  in  this  section  the  creditors  of  the 
dissolved  partnership,  as  against  the  separate  creditors  of  the  retiring 
or  deceased  partner  or  the  representative  of  the  deceased  partner,  have 
a  prior  right  to  any  claim  of  the  retired  partner  or  the  representative  of 
the  deceased  partner  against  the  person  or  partnership  continuing  the 
business,  on  account  of  the  retired  or  deceased  partner's  interest  in 
the  dissolved  partnership  or  on  account  of  any  consideration  promised 
for  such  interest  or  for  his  right  in  partnership  property.^^ 

(9)  Nothing  in  this  section  shall  be  held  to  modify  any  right  of  cred- 
itors to  set  aside  any  assignment  on  the  ground  of  fraud. 

( 10)  The  use  by  the  person  or  partnership  continuing  the  business 
of  the  partnership  name,  or  the  name  of  a  deceased  partner  as  part 
thereof,  shall  not  of  itself  make  the  individual  property  of  the  deceased 
partner  liable  for  any  debts  contracted  by  such  person  or  partnership. 

Section  42.  [Rights  of  Retiring  or' Estate  of  Deceased  Partner 
When  the  Business  is  Continued.]  When  any  partner  retires  or  dies, 
and  the  business  is  'continued  under  any  of  the  conditions  set  forth  in 
section  41  (1,  2,  3,  5,  6),  or  section  38  (2b),  without  any  settlement  of 
accounts  as  between  him  or  his  estate  and  the  person  or  partnership 
continuing  the  business,  unless  otherwise  agreed,  he  or  his  legal  repre- 
ss The  paragraph  merely  reiterates  the  principle  of  section  17,  .supra,  which 
is  that  an  incoming  partner  should  he  liable  for  the  existing  debts  of  the 
partnership,  but  that  this  liability  should  be  limited  to  his  right  in  partnership 
property.  Though  in  cases  under  this  section  the  person  who  joins  the  busi- 
ness on  the  dissolution  of  the  first  partnership  is  not  an  incoming  partner, 
because  the  first  partnership  is  dissolved.  Under  the  circumstances,  his  liabil- 
ity for  the  debts  of  the  business  contracted  before  his  admission  should  be  the 
same  as  that  of  an  incoming  partner,  if  confusion  is  to  be  avoided  in  respect 
to  the  rights  in  the  property  employed  in  the  business,  between  the  creditors 
who  were  creditors  before  he  joined  the  business  and  those  who  became 
creditors  afterwards. 

39  Suppose  A.,  B.  and  C.  are  partners  and  A.  retires,  assigning  his  interest 
to  B  and  C.  who  continue  the  business  with  the  property  of  the  dissolved 
partnership,  promising  to  pay  A.  $2,000.  On  the  subsequent  failure  of  both 
partnerships  under  paragraph  (1)  of  this  section,  the  creditors  of  the  first 
partnership  would  be  also  creditors  of  the  second.  By  the  assignment  the 
property  employed  in  the  business  would  be  the  property  of  the  second  partner- 
ship. By  his  contract  A,  would  be  a  creditor  of  the  second  partnership  for 
.«2,000 ;  but  this  claim,  A.  being  insolvent,  w^ould  belong  tmder  the  wording 
of  this  paragraph,  not  to  A.'s  separate  estate,  but  to  the  creditors  of  the  first 
partnership.  ^  ^v,       ^v. 

The  uncertainty  of  existing  law  renders  it  impossible  to  say  whether  the 
adoption  of  this  paragraph  would  change  the  law.  The  Coitarais.sioners  be- 
lieve that  certainty  of  the  law  is  essential,  and  that  the  rule  stated  m  the 
paragraph  is  sound.  A.,  in  the  case  put,  has  sold  his  property  rights  m  the 
partnership  before  settling  with  the  creditors  of  the  partnership,  and.  there- 
fore, those  creditors  should  have  an  equitable  lien  on  the  consideration  of  the 
sale  as  against  the  separate  creditors  of  the  retiring  partner,  or  as  against  the 
representatives  of  a  deceased  partner  who  have  sold  the  rights  of  their  dece- 
dent to  the  persons  continuing  the  business. 


UMlOltM    I,IMlli:|i    I'AK  i  M.ISIIIP   ACT  IJ^ 

scntative  as  against  such  persons  or  partnership  may  have  tlie  vakic 
of  his  interest  at  tlie  date  of  dissohition  ascertained,  and  shall  receive 
as  an  ordinary  creditor  an  amount  equal  to  the  value  of  his  intere^t 
in  the  dissolved  partnership  with  interest,  or,  at  his  option  or  at  the 
(.[)tion  of  his  legal  representative,  in  lieu  of  interest,  the  profits  at- 
tributable to  the  use  of  his  right  in  the  proi)erty  of  the  dissolved  part- 
nershii);  provided  that  the  creditors  of  the  dissolved  partnership  as 
agains*.  the  separate  creditors,  or  the  representative  of  the  retired  or 
deceased  partner,  shall  have  priority  on  any  claim  arising  under  this 
section,  as  provided  by  section  41  (8)  of  this  act. 

Section  43.  [Accrual  of  Actions.]  The  right  to  an  account  of  his 
interest  shall  accrue  to  any  partner,  or  his  legal  representative,  as 
against  the  winding  up  partners  or  the  surviving  partners  or  the  per- 
son or  partnership  continuing  the  business,  at  the  date  of  dissolution, 
in  the  absence  of  any  agreement  to.  the  contrary. 

PART  VII— MISCELLANEOUS  PROVISIONS 
Section  44.      [^\'hen  Act  Takes  Effect.]     This  act  shall  take  effect  nn 

ilie  dav  of  one  thousand  nine  hundred  and . 

Section  45.  [Legislation  Repealed.]  -'All  acts  or  parts  of  acts  in- 
consistent with  this  act  are  hereby  repealed. 


UNIFORM  LIMITED  PARTNERSHIP  ACT 


EXPLANATORY  NOTE 

The  business  reason  for  the  adoption  of  acts  making  provisions  for 
limited  or  special  partners  is  that  men  in  business  often  desire  to  se- 
cure capital  from  others.  There  are  at  least  three  classes  of  contracts 
which  can  be  made  with  those  from  whom  the  capital  is  secured :  One. 
the  ordinary  loan  on  interest ;  another,  the  loan  where  the  lender,  m 
lieu  of  interest,  takes  a  share  in  the  protits  of  the  business  :  third,  those 
cases  in  which  the  person  advancing  the  capital  secures,  besides  a  share 
in  the  profits,  some  measure  of  control  over  the  business. 

At  first,  in  the  absence  of  statutes  the  courts,  both  in  this  countrv-  and 
in  England,  assumed  that  one  who  is  interested  in  a  business  is  bound 
by  its  "obligations,  carrying  the  application  of  this  principle  so  far.  that 
a  contract  where  the  only  evidence  of  interest  was  a  share  in  the  profits 
made  one  who  supposed  himself  a  lender,  and  who  was  probably  un- 
known to  the  creditors  at  the  times  they  extended  their  credits,  unlim- 


150  APPENDIX 

itedlv  liable  as  a  partner  for  tb.c  nblio-ations  of  those  actually  conduct- 
ing the  business. 

Later  decisions  have  much  modified  the  earlier  cases.  The  lender 
^vho  takes  a  share  in  the  profits,  except  possibly  in  one  or  two  of  our 
jurisdictions,  does  not  by  reason  of  that  fact  run  a  risk  of  being  held 
as  a  partner.  If,  however,  his  contract  falls  within  the  third  class  men- 
tioned, and  he  has  any  measure  of  control  over  the  business,  he  at 
once  runs  serious  risk  of  being  held  liable  for  the  debts  of  the  busi- 
ness as  a  partner ;  the  risk  increasing  as'  he  increases  t4ie  amount  of 
his  control. 

The  first  Limited  Partnership  Act  'was  adopted  by  New  York  in 
1822;  the  other  commercial  states,  during  the  ensuing  30  years,  fol- 
lowing her  example.  Most  of  the  statutes  follow  the  language  of  the 
New  York  statute  with  little  material  alteration.  These  statutes  were 
adopted,  and  to  a  considerable  degree  interpreted  by  the  courts,  dur- 
ing that  period  when  it  was  generally  held  that  any  interest  in  a  busi- 
ness should  make  the  person  holding  the  interest  liable  for  its  obliga- 
tions. As  a  result  the  courts  usually  assume  in  the  interpretation  of 
these  statutes  two  principles  as  fundamental. 

First.  That  a  limited  (or  as  he  is  also  called  a  special)  partner  is 
a  partner  in  all  respects  like  any  other  partner,  except,  that  to  obtain 
the  privilege  of  a  limitation  on  his  liability,  he  has  conformed  to  the 
statutory  requirements  in  respect  to  filing  a  certificate  and  refraining 
from  participation  in  the  conduct  of  the  business. 

Second.  The  limited  partner,  on  any  failure  to  follow  the  require- 
ments in  regard  to  the  certificate  or  any  participation  in  the  conduct 
of  his  business,  loses  his  privilege  of  limited  liability  and  becomes,  as 
far  as  those  dealing  with  the  business  are  concerried,  in  all  respects 
a  partner. 

The  courts  in  thus  interpreting  the  statutes,  although  they  made  an 
American  partnership  with  limited  members  something  very  different 
from  the  French  Societe  en  Commandite  from  which  the  idea  of  the 
original  statutes  was  derived,  unquestionably  carried  out  the  intent  of 
those  responsible  for  their  adoption.  This  is  shown  by  the  very  word- 
ing of  the  statutes  themselves.  For  instance,  all  the  statutes  require 
that  all  partners,  limited  and  general,  shall  sign  the  certificate,  and 
nearly  all  state  that:  "If  any  false  statement  be  made  in  such  certifi- 
cate all  the  persons  interested  in  such  partnership  shall  be  liable  for  all 
the  engagements  thereof  as  general  partners." 

The  practical  result  of  the  spirit  shown  in  the  language  and  in  the 
interpretation  of  existing  statutes,  coupled  with  the  fact  that  a  man 
may  now  lend  money  to  a  partnership  and  take  a  share  in  the  profits  in 
lieu  of  interest  without  running  serious  danger  of  becoming  bound  for 
partnership  obligations,  has,  to  a  very  great  extent,  deprived  the  ex- 
isting statutory  provisions  for  limited  partners  of  any  practical  use- 
fulness.    Indeed,  apparently  their  use  is  largely  confined  to  associa- 


UNIFOItM    LIMI'inD    rAUTNERSIlIP   ACT  l~l 

tions  in  which  those  who  conduct  the  business  have  not  more  than  one 
hmited  partner. 

One  of  the  causes  forcing-  business  into  the  corporate  ft;rni,  in  spite 
of  the  fact  that  the  corjjorate  form  is  ill  suited  to  many  business  con- 
ditions, is  the  failure  of  the  existing  limited  partnership  acts  to  meet 
the  desire  of  the  owners  of  a  business  to  secure  necessary  capital  un- 
der the  existing  limited  partnership  form  of  business  association. 

The  draft  herewith  submitted  [)roceeds  on  the  following  assumptions : 

First.  No  public  policy  re(|uircs  a  person  who  contributes  to  the 
capital  of  a  business,  acquires  an  interest  in  the  profits,  and  some  de- 
gree of  control  over  the  conduct  of  the  business,  to  become  bound  for 
the  obligations  of  the  business :  Provided  creditors  have  no  reason  to 
believe  at  the  times  their  credits  were  extended  that  such  person  was 
so  bound. 

Second.  That  persons  in  business  should  be  able,  while  remaining 
themselves  liable  without  limit  for  the  obligations  contracted  in  its  con- 
duct, to  associate  with  themselves  others  who  contribute  to  the  capital 
and  acquire  rights  of  ownership,  provided  that  such  contributors  do 
not  compete  with  creditors  for  the  assets  of  the  partnership. 

The  attempt  to  carry  out  these  ideas  has  led  to  the  incorporation 
into  the  draft  submitted  of  certain  features,  not  found  in,  or  differing 
from,  existing  limited  partnership  acts. 

First.  In  the  draft  the  person  who  contributes  the  capital,  though 
in  accordance  with  custom  called  a  limited  partner,  is  not  in  any 
sense  a  partner.  He  is,  however,  a  member  of  the  association.  See 
section  1. 

Second.  As  limited  partners  are  not  partners  securing  limited  lia- 
bility by  filing  a  certificate,  the  association  is  formed  when  substan- 
tial compliance,  in  good  faith,  is  had  with  the  requirements  for  a  cer- 
tificate. Section  2  (2).  This  provision  eliminates  the  difficulties  which 
arise  from  the  recognition  of  de  facto  associations,  made  necessary  b\ 
the  assumption  that  the  association  is  not  formed  unless  a  strict  com- 
pliance with  the  requirements  of  the  act  is  had. 

Third.  The  limited  partner,  not  being  in  any  sense  a  principal  in 
the  business,  failure  to  comply  with  the  requirements  of  the  act  in 
respect  to  the  certificate,  while  it  may  result  in  the  non-formation  of 
the  association,  does  not  make  him  a  partner  or  liable  as  such.  The 
exact  nature  of  his  ability  in  such  cases  is  set  forth  in  section  11. 

Fourth.  The  limited  partner,  while  not  as  such  in  any  sense  a  part- 
ner, may  become  a  partner  as  any  person  not  a  member  of  the  asso- 
ciation may  become  a  partner ;  and,  becoming  a  partner,  may  never- 
theless retain  his  rights  as  limited  partner ;  this  last  provision  enabling 
the  entire  capital  embraced  in  the  business  to  be  divided  between  the 
limited  partners,  all  the  general  partners  being  also  limited  partners. 
Section  12. 

Fifth.  The  limited  partner  is  not  debarred  from  loaning  money 
or  transacting  other  business  with  the  partnership  as  any  other  non- 


152  APPENDIX 

member:  Provided  he  doe?  not,  in  respect  to  such  transactions,  ac- 
cept from  the  partnership  collateral  security,  or  receive  from  any  part- 
ner or  the  partnership  any  payment,  conveyance,  or,  release  from  lia- 
bility, if  at  the  time  the  assets  of  the  partnership  are  not  sufficient  to 
discharge  its  obligations  to  persons  not  general  or  limited  partners. 
Section  13. 

Sixth.  The  substitution  of  a  person  as  limited  partner  in  place  of 
an  existing  limited  partner,  or  the  withdrawal  of  a  limited  partner,  or 
the  addition  of  new  limited  partners,  does  not  necessarily  dissolve  the 
association.  Sections  8,  16  (2b).  No  limited  partner,  however,  can- 
withdraw  his  contribution  until  all  liabilities  to  creditors  are  paid. 
Section  16  (la). 

Seventh.  As  limited  partners  arc  not  principals  in  transactions  of 
the  partnership,  their  liability  except  for  known  false  statements  in 
the  certificate  (section  7),  is  to  the  partnership,  not  to  creditors  of 
the  partnership  (section  17).  The  general  partners  cannot,  however, 
waive  any  liability  of  the  limited  partners  to  the  prejudice  of  such- 
creditors.    Section  17  (3). 

Respectfully  submitted, 

New  York  Legislative  Drafting  Association, 

By  Wm.  Draper  Lewis,  Draftsman. 

Section  1.  [Limited  Partnership  Defined.]  A  limited  partnership 
is  a  partnership  formed  by  two  or  more  persons  uncjer  the  provisions 
of  section  2,  having  as  members  one  or  more  general  partners  and 
one  or  more -limited  partners.  The  hmited  partners  as  such  shall  not 
be  bound  by  the  obligations  of  the  partnership. 

Section  2.  [Formation.]  (1)  Two  or  more  persons  desi-ring  to 
form  a  limited  partnership  shall 

(a)   Sign  and  swear  to  a  certificate,  which  shall  state 

L     The  name  of  the  partnership, 

n.  The  character  of  the  business, 

III.  The  location  of  the  principal  place  of  business, 

IV.  The  name  and  place  of  residence  of  each  member;  general 
and  limited  partners  being  respectively  designated. 

V.  The  term  for  which  the  partnership  is  to  exist, 

VL  The  amount  of  cash  and  a  description  of  and  the  agreed  value 
of  the  other  property  contributed  by  each  hmited  partner, 

Vn.  The  additional  contributions,  if  any,  agreed  to  be  made  by 
each  limited  partner  and  the  times  at  which  or  events  on  the  happen- 
ing of  which  they  shall  be  made, 

\TII.  The  time,  if  agreed  upon,  when  the  contribution  of  each 
limited  partner  is  to  be  returned. 

IX.  The  share  of  the  profits  or  the  other  compensation  by  way  of 
income  which  each  limited  partner  shall  receive  by  reason  of  his  con- 
tribution, 

X.  The  right,  if  given,  of  a  limited  partner  to  substitute  an  as- 


UNIFORM    LIMITKD    rAUTNEItSIlir   ACT  l-'j-'J 

signee  as  contributor  in  his  place,  and  the  terms  and  conditions  of  the 
substitution, 

XI.  The  right,  if  given,  of  the  partners  to  admit  additional  hinit- 
ed  partners, 

XII.  The  right,  if  given,  of  one  or  more  of  the  limited  partners 
to  priority  over  other  limited  partners,  as  to  contributions  or  as  to 
compensation  by  way  of  income,  and  the  nature  of  such  priority, 

XIII.  The  right,  if  given,  of  the  remaining  general  partner  or 
partners  to  continue  the  business  on  the  death,  retirement  or  in-;.iiitv 
of  a  general  partner,  and 

XIV.  The  right,  if  given,  of  a  limited  partner  to  demand  ^ii'i  re- 
ceive property  otiier  than  cash  in  return  for  his  contribution. 

(b)  File  for  record  the  certificate  in  the  office  of  [here  designate 
the  proper  office]. 

(2)  A  limited  partnership  is  formed  if  there  has  been  substantial 
compliance  in  good  faith  with  the  requirements  of  paragraph  CI). 

Section  3.  [Business  Which  may  be  Carried  on.]  A  limited  part- 
nership may  carry  on  any  business  which  a  partnership  without  lim- 
ited jjartners  may  carry  on,  except  [here  designate  the  business  to  be 
prohibited]. 

Section  4.  [Character  of  Limited  Partner's  Contribution.]  The 
contributions  of  a  limited  partner  may  be  cash  or  other  property,  but 
not  services.  ' 

Section  5.  [A  Name  Not  to  Contain  Surname  of  Limited  Partner 
— Exceptions.]  (1)  The  surname  of  a  limited  partner  shall  not  ap- 
pear in  the  partnership  name,  unless 

(a)  It  is  also  the  surname  of  a  general  partner,  or 

(b)  Prior  to  the  time  when  the  limited  partner  became  such  the 
business  had  been  carried  on  under  a  name  in  which  his  surname  ap- 
peared. 

(2)  A  limited  partner  whose  name  appears  in  a  partnership  name 
contrary  to  the  provisions  of  paragraph  (1)  is  liable  as  a  general  part- 
ner to  partnership  creditors  who  extend  credit  to  the  partnership  witli- 
out  actual  knowledge  that  he  is  not  a  general  partner. 
•  Section  6.  [Liability  for  False  Statements  in  Certificate.]  If  the 
certificate  contains  a  false  statement,  one  who  suft'ers  loss  by  reliance 
on  such  statement  may  hold  liable  any  party  to  the  certificate  who 
knew  the  statement  to  be  false. 

(a)  At  the  time  he  signed  tlie  certificate,  or 

(b)  Subsequently,  but  within  a  sufficient  time  before  the  statement 
was  relied  upon  to  enable  him  to  cancel  or  amend  the  certificate,  or 
to  file  a  petition  for  its  cancellation  or  amendment  as  provided  in  sec- 
tion 25  (3). 

Section  7.  [Limited  Partner  Not  Liable  to  Creditors.]  A  limited 
partner  shall  not  become  liable  as  a  general  partner  unless,  in  addition 
to  the  exercise  of  his  rights  and  powers  as  a  limited  partner,  he  takes 
part  in  tlie  control  of  the  business. 


154  APPENDIX 

Section  8.  [Admission  of  Additional  Limited  Partners.]  After 
the  formation  of  a  limited  partnership,  additional  limited  partners  may 
be  admitted  upon  filing  an  amendment  to  the  original  certificate  in  ac- 
cordance with  the  requirements  of  section  25. 

Section  9.  [Rights,  Powers  and  Liabilities  of  a  General  Partner.] 
(1)  A  general  partner  shall  have  all  the  rights  and  powers  and  be 
subject  to  all  the  restrictions  and  liabilities  of  a  partner  in  a  partner- 
ship without  limited  partners,  except  that  without  the  written  consent 
or  ratification  of  the  specific  act  by  all  the  limited  partners,  a  general 
partner  or  all  of  the  general  partners  have  no  authority  to 

(a)  Do  any  act  in  contravention  of  the  certificate, 

(b)  Do  any  act  which  would  make  it  impossible  to  carry  on  the 
ordinary  business  of  the  partnership, 

(c)  Confess  a  judgment  against  the  partnership,  , 

(d)  Possess  partnership  property,  or  assign  their  rights  in  specific 
partnership  property,  for  other  than  a  partnership  purpose,  ., 

(e)  Admit  a  person  as  a  general  partner, 

(f)  Admit  a  person  as  a  limited  partner,  unless  the  right  so  to  do 
is  given  in  the  certificate, 

(g)  Continue  the  business  with  partnership  property  on  the  death, 
retirement  or  insanity  of  a  general  partner,  unless  the  right  so  to  do 
is  given  in  the  certificate. 

Section  10.  [Rights  of  a  Limited  Partner.]  (1)  A  limited  part- 
ner shall  have  the  same  rights  as  a  general  partner  to 

(a)  Have  the  partnership  books  kept  at  the  principal  place  of  busi- 
ness of  the  partnership,  and  at  all  times  to  inspect  and  copy  any  of 
them,  / 

(b)  Have  on  demand  true  and  full  information  of  all  things  af- 
fecting the  partnership,  and  a  formal  account  of  partnership  afifairs 
whenever  circumstances  render  it  just  and  reasonable,  and 

(c)  Have  dissolution  and  winding  up  by  decree  of  court. 

(2)  A  limited  partner  shall  have  the  right  to  receive  a  share  of 
the  profits  or  other  compensation  by  way  of  income,  and  to  the  re- 
turn of  his  contribution  as  provided  in  sections  15  and  16. 

Section  11.  [Status  of  Person  Erroneously  P>elieving  Himself  a 
Limited  Partner.]  A  person  who  has  contributed  to  the  capital  of  a 
business  conducted  by  a  person  or  partnership  erroneously  believing 
that  he  has  become  a  limited  partner  in  a  limited  partnership,  is  not, 
by  reason  of  his  exercise  of  the  rights  of  a  limited  partner,  a  general 
partner  with  the  person  or  in  the  partnership  carrying  on  the  business, 
or  bound  by  tha  obligations  of  such  person  or  partnership;  provided 
that  on  ascertaining  the  mistake  he  promptly  renounces  his  interest  in 
the  profits  of  the  business,  or  other  compensation  by  way  of  income. 

Section  12.  [One  Person  Both  General  and  Limited  Partner.]  (1) 
A  person  may  be  a  general  partner  and  a  limited  partner  in  the  same 
partnership  at  the  same  time. 

(2)  A  person  who  is  a  general,  and  also  at  the  same  time  a  limited 
partner,  shall  have  all  the  rights  and  powers  and  be  subject  to  all  the 


TJNIFOaM    MMI'lF.r)    PARTXRHSIIIP    ACT  155 

restrictions  of  a  general  partner;  except  that,  in  respect  to  his  con- 
tribution, he  shall  have  the  rights  against  the  other  members  which 
he  would  have  had  if  he  were  not  also  a  general  partner. 

Section  13.  [Xoans  and  Other  Business  Transactions  with  Limited 
Partner.]  (1)  A  limited  partner  also  may  loan  money  to  and  trans- 
act other  business  with  the  partnership,  and,  unless  he  is  also  a  general 
partner,  receive  on  account  of  resulting  claims  against  the  partner- 
ship, with  general  creditors,  a  pro  rata  share  of  the  assets.  No  limited 
partner  shall  in  respect  to  any  such  claim 

(a)  Receive  or  hold  as  collateral  security  any  partnership  proper- 
ty, or 

(b)  Receive  from  a  general  partner  or  the  partnership  any  payment, 
conveyance,  or  release  from  liability,  if  at  the  time  the  assets  of  the 
partnership  are  not  sufficient  to  discharge  partnership  liabilities  to  per- 
sons not  claiming  as  general  or  limited  partners. 

(2)  The  receiving  of  collateral  security,  or  a  payment,  conveyance, 
or  release  in  violation  of  the  provisions  of  paragraph  ( 1 )  is  a  fraud 
on  the  creditors  of  the  partnership. 

Section  14.  [Relation  of  Limited  Partners  Inter  Se.]  Where  there 
are  several  limited  partners  the  meml:>ers  may  agree  that  one  or  more 
of  the  limited  partners  shall  have  a  priority  over  other  limited  part- 
ners as  to  the  return  of  their  contributions,  as  to  their  compensation  by 
way  of  income,  or  as  to  any  other  matter.  If  such  an  agreement  is 
made  it  shall  be  stated  in  the  certificate,  and  in  the  absence  of  such  a 
statement  all  the  limited  partners  shall  stand  upon  equal  footing. 

Section  15.  [Compensation  of  Limited  Partner.]  A  limited  partner 
may  receive  from  the  partnership  the  share  of  the  profits  or  the  com- 
pensation by  way  of  income  stipulated  for  in  the  certificate ;  provided, 
that  after  such  payment  is  made,  whether  from  the  property  of  the 
partnership  or  that  of  a  general  partner,  the  partnership  assets  are  in 
excess  of  all  liabilities  of  the  partnership  except  liabilities  to  limited 
partners  on  account  of  their  contributions  and  to  general  partners. 

Section  16.  [Withdrawal  or  Reduction  of  Limited  Partner's  Con- 
tribution.] (1)  A  limited  partner  shall  not  receive  from  a  general  part- 
ner or  out  of  partnership  property  any  part  of  his  contribution  until 

(a)  All  liabilities  of  the  partnership,  except  liabilities  to  general  part- 
ners and  to  limited  partners  on  account  of  their  contributions,  have 
been  paid  or  there  remains  property  of  the  partnership  sufficient  to 
pay  them, 

(b)  The  consent  of  all  members  is  had.  unless  the  return  nf  the  con- 
tribution may  be  rightfully  demanded  under  the  provisions  of  para- 
graph (2),  and 

(c)  The  certificate  is  cancelled  or  so  amended  as  to  set  forth  the 
withdrawal  or  reduction. 

(2)  Subject  to  the  provisions  of  paragraph  (1)  a  limited  partner  may 
rightfully  demand  the  return  of  his  contribution 
(a)  On  the  dissolution  of  a  partnership,  or 


156  APPENDIX 

(b)  \Mien  the  date  specified  in  the  certificate  for  its  return  has  ar- 
rived, or 

(c)  After  he  has  given  six  montlis'  notice  in  writing  to  all  other  mem- 
bers, if  no  time  is  specified  in  the  certificate  either- for  the  return  of 
the  contribution  or  for  the  dissolution  of  the  partnership. 

(3)  In  the  absence  of  any  statement  in  the  certificate  to  the  contrary 
or  the  consent  of  all  meinbers,  a  limited  partner,  irrespective  of  the 
nature  of  his  contribution,  has  only  the  right  to  demand  and  receive 
cash  in  return  for  his  contribution. 

(4)  A  limited  partner  may  have  the  partnership  dissolved  and  its 
affairs  wound  up  when 

(a)  He  rightfully  but  unsuccessfully  demands  the  return  of  his  con- 
tribution, or 

(b)  The  other  liabilities  of  the  partnership  have  not  been  paid,  or 
the  partnership  property  is  insufficient  for  their  payment  as  required 
by  paragraph  (la)  and  the  limited  partner  would  otherwise  be  entitled 
to  the  return  of  his  contribution. 

Section  17.  [Liability  of  Limited  Partner  to  Partnership.]  (l)  A 
limited  partner  is  liable  to  the  partnership 

(a)  For  the  difference  between  his  contribution  as  actually  made  and 
that  stated  in  the  certificate  as  having  been  made,  and 

(b)  For  any  unpaid  contribution  which  he  agreed  in  the  certificate 
to  make  in  the  future  at  the  time  and  on  the  conditions  stated  in  the 
certificate. 

(2)  A  limited  partner  holds  as  trustee  for  the  partnership 

(a)  Specific  property  stated  in  the  certificate  as  contributed  by  him, 
but  which  was  not  contributed  or  which  has  been  wrongfully  returned, 

and 

(b)  Money  or  other  property  wrongfully  paid  or  conveyed  to  him  on 
account  of  his  contribution. 

(3)  The  liabilities  of  a  limited  partner  as  set  forth  in  this  section 
can  be  waived  or  compromised  only  by  the  consent  of  all  members; 
but  a  waiver  or  compromise  shall  not  affect  the  right  of  a  creditor  of 
a  partnership,  who  extended  credit  or  whose  claim  arose  after  the  fil- 
ing and  before  a  cancellation  or  amendment  of  the  certificate,  to  en- 
force such  liabilities. 

(4)  When  a  contributor  has  rightfully  received  the  return  in  whole 
or  in  part  of  the  capital  of  his  contribution,  he  is  nevertheless  liable  to 
the  partnership  for  any  sum.  not  in  excess  of  such  return  with  interest, 
necessary  to  discharge  its  liabilities  to  all  creditors  who  extended  cred- 
it or  whose  claims  arose  before  such  return. 

Section  18.  [Nature  of  Limited  Partner's  Interest  in  Partnership.] 
A  limited  partner's  interest  in  the  partnership  is  personal  property. 

Section  19.  [Assignment  of  Limited  Partner's  Interest.]  (1)  A 
limited  partner's  interest  is  assignable. 

(2)   A  substituted  limited  partner  is  a/ person  admitted  to  all  the 


UNIFOUM    LIMITHD    PAIITNKUSIII P   ACT  I."? 

rights  of  a  limited  partner  who  has  died  or  has  assigned  his  interest 
in  a  partnership. 

(3)  An  assignee,  who  does  not  become  a  substituted  hmited  part- 
ner, has  no  right  to  require  any  information  or  account  of  the  part- 
nership transactions  or  to  inspect  the  partnership  books;  he  is  only 
entitled  to  receive  the  share  of  the  profits  or  other  compensation  by 
way  of  income,  or  the  return  of  his  contribution,  to  which  his  assignor 
would  otherwise  be  entitled. 

(4)  An  assignee  shall  have  the  right  to  become  a  substituted  limit- 
ed partner  if  all  the  members  (excejjt  the  assignor)  consent  thereto 
or  if  the  assignor,  being  thereunto  empowered  by  the  certificate,  gives 
the  assignee  that  right. 

(5)  An  assignee  becomes  a  substituted  limited  partner  when  the 
certificate  is  appropriately  amended  in  accordance  with  section  25. 

(6)  The  substituted  limited  partner  has  all  the  rights  and  powers, 
and  is  subject  to  all  the  restrictions  and  liabilities  of  his  assignor,  ex- 
cept those  liabilities  of  which  he  was  ignorant  at  the  time  he  became 
a  limited  partner  and  which  could  not  be  nsccrlaincl  from  the  certifi- 
cate. 

(7)  The  substitution  of  the  assignee  as  a  limited  partner  does  not 
release  the  assignor  from  liability  to  the  partnership  under  sections 
6  and  17. 

Section  20.  [Efifect  of  Retirement,  Death  or  Insanity  of  a  Gener- 
al Partner.]  The  retirement,  death  or  insanity  of  a  general  partner 
dissolves  the  partnership,  unless  the  business  is  continued  by  the  re- 
maining general  partners 

(a)  Under  a  right  so  to  do  stated  in  the  certificate,  or 

(b)  With  the  consent  of  all  members. 

Section  21.  [Death  of  Limited  Partner.]  (1)  On  the  death  of  a 
limited  partner  his  executor  or  administrator  shall  have  all  the  rights 
of  a  limited  partner  for  the  purpose  of  settling  his  estate,  and  such 
power  as  the  deceased  had  to  constitute  his  assignee  a  substituted  lim- 
ited partner. 

(2)  The  estate  of  a  deceased  limited  partner  shall  be  liable  for  all 
his  liabilities  as  a  Hmited  partner. 

Section  22.  [Rights  of  Creditors  of  Limited  Partner.]  (1)  On 
due  application  to  a  court  of  competent  jurisdiction  by  any  judgment 
creditor  of  a  limited  partner,  the  court  may  charge  the  interest  of  the 
indebted  limited  partner  with  payment  of  the  unsatisfied  amount  of 
the  judgment  debt;  and  may  appoint  a  receiver,  and  make  all  other 
orders,  directions,  and  inquiries  which  the  circumstances  of  the  case 
may  require.*'' 

40  In  those  states  where  a  creditor  on  lK>sui»i'iiJ  :ni  action  can  attach  debts 
due  the  dofeiKhuit  before  he  has  ol)tained  a  .iiidgnunt  affninst  the  defend- 
ant it  is  reconuiiended  that  parajiraph  (1)  of  this  secti<Mi  read  as  follows: 

"On  due  application  to  a  court  of  competent  jurisdiction  by  any  creditor 
of  a  limited  p:irtner,  the  court  may  cha-rge  the  interest  of  the  indebted  limited 


158  APPENDIX 

(2)  The  interest  may  be  redeemed  with  the  separate  property  of 
any  general  partner,  but  may  not  be  redeemed  with  partnership  prop- 
erty. 

(3)  The  remedies  conferred  by  paragraph  (1)  shall  not  be  deemed 
exclusive  of  others  which  may  exist. 

(4)  Nothing  in  this  act  shall  be  held  to  deprive  a  limited  partner  of 
his  statutorv  exemption.  ^ 

Section  23.  [Distribution  of  Assets.]  (1)  In  settling  accounts 
after  dissolution  the  liabilities  of  the  partnership  shall  be  entitled  to 
paAinent  in  the  following  order  :' 

(a)  Those  to  creditors,  in  the  order  of  priority  as  provided  by  law, 
except  those  to  limited  partners  on  account  of  their  contributions,  and 
to  general  partners, 

(b)  Those  to  limited  partners  in  respect  to  their  share  of  the  profits 
and  other  compensation  by  way  of  income  on  their  contributions, 

(c)  Those  to  limited  partners  in  respect  to  the  capital  of  their  con- 
tributions, 

(d)  Those  to  general  partners  other  than  for  capital  and  profits, 

(e)  Those  to  general  partners  in  respect  to  profits, 

(f)  Those  to  general  partners  in  respect  to  capital. 

(2)  Subject  to  any  statement  in  the  certificate  or  to  subsequent 
agreement,  limited  partners  share  in  the  partnership  assets  in  respect 
to  their  claims  for  capital,  and  in  respect  to  their  claims  for  profits  or 
for  compensation  by  way  of  income  on  their  contributions  respectively, 
in  proportion  to  the  respective  amounts  of  such  clanns. 

Section  24.  [When  Certificate  Shall  be  Canceled  or  Amended.] 
(1)  The  certificate  shall  be  canceled  when  the  partnership  is  dissolved 
or  all  limited  partners  cease  to  be  such'. 

(2)   A  certificate  shall  be  amended  when 

(a)  There  is  a  change  in  the  name  of  the  partnership  or  in  the 
amount  or  character  of  the  contribution  of  any  limited  partner, 

(b)  A  person  is  substituted  as  a  limited  partner, 

(c)  An  additional  limited  partner  is  admitted, 

(d)  A  person  is  admitted  as  a  general  partner, 

(e)  A  general  partner  retires,  dies  or  becomes  insane,  and  the  busi- 
ness is  continued  under  section  20, 

(f)  There  is  a  change  in  the  character  of  the  business  of  the  part- 
nership, 

(g)  There  is  a  false  or  erroneous  statement  in  the  certificMe, 

(h)  There  is  a  change  in  the  tiine  as  stated  in  the  certificate^  for  the 
dissolution  of  the  partnership  or  for  the  return  of  a  contribution, 

(i)  A  time  is  fixed  for  the  dissolution  of  the  partnership,  or  the 
return  of  a  contribntion,  no  time  having  been  specified  in  the  certifi- 
cate, or 

partner  with  payment  of  the  nnsatisficd  amount  of  such  claims;  and  may  ap- 
point a  receiver,"  and  make  all  other  orders,  directions,  and  inquiries  which  the 
circumstances  of  the  case  may  require." 


L'NIIOUM    LI.MlTKIi    I'AU'l  MCK.SIIII'   ACT  159 

(j)  Tlie  meiiiljcrs  desire  to  make  a  change  in  any  other  statement 
in  the  certificate  in  order  that  it  shall  accuj-ately  represent  the  agree- 
ment between  them. 

Section  25.  [Requirements  for  Amendment  and  for  Cancellation 
of  Certificate.]      (1)   The  writing  to  amend  a  certificate  shall 

(a)  Conform  to  the  requirements  of  section  2  (la)  as  far  as  nec- 
essary to  set  forth  clearly  the  change  in  the  certificate  which  it  is  de- 
sired to  make,  and 

(b)  Be  signed  and  sworn  to  by  all  members,  and  an  amendment 
substituting  a  limited  partner  or  adding  a  limited  or  general  partner 

-shall  be  signed  also  by  the  member  to  be  substituted  or  added,  and 
when  a  limited  partner  is  to  be  substituted,  the  amendment  shall  also  be 
signed  by  the  assigning  limited  partner. 

(2)  The  writing  to  cancel  a  certificate  shall  be  signed  by  all  mem- 
bers. 

(3)  A  person  desiring  the  cancellation  or  amendment  of  a  certifi- 
cate, if  any  person  designated  in  paragraphs  (1)  and  (2)  as  a  per- 
son who  nmst  execute  the  writing  refuses  to  do  so,  may  petition  the 
[here  designate  the  proper  court]  to  direct  a  cancellation  or  ameml- 
ment  thereof. 

(4)  If  the  court  finds  that  the  petitioner  has  a  right  to  have  liie 
writing  executed  by  a  person  who  refuses  to  do  so,  it  shall  order  the 
[here  designate  the  responsible  official  in  the  office  designated  in  sec- 
tion 2]  in  the  office  where  the  certificate  is  recorded  to  record  the 
cancellation  or  amendment  of  the  certificate;  and  where  the  certificate 
is  to  be  amended,  the  court  shall  also  cause  to  be  filed  for  record  in 
said  office  a  certified  copy  of  its  decree  setting  forth  the  amendment. 

(5)  A  certificate  is  amended  or  cancelled  when  there  is  filed  for 
record  in  the  office  [here  designate  the  office  designated  in  section  2] 
where  the  certificate  is  recorded 

(a)  A  writing  in  accordance  with  the  provisions  of  paragraph  (I) 
or  (2),  or 

(b)  A  certified  copy  of  the  order  of  court  in  accordance  with  the 
provisions  of  paragraph  (4). 

(6)  After  the  certificate  is  duly  amended  in  accordance  with  this 
section,  the  amended  certificate  shall  thereafter  be  for  all  purposes 
the  certificate  provided  for  by  this  act. 

Section  26.  [Parties  to  Actions.]  A  contributor,  unless  he  is  a 
general  partner,  is  not  a  proper  party  to  proceedings  by  or  against  a 
partnership,  except  where  the  object  is  to  enforce  a  limited  partner's 
right  against  or  liability  to  the  partnership. 

Section  27.  [Name  of  Act.]  This  act  may  be  cited  as  the  Uni- 
form Limited  Partnership  Act. 

Section  28.  [Rules  of  Construction.]  (1)  The  rule  that  statutes 
in  derogation  of  the  common  law  are  to  be  strictly  construed  shall  have 
no  application  to  this  act. 


160  APPENDIX  \ 

(2)  This  act  shall  be  so  interpreted  and  construed  as  to  effect  its 
general  purpose  to  make  uniform  the  law  of  those  states  which  en- 
act it. 

(3)  This  act  shall  not  be  so  construed  as  to  impair  the  obligations 
of  any  contract  existing  when  the  act  goes  into  effect,  nor  to  affect 
any  action  on  proceedings  begun  or  right  accrued  before  this  act  takes 
effect. 

Section  29.  [Rules  for  Cases  Not  Provided  for  in  this  Act.]  In 
any  case  not  provided  for  in  this  act  the  rules  of  law  and  equity,  in- 
cluding the  law  merchant,  shall  govern. 

Section  30.  [Provisions  for  Existing  Limited  Partnerships.]  (1) 
A  limited  partnership  formed  under  any  statute  of  this  state  prior  to 
the  adoption  of  this  act,  may  become  a  limited  partnership  under  this 
act  by  complying  with  the  provisions  of  section  2 :  Provided  the  cer- 
tificate sets  forth 

(a)  The  amount  of  the  original  contribution  of  each  limited  part- 
ner, and  the  time  when  the  contribution  was  made,  and 

(b)  That  the  property  of  the  partnership  exceeds  the  amount  suf- 
ficient to  discharge  its  liabilities  to  persons  not  claiming  as  general 
or  limited  partners  by  an  amount  greater  than  the  sum  of  the  contribu- 
tions of  its  limited  partners. 

(2)  A  limited  partnership  formed  under  any  statute  of  this  state 
prior  to  the  adoption  of  this  act,  until  or  unless  it  becomes  a  limited 
partnership  under  this  act,  shall  continue  to  be  governed  by  the  provi- 
sions of  [here  insert  proper  reference  to  the  existing  limited  partner- 
ship-act or  acts],  except  that  such  partnership  shall  not  be  renewed 
unless  so  provided  in  the  original  agreement. 

Section  31.  [Act  (Acts)  Repealed.]  Except  as  affecting  existing 
limited  partnerships  to  the  extent  set  forth  in  section  30,  the  act  (acts) 
of  [here  designate  the  existing  limited  partnership  act  or  acts]  is  (are) 
hereby  repealed. 


IN  DFX 


['I'lic  riu«w«'H   r«'l'«T  t<»  itiiKot] 


15LTTE  SKY  LAWS, 

Appliciitioii  of  to  biisiiu'ss  tiusis,  74. 

r.IiSINKSS  TIMISTS. 

C'M-tilicMlo  holdors.  liability  of.  92  iioto.  9.3.  110. 
IMstincrrisliod  fmm  a  piirtnorship.  42.  04.  SI,  S.">.  93. 
Taxiilioii  of.  in  goniTiil.  42. 

liiilci-  luconio  Tax  Act  of  191.3,  4S. 

Uiidoi-  Rovonuo  Acts  of  1910  and  1918.  52. 

TTpon  inlicriliince  of  shares  in  business  trusts,  fM.  72. 
Trustees  of,  liability  of,  9!!,  97. 

CESTUI S  QUE  TKUST. 

Liability  of  in  business  trusts.  92  note.  9::,  110. 

Liability  of  in  trusts  declared  by  limited  partner,  20,  110. 

CREDITORS, 

Ki?:hts  of.  af,'ainst  certificate  holders  in  business  trusts,  92  note.  93.  110. 

Rights  of,  against  certificate  holders  in  limited  partner.ship  associations. 
2.S. 

Rifihts  of,  against  certificate  holders  in  partnerships  and  joint  stock  a.sso- 
ciations.  firi.  99.  105. 

Eights  of.  ag.'iinst  tinistees  of  business  trusts,  93,  97. 

Rights  of  individual  creditors  against  firm  assets  under  English  Partner- 
ship Act,  o,  0. 

DISSOLUTIOX.  ' 

In  breach  of  agreement,  rights  of  partner  in  defiiult  under  Uniform  Part- 
nership Act,  17. 
Status  of  partnership  realty  after,  under  Uniform  Partnership  Act,  12. 

ENGLISH  PARTNERSHIP  ACT, 

Individual  creditor's  rights  against  firm  assets,  3,  6. 
Shai-ing  profits  as  evidence  of  a  partner.ship,  1. 

EQUITABLE  CONVERSION, 

Doctrine  of  as  applied  to  partnerships  with  transferable  shares  and  bu.si- 

ness  trusts,  64,  72. 
Doctrine  of  under  Uniform  Partnership  Act,  12. 

JOINT  STOCK  ASSOCIATIONS, 

Effect  of  clause  depriving  managing  partners  to  bind  copartuti^s  us  be- 
tween the  partners.  107. 
Effect  of  clause  limiting  liability  of.  85.  99.  105. 
Necessary  parties  in  suits  by  or  against,  81. 

LIMITED  LIABILITY  CLAUSES. 
Effect  of  in  declarations  of  trust. 

As  regards  certitieate  holders.  92  note,  93,  110. 

As  regards  the  trustees,  93.  97. 
Effect  of  in  partnership  agreements,  85,  99.  105,  107. 

LiMlTED  PARTNERS,  ' 

Liability  of  under  Uniform  Limited  Partuership  Act,  20. 

Suri'.miL.PART.— 11  (101) 


1G2  INDEX 

[Tlie  <le°ares  refer  to  pages] 

LIMITED  PARTNERSlIir  ASSOCIATIONS. 

Effect  of  non-compliance  with  statutory  requireuients,  28,  41  note. 
History  of  the  legislation,  28. 
Juriscjicrion  over  for  purposes  of  suit,  37. 
Jurisdiction  over  for  purposes  of  taxation,  41  note. 
Rights  of  a  purchaser  of  stock  in,  P,l. 

PROFITS. 

Sharing  of  as  evidence  of  partnership  under  English  Partnership  Act,  1. 

TAXATION, 

Of  business  trusts,  in  general,  42. 

Under  Income  Tax  Act  of  1913,  48. 

Under  Revenue  Acts  of  1916  and  1918,  52. 

Upon  inheritance  of  shares  in  business  trusts,  64,  72. 

TRUSTEES. 

Liability  of,  in  business  trusts,  93,  97. 

UNIFORM  LIMITED  PARTNERSHIP  ACT, 

Effect  of  non-compliance  with,  upon  limited  partner's  liability,  20. 

UNIFORM  PARTNERSHIP  ACT. 

Contracts  between  partnerships  as  a  partnership,  8. 

Dissolution  in  breach  of  partnership  agreement,  right  of  partner  in  de- 
fault, 17. 
Equitable  conversion,  doctrine  of,  under,  12. 


WEST  Pt'BLISHING   CO.,  PRINTERS,  ST.  PAUL,  MINN. 


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